Defective Income Tax Notice Invalidates S. 271(1)(C) Proceedings: ITAT Deletes Penalty [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has set aside a penalty of Rs. 13,44,580 imposed under Section 271(1)(c) of the IncomeTax Act, 1961, citing the defective income tax notice that failed to specify whether the penalty was for concealment of income or furnishing inaccurate particulars.

Your ultimate guide for mastering TDS provisions - Click here

Vikas Jayram Bhukan (assessee), an individual engaged in the business of trading land and real estate, faced scrutiny for Assessment Year (AY) 2012-13. The assessee filed his Income Tax Return (ITR), declaring a total income of Rs. 9,49,160.

The Assessing Officer (AO) observed that the assessee disclosed sales of Rs. 86,03,600 but received Rs. 1,29,58,000. The assessee claimed the excess amount of Rs. 43,51,400 was repayable to partners and not part of his income. The AO added this amount as unexplained income, assessing the total income at Rs. 53,00,560.

The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars and concealment of income, and imposed a penalty of Rs. 13,44,580. Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)] which upheld the AO’s order.

Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT. The counsel for the assessee argued that the notice under Section 274 read with Section 271(1)(c) was defective, as it did not clarify the specific limb of violation which rendered the penalty proceedings invalid.

The two-member bench, comprising Manish Borad (Accountant Member) and Vinay Bhamore (Judicial Member), observed that the notice issued to the assessee failed to specify whether the penalty was for concealment of income or furnishing inaccurate particulars.

The tribunal observed that the Bombay High Court in Times Global Broadcasting Ltd. held that such ambiguity in a statutory notice renders penalty proceedings invalid, as the assessee must be clearly informed of the grounds to be met.

The tribunal found the Bombay High Court’s ruling squarely applicable, as the Revenue failed to provide contrary jurisdictional precedent. The tribunal held that a defective notice under Section 274 cannot sustain penalty proceedings under Section 271(1)(c) of the Income Tax Act. The tribunal directed the AO to delete the penalty of Rs. 13,44,580. The appeal of the assessee was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates