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 alleging concealment of income and/or furnishing of inaccurate particulars.

However, the penalty notice issued under Section 274 did not clearly specify the exact charge. The assessee challenged the validity of the penalty on the ground that the mandatory satisfaction regarding the specific default was not properly recorded.

Issues Involved

  1. Whether penalty under Section 271(1)(c) is sustainable when the notice does not specify the precise charge.
  2. Whether absence of clear satisfaction in the assessment order invalidates penalty proceedings.
  3. Applicability of principles of natural justice in penalty matters.

Petitioner’s Arguments (Assessee)

  • The penalty notice was vague and did not indicate whether the allegation was concealment of income or furnishing inaccurate particulars.
  • The Assessing Officer failed to record proper satisfaction in the assessment order.
  • Such procedural defects violate statutory requirements and principles of natural justice.
  • Consequently, the penalty proceedings were void ab initio.

Respondent’s Arguments (Revenue)

  • The additions made in assessment justified initiation of penalty proceedings.
  • The Assessing Officer had sufficient material to conclude that the assessee committed default under Section 271(1)(c).
  • Technical defects in notice should not defeat substantive justice.

 Court Order / Findings (ITAT)

The Tribunal held that:

  • Recording of clear satisfaction regarding the specific charge is a mandatory precondition for initiating penalty under Section 271(1)(c).
  • A notice that does not specify whether the penalty is for concealment or for furnishing inaccurate particulars is legally defective.
  • Such ambiguity deprives the assessee of a proper opportunity to defend.

Important Clarification by the Tribunal

  • Penalty provisions are quasi-criminal in nature and must be strictly construed.
  • The Assessing Officer must clearly identify the exact default alleged.
  • Defective notices and absence of satisfaction render the entire penalty proceedings invalid.
  • Procedural compliance is not a mere formality but a substantive safeguard for taxpayers.

 Link to download the order –

 https://itat.gov.in/public/files/upload/1610599338-67%20Alld%202018%20Santosh%20Kumar%20Agrahari.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.