Facts of the Case

The assessee, Bal Bharti Nursery School, filed appeals before the Income Tax Appellate Tribunal, Allahabad Bench, challenging orders of the CIT(A)/NFAC confirming penalties imposed by the Assessing Officer under Section 271(1)(c) for Assessment Years 2008-09, 2010-11, and 2011-12. The penalties arose from alleged concealment of income or furnishing inaccurate particulars. Prior to imposing penalty, the Assessing Officer issued show-cause notices which contained both limbs of Section 271(1)(c) without specifying the exact charge.

Issues Involved

  1. Whether a penalty notice under Section 271(1)(c) that does not specify the exact charge is legally valid.
  2. Whether penalty can be sustained when the assessee had disclosed relevant facts in the return and audit report.
  3. Whether such defect in notice vitiates the entire penalty proceedings.

Petitioner’s Arguments (Assessee)

  • The penalty notice was invalid as it failed to clearly specify whether the charge was concealment of income or furnishing inaccurate particulars.
  • Both limbs of Section 271(1)(c) were combined in a single sentence without striking off the inapplicable portion, leaving the assessee unaware of the precise allegation.
  • Such vagueness deprived the assessee of an effective opportunity to defend.
  • The assessee had disclosed in the audit report that approval under Section 12A and Section 10(23C) was pending; therefore, there was no concealment.
  • The assessee acted under a bona fide belief regarding eligibility for exemption, constituting reasonable cause under Section 273B.

Respondent’s Arguments (Revenue)

  • The assessee was aware of the nature of the default, and no prejudice was caused.
  • The penalty imposed by the Assessing Officer and confirmed by the CIT(A) was justified based on facts and applicable law.

Court Order / Findings (ITAT Allahabad)

  • The Tribunal observed that the penalty notices did not clearly indicate the specific charge.
  • The notices contained both allegations — concealment of income and furnishing inaccurate particulars — without using conjunctions or striking off the irrelevant portion.
  • Such omission rendered the notice vague and legally defective.
  • A valid penalty proceeding requires clear communication of the exact charge to the assessee.
  • Relying on binding precedents, the Tribunal held that a defective notice vitiates the entire penalty proceedings.
  • Consequently, penalties for all three assessment years were deleted.

Important Clarification by the Tribunal

  • The Tribunal also noted that the assessee had paid excess appeal fees of ₹10,000 per appeal instead of the prescribed ₹500 for penalty appeals under Section 253(6)(d).
  • The Registry was directed to forward the matter to the competent authority for appropriate action regarding refund of excess fees.

Link to download the order -

https://itat.gov.in/public/files/upload/1698735883-63%20of%202023%20+2%20Bal%20Bharti%20Nursery%20School(Assessee%20Appeal)%20SMC%20Penalty%20Order%20Tick%20Off%20(Corrected)%2025.09.2023%20(1).pdf

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