In the case of ITA 1998/DEL/2020, PTC Energy Ltd., New Delhi contested the penalty proceedings for the fiscal year 2012-13, initiated by ACIT Circle-19(2), New Delhi. This detailed analysis delves into the judicial processes and the underlying issues that framed the appellate proceedings.
The dispute originated from an assessment order dated 02/03/2015, which resulted in the disallowance of preliminary expenses amounting to Rs. 41,00,000/- and a sum of Rs. 11,70,127/- disallowed under section 14A of the Income Tax Act, 1961. Consequent to the assessment order, penalty proceedings were initiated under section 271(1)(c) of the Act, and a penalty of Rs. 12,66,900/- was imposed.
The appeal was marked by procedural delays and administrative challenges. The appellant argued that the penalty proceedings were initiated without specifying the exact charge under section 271(1)(c) in the notice, rendering the penalty order illegal and invalid. The appellant further contended that the notice was vague and arbitrary, not specifying the charge for which the penalty was to be levied.
The case was heard through video conferencing due to the ongoing pandemic, with the tribunal session presided over by Dr. B.R.R. Kumar, Accountant Member, and Shri Yogesh Kumar U.S., Judicial Member. The appellant was represented by Sh. Sanat Kapoor, Advocate, while the respondent was represented by Shri T. Kipgen, CIT DR.
The tribunal observed that the notice issued under section 274 read with section 271(1)(c) was stereotyped and did not specify any limb or charge for which the notice was issued. This lack of specificity was found to be a significant procedural flaw.
The tribunal referred to the Bombay High Court’s decision in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT [(2021) 434 ITR 1 (Bom)], which held that an omnibus notice without specifying the charge violates the principles of natural justice and renders the penalty proceedings invalid. The tribunal noted that the penalty notice in the present case suffered from the same defect.
The appellant’s counsel argued that the penalty proceedings were initiated without proper satisfaction recorded by the AO and that the penalty order was based on conjectures and surmises. The counsel further contended that mere upholding of the addition does not justify the levy of penalty and that the explanations given and evidence produced were not properly considered.
For the assessment year 2012-13, the ACIT Circle-19(2), New Delhi issued a penalty notice dated 02/03/2015. The notice did not strike off irrelevant portions, leaving it ambiguous whether the penalty was for concealment of income or furnishing inaccurate particulars. The tribunal found that this lack of clarity invalidated the penalty proceedings.
The AO’s assessment order disallowed preliminary expenses and made additions under section 14A, which were upheld in quantum proceedings. However, the tribunal emphasized that upholding additions in quantum proceedings does not automatically warrant penalty unless the exact charge is clearly communicated to the assessee.
This case underscores the importance of precise and specific communication in penalty proceedings. The tribunal’s decision to quash the penalty order highlights the necessity for tax authorities to adhere to procedural requirements strictly. The outcome serves as a reference for other cases where penalty notices are issued without specifying the exact charge, reinforcing the principle that ambiguity in statutory notices can lead to invalidation of penalty proceedings.
The appeal was ultimately allowed, and the penalty order was quashed. This decision provides clarity and guidance on the procedural aspects of penalty proceedings under the Income Tax Act.
In conclusion, the tribunal’s decision in ITA 1998/DEL/2020 provides valuable insights into the procedural requirements for penalty notices under section 271(1)(c). It reaffirms the importance of clear and specific communication in penalty proceedings, offering guidance for tax authorities and businesses on compliance with TDS regulations. The ruling is a testament to the importance of adhering to procedural norms to ensure fairness and justice in tax administration.
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