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Facts
The assessee's appeal was filed against the order of the National Faceless Appeal Centre (NFAC) which upheld a penalty order passed under section 271(1)(c) of the Income-tax Act, 1961. The penalty was imposed subsequent to an assessment order that included an addition of capital gain. The assessee contended that the show cause notice for penalty was defective as it did not specify whether the case involved concealment of income or furnishing of inaccurate particulars.
Held
The Tribunal held that the penalty notice issued under section 274 read with section 271(1)(c) was defective because it did not specify the exact limb under which the penalty was being levied (concealment of income or furnishing of inaccurate particulars). Citing jurisdictional High Court judgments, the Tribunal stated that such an omnibus notice is vague and invalid, and any ambiguity must be resolved in favor of the assessee.
Key Issues
Whether the penalty proceedings initiated under section 271(1)(c) are valid when the show cause notice issued under section 274 is vague and does not specify the exact nature of the alleged offence (concealment or inaccurate particulars).
Sections Cited
271(1)(c), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Instant appeal of the assesseewas filed against the order of the Learned National Faceless Appeal Centre, Delhi (NFAC) [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), date of order 13.06.2023 for Assessment Year 2011-12.The impugned orderwas emanated from the order of the ld.Income-tax Officer 22(3)(4), Mumbai (in short, ‘the A.O.’) passed under section 271(1)(c)of the Act date of order27/06/2019.
2. The assesseehas taken the following grounds of appeal:-
“That Ld. NATIONAL FACELESS APPEAL CENTRE (NFAC), Delhi [hereinafter referred as “CIT(A)” erred in upholding the PenaltyOrder dated 27th June, 2019 passed under section 271(1)(c)of the Income Tax Act,1961 vide order no ITBA/NFAC/S/250/2023-24 1053682427(1) dated 13/06/2023.
The Ld. CIT(Aj has acted arbitrarily in respect of levying Penalty of Rs.77,297/-.
3. The Ld, CIT(A) has erred upholding the penalty order as show cause notice did not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income and acted arbitrarily in respect of levying Penalty of Rs.77,297/-.”
The brief fact of the case is that the assessment was completed under section 143(3) read with section 147 of the Act with an addition of capital gain amount to Rs.2,24,019/-. After the assessment, the penalty proceedings was initiated under section 271(1)(c) of the Act and the penalty was calculated at 100% of the tax sought to be evaded at Rs.77,297/-. Being aggrieved, the assessee filed an appeal before the CIT(A) with the grounds that there is no mens rea in concealed income. But Ld. CIT(A) upheld the penalty order and dismissed the grounds of the assessee. Being aggrieved, the assessee filed an appeal before us.
We heard the rival submissions and considered the documents available in the record. The Ld.AR agitated the legal issue before the Bench related to defective notice issued under section 274 read with section 271(1)(c) of the Act. Copy of the notice is duly annexed herewith:-
4.1 The Ld.AR argued that Ld.AO had not specified the limb whether ‘concealment of income’ or ‘inaccurate particulars of income’ under section 271(1)(c) of the Act. So. the Proviso is not directly implemented for the assessee during issuance of notice under section 271(1)(c) of the Act. The issue is squarely covered by the judgement of Hon’ble Jurisdictional High Court in the case of Mohammed Farhan A. Shaikh Vs. PCIT (125 taxamnn.com 253) vide order dt. 11.3.2021. The relevant paragraphs are reproduced as below: - “179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty.
One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice—and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice— not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.”
4.2. The Ld.DR argued but was unable to submit any concerning judgement against the order of the jurisdictional High Court.
4.3. The issue is squarely covered by the jurisdictional High Court which is legally binding on us. Ld. AO did not mention the nature of concealment in the notice issued u/s 274/271(1)(c). The counsel laid down that in the absence of such specific notice, the notice would be invalid. As held in various judicial pronouncements including the decision of Hon’ble Karnataka High Court in CIT V/s SAS’s Emerald Meadows (73 Taxmann.com 241) against which Special Leave Petition (SLP) filed by the department stood dismissed by Hon’ble Supreme Court which is reported as 73 Taxmann.com 248. The notice u/s 274/271(1)(c) of the Act is not carrying the specific limb. Therefore, this is a case where both the parts of the offences i.e., concealment of income as well as furnishing of inaccurate particulars of income were involved.
Finally, respectfully following the binding judicial precedents as cited aforesaid, we are of the considered opinion that the impugned penalty is not sustainable on legal grounds. Hence, by deleting the same, we allow the appeal of the assessee. 5. In the result, the appeal of the assessee being is allowed.