Penalty u/s 271 Invalid Without Specifying Relevant Charge: ITAT Sets Aside ₹6.20 Lakh Penalty [Read Order]

The Income Tax Appellate Tribunal has quashed a penalty of ₹6.20 lakh imposed under Section 271(1)(c) of the Income Tax Act, holding that failure to specify the relevant charge at the stage of initiation vitiates the entire penalty proceedings.

The case arises upon the imposition of penalty against assessee, ZF Sterling Gear (India) Ltd. for the Assessment Year 2014-15. The AO had initiated the penalty proceedings under section 271(1)(c) in the order dated 28.12.2016 by using both parts of the section, though it should have struck off the irrelevant part.

Moreover, in the show cause notice dated 28.12.2016, too, the AO had invoked both parts without making clear the charge. In the next order dated 29.11.2023, the AO imposed penalty for providing incorrect particulars of income, while in reality imposing it for concealing an income worth ₹6,20,317, thus being inconsistent.

It was argued by the assessee that the proceedings being vague and inconsistent in terms of the charge would make them legally void. Relying on several judgements, it contended that non-provision of the precise charge amounted to violation of natural justice principles.

The Revenue upheld the orders of the lower authorities.

The Tribunal comprises M. Balaganesh (Accountant Member) and Sudhir Kumar (Judicial Member) observed that the AO failed to record a clear satisfaction regarding the specific limb under which penalty was sought to be imposed. It emphasized that mentioning both limbs without striking off the irrelevant portion indicates non-application of mind.

The Tribunal further noted the contradiction in the penalty order, which reinforced the ambiguity and legal infirmity. Relying on settled legal principles and judicial precedents, the Tribunal held that such defective initiation renders the penalty unsustainable.

Accordingly, the penalty order was quashed and the appeal of the assessee was allowed.

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