Facts of the Case

The Revenue filed three appeals before the Income Tax Appellate Tribunal against the common order passed by the Commissioner of Income Tax (Appeals)-27, New Delhi dated 31.05.2023.

The appeals related to Assessment Years 2013-14, 2014-15 and 2015-16 and concerned the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

The Assessing Officer had imposed penalties amounting to:

  • ₹2,87,54,268 for AY 2013-14
  • ₹3,18,81,392 for AY 2014-15
  • ₹3,94,59,231 for AY 2015-16

The penalty proceedings were initiated on the allegation that the assessee failed to declare rental income in its own hands.

However, the Commissioner (Appeals) deleted the penalty, holding that the show-cause notice issued by the Assessing Officer did not specify the exact charge, i.e., whether the penalty was for:

  • concealment of income, or
  • furnishing inaccurate particulars of income.

Aggrieved by the deletion of penalty, the Revenue filed appeals before the ITAT. 

Issues Involved

  1. Whether penalty under Section 271(1)(c) is valid when the show-cause notice does not clearly specify the charge between concealment of income and furnishing inaccurate particulars of income.
  2. Whether the failure to specify the exact limb of Section 271(1)(c) in the penalty notice renders the penalty proceedings invalid.

Petitioner’s Arguments (Revenue)

  • The assessee had not declared the corresponding rental income in its own hands.
  • Such failure attracts both limbs of Section 271(1)(c), namely:
    • concealment of income, and
    • furnishing inaccurate particulars of income.
  • Therefore, the penalty imposed by the Assessing Officer was justified and the order of the Commissioner (Appeals) deleting the penalty should be reversed. 

Respondent’s Arguments (Assessee)

  • The penalty show-cause notices dated 03.01.2022 did not specify the exact charge.
  • The notices failed to clarify whether the penalty was proposed for:
    • concealment of income, or
    • furnishing inaccurate particulars of income.
  • Such ambiguity in the notice vitiates the entire penalty proceedings, making the penalty unsustainable in law.

 

Court Findings

  • The first and fundamental issue is the validity of the penalty proceedings themselves.
  • The show-cause notices issued by the Assessing Officer did not specify the relevant limb of Section 271(1)(c).
  • The assessee produced copies of the notices which clearly demonstrated this defect.
  • PCIT vs Gopal Kumar Goyal (153 taxmann.com 534) (Delhi HC)
  • PCIT vs Sahara Life Insurance Co. Ltd. (432 ITR 82) (Delhi HC)
  • Mohd. Farhan A. Shaikh vs ACIT (434 ITR 1) (Bom HC – Full Bench)

Court Order

  • The penalty proceedings initiated under Section 271(1)(c) were invalid due to defective notice.
  • Consequently, the appeals filed by the Revenue were dismissed. 

Important Clarification

The Tribunal clarified that where the penalty notice does not clearly mention whether the penalty is for concealment of income or for furnishing inaccurate particulars, such notice is legally defective.

A defective notice vitiates the entire penalty proceedings, and therefore penalty under Section 271(1)(c) cannot be sustained.

 

Sections Involved

  • Section 271(1)(c) – Penalty for concealment of income or furnishing inaccurate particulars of income
  • Section 274 – Procedure for imposing penalty


Link to download the order -  https://itat.gov.in/public/files/upload/1736942257-jFJp2t-1-TO.pdf

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