Penalty Deletion in Tax Dispute: Ram Singh Saini vs. ITO Ward-1(5), Faridabad (ITA 6167/DEL/2019)

Introduction

The case of ITA No. 6167/DEL/2019 revolves around the appeal filed by Ram Singh Saini, a resident of Faridabad, against the Income Tax Officer (ITO) Ward-1(5), Faridabad. This case pertains to the assessment year 2010-11, with the final tribunal order pronounced on March 2, 2021. The primary issue in this case concerns the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961, which was challenged by the appellant on various legal and factual grounds.

Background

Ram Singh Saini, an agriculturist, received an enhanced compensation for the acquisition of agricultural land by the Haryana Urban Development Authority (HUDA), along with interest, following a decision by the Hon’ble High Court dated February 21, 2007. The Assessing Officer (AO) added Rs. 19,30,036/- as interest income, observing that the appellant had concealed this income. The assessment was passed under Section 144 of the Income Tax Act, 1961, and penalty proceedings were initiated under Section 271(1)(c), culminating in the imposition of a penalty of Rs. 4,97,500/-.

Grounds of Appeal

The appellant contested the penalty on several grounds:

1. The penalty was imposed without proper jurisdiction and without providing an adequate opportunity of hearing, violating the principles of natural justice.
2. The penalty notice was vague, as it did not specify under which limb of Section 271(1)(c) the penalty was being imposed – whether for concealment of income or for furnishing inaccurate particulars of income.
3. The AO failed to record mandatory satisfaction as required by law, making the penalty order unsustainable.
4. The appellant argued that the income in question was not a regular income but was related to compensation and interest on delayed payment of compensation, which the appellant was not fully aware was taxable.

Proceedings Before the ITAT

At the Income Tax Appellate Tribunal (ITAT), the appellant’s counsel argued that there was no clear evidence of concealment of income that would justify the imposition of a penalty under Section 271(1)(c). The counsel highlighted that the notice issued under Section 274 read with Section 271(1)(c) did not specify the charge against the appellant, thereby making the penalty proceedings void ab initio.

Key Judicial Precedents

The appellant’s counsel relied on several key judicial precedents to support their arguments:

• Supreme Court in CIT vs. SSA’s Emerald Meadows: The Supreme Court upheld the Karnataka High Court’s decision that a penalty notice must specify the charge – either concealment of income or furnishing inaccurate particulars – to be valid.
• Delhi High Court in Pr. CIT vs. M/s Sahara India Life Insurance Co. Ltd.: This case reinforced the requirement for the AO to clearly specify the charge in the penalty notice, failing which the penalty order is rendered invalid.
• Madras High Court in Sundaram Finance Ltd. vs. ACIT: Although the Revenue relied on this case to argue that the omission of specific charges in the notice does not necessarily invalidate the penalty, the ITAT found that the facts of the current case aligned more closely with SSA’s Emerald Meadows and Sahara India Life Insurance Co. Ltd.

Tribunal’s Findings and Decision

The ITAT, after reviewing the facts and arguments presented, found that the penalty notice issued under Section 271(1)(c) was indeed vague and failed to specify the exact charge against the appellant. The Tribunal emphasized that such ambiguity violates the principles of natural justice and renders the penalty proceedings invalid. Consequently, the Tribunal set aside the CIT(A)’s order and directed the AO to cancel the penalty imposed on Ram Singh Saini.

Conclusion

The case of Ram Singh Saini vs. ITO Ward-1(5), Faridabad, underscores the importance of clarity and precision in the issuance of penalty notices under the Income Tax Act. The Tribunal’s decision to quash the penalty based on the vagueness of the notice serves as a critical reminder to tax authorities to adhere strictly to procedural requirements, ensuring that taxpayers are fully informed of the charges against them. This case reaffirms the legal principle that penalties cannot be sustained where there is a failure to communicate the specific grounds for their imposition.

Penalty Deletion in Tax Dispute: Ram Singh Saini vs. ITO Ward-1(5), Faridabad (ITA 6167/DEL/2019)