ITAT Deletes Penalties u/s 271(1)(c) for Four Years Citing Vague and Defective IT Notice [Read Order]

In a recent case, the Income Tax Appellate Tribunal (ITAT), Delhi, has quashed penalties imposed on the assessee under Section 271(1)(c) of the Income Tax Act, 1961, for assessment years 2008-09 to 2011-12.

The present appeals were filed by the assessee, Davinder Kumar, against the orders of the Commissioner of Income Tax (Appeals), which levied penalties under Section 271(1)(c) of the Income Tax Act for the assessment years 2008-09 to 2011-12.

All four CIT(A) orders, dated 30.11.2023, had upheld the penalties imposed by the Assessing Officer (AO). The penalties challenged ranged from Rs. 8.36 lakh in AY 2008-09 to similar amounts in the subsequent years.

For AY 2008-09, the assessee raised an additional legal ground of appeal questioning the validity of the notice issued under Section 274 read with Section 271 of the Act. The assessee contended that the notice was issued mechanically in a pre-printed omnibus format, which failed to clearly indicate whether the penalty was levied for concealment of income, furnishing inaccurate particulars, or both.

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A copy of the notice dated 13.03.2014 was placed on record to substantiate these claims.

The department opposed the additional ground and urged the Tribunal to uphold the penalties, pointing out that the assessee had failed to respond to notices issued by the CIT(A).

Upon examination, the tribunal admitted the additional ground of appeal as it involved a purely legal issue and did not require any fresh evidence. The Tribunal noted that the notice issued by the AO was vague and defective.

The Tribunal observed it was a pre-printed form with irrelevant contents that were not struck off, and the AO had not clearly indicated the basis of satisfaction for imposing the penalty under Section 271(1)(c). This ambiguity made the notice non-compliant with the statutory requirements.

Referring to the Bombay High Court ruling in Mohd. Farhan A. Shaikh vs. DCIT, the bench of Vikas Awasthy (Judicial Member) highlighted that an omnibus notice with unstruck irrelevant portions is legally defective, and no penalty can be levied on such a notice.

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Further, the assessment orders themselves failed to clarify whether the satisfaction for levy of penalty was for concealment, inaccurate particulars, or both, thereby vitiating the proceedings. Given these defects, the tribunal held that the penalties levied for AY 2008-09 could not stand and allowed the appeal on the additional legal ground.

Since the facts, manner of recording satisfaction, and notice formats for AYs 2009-10, 2010-11, and 2011-12 were identical to AY 2008-09, the Tribunal applied the same reasoning mutatis mutandis to these years. So, the penalties for all four assessment years were quashed.

The Tribunal clarified that since relief was granted on a legal ground concerning the notice itself, the other grounds challenging the penalties on merits became academic and were not adjudicated.

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