Penalty order bad in law & void when SCN does not specify specific charge under which assessee has been held guilty

The Income Tax Appellate Tribunal (The “ITAT”) has held that the notice issued by the AO u/s 271(1)(c) of the Act suffers from patent legality and is contrary to the settled position of law. ITAT said that since notice does not specify the specific charge, therefore, in the light of the judgment of the Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Limited (supra), the initiation of penalty proceedings is not in accordance with the law.

Relevant Extract

10. In addition to this, the assessee has raised an additional ground wherein Ld. Counsel for the assessee submitted that the notice issued by the AO u/s 271(1)(c) of the Act suffers from patent legality and contrary to the settled position of law. He contended that the Assessing Officer failed to disclose the specific charge for which the assessee was being made liable for penalty. In the absence of such charge, the initiation of penalty proceedings would fail the test of law. He placed reliance on the judgment of Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Limited (supra) and judgement of Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565.

11. Ld. Sr. DR opposed these submissions and supported the orders of authorities below. He contended that the assessee was well aware of charge. It participated in the penalty proceedings and made submissions. Now at such a belated stage, the assessee should not be allowed to raise such a plea. He contended that it is not the case of an ignorant assessee. Moreover, during the proceedings before the authorities below, no such ground or objection was raised. Hence, he prayed that the additional ground raised in this appeal be dismissed.

12. We have heard the contentions of both parties and perused the material available on record and gone through the orders of the authorities below. Admittedly, the AO vide notice dated 28.02.2014 called upon the assessee as to why the penalty should not be imposed vide notice dated 28.02.2014. For the sake of clarity, relevant contents of the notice dated 28.02.2014 are reproduced hereunder:-

“Whereas in the course of proceedings before me for the assessment year 2011-12 it appears to me that you:-

*have concealed the particulars of your Income or furnished inaccurate particulars of such Income.

You are hereby requested to appear before me at 11.30 AM on 31/03/2014 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.”

13. From the above, it is evident that the notice does not specify the specific charge therefore, in the light of the judgement of Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Limited (supra), the initiation of penalty proceedings is not in accordance with law. The Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Limited (supra) has held that “in such facts where the limb of the section is not struck off in the notice issued u/s 274 r..w.s. 271(1)(c) of the Act, then the levy of penalty u/s 271(1)(c) of the Act suffers from infirmity.”

14. Looking to the facts and circumstances of the case, we find merit in the contention of the Ld. Counsel for the assessee. We hold that penalty proceedings suffers from patent infirmity. Thus, the additional ground raised by the assessee is allowed.

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