Facts of the Case

The assessee, Late Sri Zia Usmani, filed his return of income for Assessment Year 2008-09. The case was selected for scrutiny.

Before completion of assessment proceedings, the assessee expired. Thereafter, proceedings continued through his legal representative (wife). During assessment, the Assessing Officer found substantial deposits in bank accounts. After considering explained sources such as contract receipts and business income, an addition was made for unexplained deposits.

Issues Involved

Whether penalty under Section 271(1)(c) is sustainable when:

  1. The penalty notice does not specify the exact charge (concealment or inaccurate particulars)
  2. The addition arises due to inability of legal representative to explain deposits of the deceased assessee  

Petitioner’s Arguments (Assessee)

  • The penalty proceedings were initiated after the death of the assessee.
  • The show-cause notice under Section 274 did not specify the exact limb of Section 271(1)(c) invoked.
  • The Assessing Officer ultimately levied penalty on both charges simultaneously, which is legally impermissible.
  • Bank accounts and transactions were disclosed; addition resulted only because the legal heir could not explain certain deposits.
  • Mere inability to explain deposits does not amount to concealment or furnishing inaccurate particulars.
  • Reliance was placed on judicial precedents requiring specific charge in penalty proceedings.

Respondent’s Arguments (Revenue)

  • The Revenue contended that penalty proceedings were valid as unexplained deposits indicated concealment.
  • It was argued that the Assessing Officer had recorded satisfaction during assessment proceedings.
  • According to Revenue, failure to explain deposits justified penalty under Section 271(1)(c).

Court Order / Findings (ITAT Allahabad)

  • The penalty notice did not clearly specify whether penalty was for concealment of income or for furnishing inaccurate particulars.
  • Initiating penalty on one charge and levying it on another, or on both simultaneously, is not permissible in law.
  • A vague notice violates principles of natural justice as the assessee cannot effectively defend against an unspecified allegation.
  • All bank accounts and receipts were disclosed; addition resulted only due to inability to explain part of deposits.
  • Such circumstances do not automatically establish concealment of income.

Important Clarification

The decision emphasizes that penalty proceedings are independent and quasi-criminal in nature. Strict compliance with statutory requirements—particularly specification of charge in notice—is mandatory. Failure to do so renders the entire penalty void, irrespective of the merits of the addition.

Link to download the order –

 

https://itat.gov.in/public/files/upload/1618307813-ITA%20No.%20143%20of%202019%20Lase%20Sri%20Zia%20Usmani.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.