2025 (5) TMI 112 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - Allegation of defective notice on non-striking off of irrelevant portions in a pre-printed performa - HELD THAT - A bare perusal of above notice shows that the same is omnibus notice in a preprinted performa. Though the AO has tick marked in the notice however it is not clearly emanating from the notice as to whether penalty u/s. 271(1)(c) of the Act is levied on the charge of concealment of particulars of income or furnishing inaccurate particulars of income or on both limbs of section 271(1)(c) of the Act. This makes the notice vague and defective. A perusal of the assessment order reveals that the AO while recording satisfaction for levy of penalty u/s. 271(1)(c) of the Act has failed to mention the charge i.e. whether satisfaction for levy of penalty u/s. 271(1)(c) of the Act is recorded for concealment of particulars of income or furnishing inaccurate particulars or concealment of particulars of income and furnishing inaccurate particulars . Thus no charge u/s. 271(1)(c) of the Act has been mentioned by the AO while recording satisfaction. The penalty is liable to be deleted on the ground of ambiguity in recording of satisfaction as well. As pointed earlier ambiguity in mind of the AO regarding charge on which penalty is to be levied u/s. 271(1)(c)of the Act is reflected in notice as well. AO has not struck off irrelevant matter in the notice issued in pre printed performa. In the case of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) has held that where omnibus notice has been issued and irrelevant matter in the notice has not been struck off the notice is defective. No penalty can be levied on such defective notice. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the penalty notice issued under section 274 read with section 271(1)(c) of the Income Tax Act, 1961, is valid or defective due to ambiguity and non-striking off of irrelevant portions in a pre-printed form notice?

- Whether the Assessing Officer (AO) properly recorded satisfaction specifying the charge under section 271(1)(c) of the Act, i.e., whether penalty is for concealment of particulars of income or furnishing inaccurate particulars of income, or both?

- Whether the penalty order levied under section 271(1)(c) of the Act can be sustained where the penalty notice is defective and the AO's satisfaction is ambiguous?

- Whether the additional ground of appeal challenging the validity of the penalty notice can be admitted and adjudicated at the appellate stage?

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Penalty Notice Issued u/s. 274 r.w.s. 271(1)(c) of the Act

The Tribunal first took up the additional ground of appeal raised by the assessee challenging the validity of the penalty notice issued under section 274 read with section 271(1)(c) of the Act. The assessee contended that the notice was issued mechanically in a pre-printed omnibus format without striking off irrelevant portions, rendering it vague and defective.

Relevant Legal Framework and Precedents: Section 274 of the Income Tax Act mandates that before levying penalty under section 271(1)(c), the AO must issue a notice specifying the charge on which penalty is proposed. The notice must be clear and unambiguous, specifying whether the penalty is for concealment of particulars of income or furnishing inaccurate particulars of income. The Full Bench of the Bombay High Court in Mohd. Farhan A. Shaikh vs. DCIT held that an omnibus notice issued in a pre-printed form without striking off irrelevant portions is defective, and no penalty can be levied on such a defective notice.

Court's Interpretation and Reasoning: The Tribunal observed that the penalty notice issued was a pre-printed form with multiple options, but the AO had only tick-marked without striking off irrelevant alternatives. The notice did not clearly specify whether the penalty was for concealment or furnishing inaccurate particulars or both. This ambiguity was compounded by the AO's failure to record satisfaction specifying the exact charge under section 271(1)(c) in the assessment order.

Key Evidence and Findings: The notice dated 13.03.2014 was placed on record, showing irrelevant contents were not struck off. The assessment order lacked clarity on the charge for penalty. The Tribunal found that the ambiguity in the AO's satisfaction and the defective notice were interconnected.

Application of Law to Facts: Applying the principle from the Bombay High Court decision, the Tribunal held that the defective notice vitiated the penalty proceedings. Since the notice did not comply with the statutory requirement of clarity and specificity, the penalty levy was invalid.

Treatment of Competing Arguments: The department opposed the additional ground, arguing it was raised belatedly and that the penalty was justified. However, the Tribunal admitted the additional ground as it was purely legal and fundamental to the validity of the penalty proceedings. The Tribunal prioritized the legal principle over procedural objections.

Conclusion: The Tribunal concluded that the penalty notice was defective due to ambiguity and non-striking off of irrelevant portions, rendering the penalty proceedings invalid.

Recording of Satisfaction by the Assessing Officer

The Tribunal also examined whether the AO properly recorded satisfaction under section 271(1)(c) of the Act specifying the charge for penalty.

Relevant Legal Framework: The AO must record satisfaction clearly indicating whether penalty is for concealment of particulars of income or furnishing inaccurate particulars of income, as these are distinct charges under section 271(1)(c).

Court's Reasoning: The Tribunal noted that the AO's satisfaction was ambiguous and failed to specify the exact charge. This ambiguity was reflected in the penalty notice as well.

Application of Law to Facts: The Tribunal held that since the AO did not specify the charge in the satisfaction, the penalty order could not be sustained on this ground as well.

Conclusion: The penalty was liable to be deleted due to ambiguity in recording satisfaction.

Admissibility of Additional Ground of Appeal

The assessee raised the additional ground challenging the validity of the penalty notice at the appellate stage.

Court's Reasoning: The Tribunal held that the additional ground was purely legal and went to the root of the validity of penalty proceedings. No fresh evidence was required, and hence the ground was admitted for adjudication.

Conclusion: The additional ground was admitted and taken up for adjudication first.

Merits of Penalty Levy

Since the Tribunal allowed the appeal on the additional ground of defective notice and ambiguous satisfaction, it did not delve into the merits of the penalty levy.

3. SIGNIFICANT HOLDINGS

"The additional ground raised by the assessee is purely legal and goes to the root of validity of penalty proceedings. No fresh evidence is required to be adduced for adjudicating additional ground. Hence, the additional ground raised by the assessee is admitted for adjudication."

"A bare perusal of above notice shows that the same is omnibus notice in a preprinted performa. Though, the AO has tick marked in the notice, however, it is not clearly emanating from the notice as to whether penalty u/s. 271(1)(c) of the Act is levied on the charge of 'concealment of particulars of income' or 'furnishing inaccurate particulars of income' or on both limbs of section 271(1)(c) of the Act. This makes the notice vague and defective."

"The AO while recording satisfaction for levy of penalty u/s. 271(1)(c) of the Act has failed to mention the charge i.e. whether satisfaction for levy of penalty u/s. 271(1)(c) of the Act is recorded for, 'concealment of particulars of income' or 'furnishing inaccurate particulars' or 'concealment of particulars of income and furnishing inaccurate particulars'. Thus, no charge u/s. 271(1)(c) of the Act has been mentioned by the AO while recording satisfaction. The penalty is liable to be deleted on the ground of ambiguity in recording of satisfaction, as well."

"Where omnibus notice has been issued and irrelevant matter in the notice has not been struck off, the notice is defective. No penalty can be levied on such defective notice."

"In facts of the case, I hold that non striking off irrelevant matter by the AO has rendered the notice defective, hence, penalty proceedings are vitiated."

"Since, the assessee gets relief on the additional ground of appeal, the grounds of appeal assailing levy of penalty on merits have become academic, thus, not deliberated upon."

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