The Income Tax Appellate Tribunal ( ITAT ), Delhi Bench, has recently in an appeal filed before it, held that vague notice invalidates penalty proceedings u/s 271(1)(c) of income tax act.
The aforesaid observation was made by the Delhi ITAT, when an appeal was preferred before it by the appellant, as against the order dated 07.06.2019,of the Commissioner of Income Tax (Appeals), New Delhi (FAA), in appeal No. 42/18-19, arising out of an appeal before it, against the penalty order dated 28.06.2018 passed u/s 271(1)(c) of the Income Tax Act, 1961, by the AO, ITO, Ward-36(2), New Delhi.
The grounds of the assessee’s appeal being that the CIT(A) has erred both on facts and in law, in upholding the penalty of Rs.2,26,618/- imposed by the A.O. U/s 271(1)(c) of the Income Tax Act, 1961 , that the CIT(A) has erred in upholding the levy of penalty both on the legal ground as also on merits ,without considering or dealing with the detailed written submissions filed including the judgements cited therein, and further that the CIT(A) has failed to consider the penalty proceedings being vitiated in law at the outset, due to an invalid notice, which thereby makes the subsequent levy of penalty by the A.O. to be suffering due to lack of jurisdiction, the brief facts of the case were that the assessment order of the assessee was passed, making disallowances u/s 14A of the Income Tax Act, read with Rule 8D of the Rules, making adisallowance of Rs. 11,10,840/- but with the exempt dividend income earned by the Assessee being Rs. 7,33,393/.
The disallowances being restricted to this amount, a penalty proceedings u/s 271(1)(c) of the Income Tax Act was initiated, with a notice issued on 30.12.2017 and 30.05.2018. The AO, while passing the impugned order dated 28.06.2018 observed that the Assessee had used the business borrowed fund and that he himself knows the interest paid on these sums up to the use of earning exempt dividend income.
Consequently, the same were not allowable, and as the Assessee had not preferred any appeal against the assessment order passed u/s 143(3) of the Income Tax Act, a penalty of Rs. 2,26,918/- to the extent of 100% of the tax sought to be evaded, was levied, with the CIT(A) having sustained the same while passing the impugned order.
As the case was called for hearing, an application was filed on behalf of the Assessee, informing that the Assessee had expired on 03.05.2021, and that let him be represented via hislegal, i.e., the grandson of the Assessee. The copy of the death certificate and the amended form 36 filed was thereby made part of the record.
With Shri R. M. Mehta, CA, the counsel of the assessee having submitted that the notice dated 31.12.2017 u/s 274, read with section 271 of the Income Tax Act is defective, as the same does not disclose as to why penalty proceedings were initiated i.e., for furnishing of inaccurate particulars or concealment of income, he relied upon the judgment of the Bombay High Court in Ganga Iron and Steel Trading Co. Vs. CIT , contending that it is settled that where the show cause notice does not indicate whether there was concealment of particulars of income or furnishing inaccurate particulars of such income, the same would vitiate penalty proceedings.
However, on the other hand Shri Parikshit Singh, Sr. DR and Sh. Kanv Bali, Sr. DR, on behalf of the Revenue, relied on para-No. 7 of the penalty order, to contend that the AO has brought on record as to what he found was furnishing inaccurate particulars, thereby submitting that the orders passed by the Tax Authorities below, specifically clarified that the penalty proceedings were conducted for furnishing inaccurate particulars.
Hearing the opposing contentions of either sides, the Bench comprising of G.S. Pannu, the President, along with Anubhav Sharma, the Judicial Member, noted:
“Giving a thoughtful consideration to the submission and to the matter on record it can be observed that the copy of penalty notice available at page NO. 5 of the paper book makes it apparent that the ld AO had failed to distinguish and inform the Assessee as to it the notice was issued for concealment of income or furnishing inaccurate particulars and a proforma in a mechanical manner the notice was issued. The judgment relied by the ld counsel for the Assessee in the case of Ganga Iron & Steel Trading Co. Vs. CIT (supra) reiterates the settled provision of law that if notice is vague then the penalty proceedings initiated on that basis were vitiate and for that purpose Hon’ble High court relied its full bench judgment in Mohd. Farhan A Shaikh Vs. CIT (2021) 424 ITR 1.”
Thus, allowing the assessee’s appeal, the Delhi ITAT held:
“In the light of the aforesaid, the penalty proceedings are void ab initio. Accordingly, grounds raised by the Assessee are sustained. The appeal is allowed. The impugned penalty order dated 28.06.2018 is set aside.”
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