AO issued Penalty Notice without Specifying Offense of Concealment or Inaccurate Particulars as Mandated u/s 271(1)(c): ITAT quashes Order [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) quashed the penalty notice as the assessing officer issued it without specifying the offense whether it was concealment of income or inaccurate particulars which is mandatory under Section 271(1)(c) of the Income Tax Act, 1961.

D.K. Industries, the appellant filed its income tax return for the Assessment Year 2010-11. The assessing officer scrutinized the matter and made three additions under section 143(3) of the Income Tax Act, 1961.

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A cash deposit of Rs. 20 lakhs was identified in the ABN Amro Bank account which lacked a satisfactory explanation. A mismatch in interest income as per Form 26AS and income shown in the return and discrepancy in rental income reported and what was reflected in Form 26AS.

During the scrutiny, the AO issued a penalty notice under Section 271(1)(c) alleging concealment of income and furnishing inaccurate particulars of income. Following the notice, the AO issued a penalty order. On appeal, the Commissioner of Income Tax (Appeals) upheld the AO's penalty order.

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Aggrieved, the assessee challenged the CIT(A)’s order before the ITAT arguing that the penalty notice issued by the AO was vague and failed to specify the exact charge. The counsel argued that the penalty under Section 271(1)(c) of the Income Tax Act mandated clear satisfaction by the AO regarding the specific offense.

The assessee's counsel relied on several cases that held that an ambiguous penalty notice invalidates penalty proceedings.

The two-member bench comprising Sri Rajesh Kumar (Accountant Member) and Pradip Kumar Choubey (Judicial Member) observed that AO initiated penalty proceedings citing both reasons of Section 271(1)(c) without specifying the exact offense. The tribunal explained such ambiguity makes the notice invalid as per several judicial precedents.

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The tribunal referred to the Supreme Court ruling in the case of CIT v. SSA’s Emerald Meadows which held that penalty notices must specify the charge against the assessee. The tribunal also observed the assessee was deprived of a fair opportunity to respond to the allegations due to the vagueness of the notice.

So, the tribunal quashed the penalty order issued by the AO and CIT(A)’ order. The assessee’s appeal was allowed.

To Read the full text of the Order CLICK HERE

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