The Delhi High Court has reaffirmed that penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, cannot be sustained if the notice issued does not clearly specify the ground, whether it is for concealment of income or furnishing of inaccurate particulars.
The Division Bench comprising Justices Vibhu Bakhru and Tejas Karia dismissed the appeal filed by the Principal Commissioner of Income Tax against Quippo Telecom Infrastructure Pvt. Ltd., upholding the decision of the Income Tax Appellate Tribunal (ITAT), which had quashed a penalty of ₹125 crore imposed on the assessee for AY 2010-11.
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The Court found that the notice issued under Section 274 read with Section 271(1)(c) failed to indicate the specific charge, thereby violating the principles laid down in the earlier judgments including CIT v. Manjunatha Cotton & Ginning Factory and Pr. CIT v. Sahara India Life Insurance Co. Ltd..
The Court referred to these precedents and restated that vagueness of penalty notices makes the proceedings unsustainable. It observed that ITAT had also held that the case involved a questionable issue regarding disallowance of business expenses and interest under Section 36(1)(iii), so not deserving of penalty under Section 271(1)(c).
The High Court noted that the assessee had made full disclosure of all the pertinent details and that the rejection of its claim was due to conflicting interpretations and not any intent to conceal. The Court ruled that where the matter itself is contentious and full disclosure has been made, levy of penalty would tantamount to punishing a genuine claim. Holding that no substantial question of law had arisen in the case, the appeal was rejected.
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