Facts of the Case

The Revenue filed an appeal under Section 260A challenging the order dated 28.06.2022 passed by the Income Tax Appellate Tribunal in ITA No. 896/Del/2015, whereby the Tribunal allowed the assessee’s appeals relating to Assessment Years 2002–03 to 2004–05. The present appeal before the High Court was confined to Assessment Year 2004–05.

For AY 2004–05, the Assessing Officer made additions on account of unsecured loans and initiated penalty proceedings under Section 271(1)(c). A penalty order was subsequently passed holding that the assessee had concealed income. The Tribunal deleted the penalty on the ground that the notice issued under Section 274 read with Section 271(1)(c) was defective, as it did not clearly specify whether the penalty was for concealment of income or for furnishing inaccurate particulars.

Issues Involved

Whether penalty under Section 271(1)(c) could be sustained when the statutory notice under Section 274 did not specify the exact charge, whether a finding in the assessment order could cure such defect in the penalty notice, and whether the Revenue’s appeal raised any substantial question of law.

Appellant’s Arguments

The Revenue contended that the assessment order clearly recorded the Assessing Officer’s satisfaction that the assessee had concealed income, and therefore it was evident that the penalty proceedings were initiated for concealment. It was argued that mere non-striking off of the irrelevant portion in the notice should not invalidate the penalty proceedings.

Respondent’s Arguments

The assessee submitted that the notice dated 28.12.2011 issued under Section 274 was an omnibus notice mentioning both “concealment of income” and “furnishing inaccurate particulars of income” without striking off the inapplicable limb. It was argued that such a vague notice violated principles of natural justice, as the assessee was not informed of the precise charge it had to meet. Reliance was placed on binding precedents including Manjunatha Cotton and Ginning Factory, SSA’s Emerald Meadows, and Sahara India Life Insurance Co. Ltd.

Court Order / Findings

The Delhi High Court examined the notice dated 28.12.2011 and observed that it was not confined to a specific charge. The notice simultaneously referred to concealment of income and furnishing inaccurate particulars, without striking off the irrelevant portion or indicating the precise ground for penalty. The Court held that such a notice was defective and suffered from vagueness.

The Court agreed with the Tribunal’s reliance on settled jurisprudence holding that penalty proceedings are vitiated if the assessee is not clearly informed of the charge through the statutory notice. The Court further held that a finding recorded in the assessment order cannot cure a defect in the penalty notice. It concluded that no substantial question of law arose for consideration.

Additionally, the Court noted that the appeal was accompanied by an application seeking condonation of delay of 1100 days in re-filing, for which no justifiable explanation was provided.

Important Clarification

The Court clarified that for valid initiation of penalty under Section 271(1)(c), the notice under Section 274 must clearly and unambiguously specify whether the penalty is proposed for concealment of income or for furnishing inaccurate particulars. An omnibus or vague notice renders the penalty proceedings unsustainable in law.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the ITAT’s order deleting the penalty under Section 271(1)(c) for Assessment Year 2004–05 due to a defective notice under Section 274, and also dismissed the appeal on the ground of unexplained delay in re-filing.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769503503_PR.COMMISSIONEROFINCOMETAXCENTRAL1VsCHETANGUPTA.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.