Facts of the Case

The assessee was subjected to penalty proceedings under Section 271(1)(c) following additions made during assessment. The Assessing Officer initiated penalty for alleged concealment of income or furnishing inaccurate particulars.

However, the penalty notice issued under Section 274 did not clearly specify the precise limb of Section 271(1)(c) under which penalty was proposed. The assessee challenged the penalty on the ground that mandatory statutory requirements were not complied with.

Issues Involved

  1. Whether penalty under Section 271(1)(c) is valid when the notice does not specify the exact charge.
  2. Whether failure to record clear satisfaction in the assessment order invalidates penalty proceedings.
  3. Whether vague penalty notices violate principles of natural justice.

Petitioner’s Arguments (Assessee)

  • The penalty notice was ambiguous and did not clarify whether the allegation was concealment of income or furnishing inaccurate particulars.
  • No proper satisfaction was recorded in the assessment order regarding the specific default.
  • Such procedural lapses render the penalty proceedings void ab initio.
  • The assessee was deprived of a meaningful opportunity to defend.

Respondent’s Arguments (Revenue)

  • The additions made during assessment justified initiation of penalty proceedings.
  • The Assessing Officer had sufficient basis to conclude that the assessee committed default under Section 271(1)(c).
  • Minor technical defects should not invalidate otherwise justified penalty action.

Court Order / Findings (ITAT)

  • Recording clear satisfaction regarding the specific default is a mandatory condition for initiating penalty under Section 271(1)(c).
  • A notice that fails to specify the exact charge is legally defective.
  • Such ambiguity violates statutory requirements and principles of natural justice.

Important Clarification by the Tribunal

  • Penalty provisions are quasi-criminal in nature and must be strictly construed.
  • The Assessing Officer must clearly indicate whether penalty is for concealment of income or furnishing inaccurate particulars.
  • Defective notices under Section 274 invalidate the entire penalty proceedings.
  • Procedural safeguards are essential to ensure fairness in tax administration.

Link to download the order –

 https://itat.gov.in/public/files/upload/1610534996-15%20Alld%202019%20Lal%20Mani%20Misra.pdf

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