Penalty Notice Issued u/s 274 of Income Tax Act not Specifying Charge against Assessee is Invalid: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that show cause notice issued by the Assessing Officer (AO)  under Section 274 read with Section 271(1)(c) of the Income Tax Act,1961 is defective/invalid as it did not explicitly convey to the assessee the specific fault/charge the assessee is being proceeded for levy of penalty.

The assessee in this present case is Sai Sugam Enterprises. During the assessment proceeding the AO had levied an amount of Rs.71,78,070/-  under Section 271(1)(c) of the Income Tax Act by penalty order  for Assessment Year (AY) 2011-12. Aggrieved by the order the assessee filed an appeal before Commissioner of Income Tax (Appeals) [CIT (A)].

The CIT(A) observed that AO in the penalty notice didn’t specify the fault/charge against which assessee is being proceeded against for levy of penalty and so, assesse was in the dark as to what was the fault charged against it for levy of penalty.

It relied on the full bench decision of High Court in the case of Mohd. Farhan A. Shaikh Vs. DCIT, where it was held that the show cause notice issued prior to levy of penalty without specifying the fault/charge against which the assessee is being proceeded, would vitiate the penalty itself.

Therefore, the penalty levied by AO is vitiated and ordered deletion of penalty. This action of CIT (A) has been challenged by the Department and an appeal is filed before the Tribunal.

The Bench comprising of ABY T. Varkey, Judicial Magistrate and  Amarjit Singh, Accountant Member observed that, CIT(A) found the penalty notice issued by AO was prepared in the standard profoma which contents show that both faults/charge have been spelled out i.e. “ have concealed the particulars of income and/or furnished inaccurate particulars of such income”. But CIT (A) found that AO failed to specify which charge/fault assessee is being alleged for levy of penalty.

The Tribunal relied on the decision of Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory where it was held ,” the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income.”

Therefore the Bench held that the penalty notice did not explicitly convey to the assessee the specific fault/charge the assessee is being proceeded for levy of penalty and such consequential action of AO to levy penalty is held to be ‘null’ in eyes to law.

 Hence the decision of CIT (A) in deleting the penalty was upheld and the appeal of the revenue is dismissed.

To Read the full text of the Order CLICK HERE

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