Penalty Quashed Due to Defective Notice – Sunil Bagga vs ITO, Ward-40(3), New Delhi

Case Summary: Sunil Bagga vs ITO, Ward-40(3), New Delhi

Case Number: ITA 6068/DEL/2019
Appellant: Sunil Bagga, New Delhi
Respondent: Income Tax Officer (ITO), Ward-40(3), New Delhi
Assessment Year: 2009-10
Case Filed On: 16th July 2019
Order Type: Final Tribunal Order
Date of Order: 13th March 2023
Pronounced On: 13th March 2023

Introduction

The case of Sunil Bagga vs ITO, Ward-40(3), New Delhi, revolves around the imposition of a penalty under Section 271(1)(c) of the Income-tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) quashed the penalty due to a defective notice that failed to specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. This decision aligns with established legal precedents where such procedural errors were deemed fatal to the penalty proceedings.

Background of the Case

Sunil Bagga, the appellant, was subjected to an assessment for the financial year 2008-09 (assessment year 2009-10). During the assessment, the Assessing Officer (AO) added Rs. 21,14,710/- to his income as unexplained cash credits deposited in his bank account. Subsequently, penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act, 1961, for concealment of income or furnishing inaccurate particulars of income.

The appellant contested the penalty, arguing that the notice issued under Section 274 read with Section 271(1)(c) of the Act was defective as it did not specify the exact charge—whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The appellant relied on judicial precedents, including the landmark decisions in CIT vs. SSA’s Emerald Meadows and CIT vs. Manjunath Cotton & Ginning Factory, to support his case.

Proceedings Before the CIT(A) and ITAT

The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appellant’s argument, holding that the judicial precedents cited were not applicable to the present case. Consequently, the CIT(A) upheld the penalty imposed by the AO.

Aggrieved by the CIT(A)’s decision, Sunil Bagga filed an appeal before the ITAT. The case was heard by Shri Shamim Yahya, Accountant Member. The appellant, however, did not appear for the hearing, and the case was decided ex-parte based on the available records and the arguments presented by the Senior Departmental Representative (DR), Shri Om Prakash.

Key Issues and Tribunal’s Findings

1. Defective Notice Under Section 274 r.w.s 271(1)(c)

The core issue in this case was the validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961. The appellant argued that the notice was defective because it did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. This omission, the appellant contended, was a fatal flaw that invalidated the entire penalty proceedings.

The ITAT agreed with the appellant’s argument, observing that the non-specification of the limb under which the penalty was initiated constituted a significant procedural error. The Tribunal cited several judicial precedents, including the recent Full Bench decision of the Hon’ble Bombay High Court at Goa in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT (Tax Appeal No. 51 and 57 of 2012, dated 11th March 2021), which held that such defects in the notice are fatal to the penalty proceedings.

Tribunal’s Decision

In light of the defective notice, the ITAT concluded that the penalty imposed on Sunil Bagga under Section 271(1)(c) of the Income-tax Act, 1961, was not sustainable. The Tribunal quashed the penalty and set aside the orders of the lower authorities, directing them to delete the penalty.

Conclusion

The case of Sunil Bagga vs ITO, Ward-40(3), New Delhi, underscores the importance of adhering to procedural requirements in penalty proceedings under the Income-tax Act, 1961. The ITAT’s decision to quash the penalty due to a defective notice aligns with established judicial precedents, reinforcing the principle that procedural lapses can invalidate the entire penalty process. This case serves as a reminder to tax authorities to ensure that notices are issued with due care and specificity to avoid such outcomes.

Order Pronounced in Open Court: 13th March 2023

Accountant Member: Shri Shamim Yahya

Assistant Registrar: ITAT, New Delhi

Penalty Quashed Due to Defective Notice – Sunil Bagga vs ITO, Ward-40(3), New Delhi