Concealment Or Inaccurate Particulars u/s 271(1)(c) of Income Tax Carry Different Meanings, Revenue Fails To Specify: Delhi HC Invalidates Penalty [Read Order]

In a recent ruling, the Delhi High Court invalidated penalty proceedings under Section 271(1)(c) of the Income Tax Act stating the different meanings of "concealment of income" and "furnishing inaccurate particulars of income” and revenue failure to specify the charge.

Income Tax Department, the petitioner challenged the Income Tax Appellate Tribunal (ITAT) order that quashed penalties imposed under Section 271(1)(c) of the Income Tax Act, 1961. The cases involved three entities namely Gregarious Projects Pvt. Ltd., Sara SAE Pvt. Ltd., and Virtual Software and Training Pvt. Ltd., each represented by senior advocates.

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The assessees had filed returns declaring losses some of which were revised during assessment. The Assessing Officer (AO) disallowed claims for business expenses, including advances written off, due to a lack of supporting evidence such as agreements or other documentation.

Penalty proceedings were initiated under Section 271(1)(c), and notices were issued under Section 274 read with Section 271(1)(c) of the Income Tax Act. The penalty notices were vague and did not specify whether the charge was for "concealment of income" or "furnishing inaccurate particulars."

Penalty orders were passed based on these notices imposing 100% penalties on the tax sought to be evaded. The assessees appealed before the Commissioner of Income Tax (Appeals), but the penalties were upheld.

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The assessees then approached the ITAT which quashed the penalties on the grounds of procedural irregularity citing that the notices were ambiguous and failed to provide a clear charge.

The revenue challenged the ITAT's decisions before the Delhi High Court. The revenue argued that the notices were sufficient when read with the assessment orders and that the overlap between charges caused no prejudice to the assessees.

The bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that "concealment of income" and "furnishing inaccurate particulars" carry different meanings requiring specification in penalty notices.

The court pinpointed that penalty proceedings are penal require strict procedural compliance, and reliance on vague notices undermines their validity. The court ruled that the revenue's failure to strike off irrelevant portions of the penalty notices and specify the charge invalidated the proceedings. The court dismissed the Revenue's appeals, upholding the ITAT's decisions to quash the penalties.

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