Assessee must be informed of grounds of the penalty proceedings u/s 271(1)(c) only through statutory notice

Introduction:

In a recent development in the realm of income tax matters, the Income Tax Appellate Tribunal (ITAT) of Delhi Bench ‘E’ delivered a significant judgment on April 12, 2023. The case, involving M.A. Projects Private Limited and the Assistant Commissioner of Income Tax, Central Circle 13, revolved around the imposition of a penalty amounting to Rs. 90,52,387 under section 271(1)(c) of the Income-tax Act for the assessment year 2009-10. The appeal contested the penalty on various grounds, primarily focusing on procedural irregularities.

Key Players:

The appeal was heard by a bench comprising Shri Shamim Yahya, Accountant Member, and Ms. Astha Chandra, Judicial Member. The legal representation included Shri Suresh Gupta, Chartered Accountant, on behalf of the assessee, and Ms. Sarita Kumari, Commissioner of Income Tax (DR), representing the revenue.

Grounds of Appeal:

The appellant raised several crucial points challenging the penalty order. The key contentions included:

1. Lack of Specificity in Penalty Notice: The appellant argued that the penalty notice lacked specificity, as it was an omnibus notice without clearly specifying the charges. This, according to the appellant, rendered the notice vague and non-communicative, defeating its intended purpose.
2. Arbitrary Penalty Imposition: The appellant contended that the penalty order passed by the Assessing Officer (AO) was arbitrary, unjust, and lacked a reasonable basis. They sought relief from the Tribunal on this ground.
3. Legality of Penalty in Quantum Proceedings: The appellant highlighted that the quantum additions, forming the basis of the penalty, were debatable and legally unassailable. They argued that the penalty should not be levied when the additions were based on contentious issues.

Judgment and Rationale:

The Tribunal, after considering the arguments, focused on the crucial issue of the penalty notice’s lack of specificity. Citing legal precedents, including the decision of the Hon’ble Bombay High Court (Full Bench at Goa) and the jurisdictional High Court, the Tribunal ruled that the omnibus notice was defective. The notice did not specify the charge, rendering the penalty unsustainable.

Conclusion:

In a significant victory for the assessee, the ITAT allowed the appeal, quashing the penalty imposed on the grounds of the defective notice. The judgment emphasized the importance of a clear and specific penalty notice, reinforcing the principle that an ambiguous notice is legally untenable. This decision provides valuable insights into the procedural aspects of penalty proceedings under the Income-tax Act and sets a precedent for future cases with similar issues.