Penalty notice u/s 271(1)(c) is distinct from the assessment

[Vivek Jalan]

The assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other, nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. It culminates under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings through statutory notice. An omnibus notice suffers from the vice of vagueness. A penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour. In this context let us understand Section 271(1)(c) of The Income tax Act which specifies as under –

271. (1) If the Assessing Officer or the Joint Commissioner (Appeals) or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person-

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(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or...
he may direct that such person shall pay by way of penalty, -

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(iii) in the cases referred to in clause (c) …in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.

Hence invocation of Sec 271(1)(c) has the following pre-requisites –

1. The officer must record his satisfaction in the notice invoking the said Section

2. The Officer specify the charge he is levying being –

a. the assessee has concealed the particulars of his income, or

b. the assessee has furnished inaccurate particulars of such income

Hence, it was held in the case of VANSH INDUSTRIES LTD. VERSUS ACIT, CIRCLE : 26 (1) NEW DELHI. - 2023 (4) TMI 483 - ITAT DELHI that the notice u/s 274 cannot be a stereotyped one not clearly specifying the charge and also an explanation as to the evidences which led to the officer’s satisfaction that 271(1)(c) should be invoked.

As notices of penalty under various sections keep flowing, the judicial discipline in serving notices can be enforced by the assesses.