PHI Seeds Pvt. Ltd., Telangana vs. ACIT, Special Range-7: Case Filed for 2002-03 Assessment Year – Validity of Penalty Notice

PHI Seeds Pvt. Ltd., Telangana vs. ACIT, Special Range-7: Case Filed for 2002-03 Assessment Year – Validity of Penalty Notice

Case Number: ITA 6015/DEL/2019

Appellant: PHI Seeds Pvt. Ltd., Telangana

Respondent: ACIT, Special Range-7, New Delhi

Assessment Year: 2002-03

Case Filed On: 12th July 2019

Order Type: Final Tribunal Order

Date of Order: 10th May 2023

Pronounced On: 10th May 2023

Background of the Case

PHI Seeds Pvt. Ltd., a company based in Telangana, engaged in agricultural activities, filed its income tax return for the assessment year 2002-03. The dispute arose over a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, following an assessment that led to the addition of income, which the company had claimed as exempt under agricultural income provisions. The assessing officer (AO) argued that the company had furnished inaccurate particulars of income or concealed income, leading to the imposition of a penalty.

The appellant, PHI Seeds Pvt. Ltd., challenged the penalty on the grounds that the penalty notice issued by the AO was vague and did not specify whether the penalty was being imposed for concealment of income or for furnishing inaccurate particulars of income. The appellant argued that this ambiguity rendered the penalty notice invalid, and thus, the penalty itself was illegal.

Key Issues in the Case

The primary issues in this case revolved around:

• Whether the penalty notice issued under Section 271(1)(c) was valid, considering it did not specify the charge of either concealment of income or furnishing of inaccurate particulars of income.
• The applicability of precedents where similar notices were deemed invalid by higher courts, including the Delhi High Court and the Bombay High Court.
• The implications of the invalid notice on the penalty imposed by the assessing officer.

The appellant contended that the penalty notice was defective as it failed to clearly specify the grounds on which the penalty was being levied, thereby violating the principles of natural justice and leading to an improper legal process.

Proceedings in the Tribunal

The appeal was heard by the Delhi Bench ‘F’ of the Income Tax Appellate Tribunal (ITAT), with Shri Shamim Yahya, Accountant Member, and Shri Anubhav Sharma, Judicial Member, presiding over the case. The tribunal consolidated the appeals for multiple assessment years (2002-03, 2003-04, 2005-06, and 2010-11) filed by the assessee due to the common issues involved. However, the case for the assessment year 2002-03 was used as the lead case for reference.

The appellant’s counsel argued that the penalty notice was fatally flawed because it did not clearly specify the charge against the assessee. The counsel pointed out that this issue had been raised before the Commissioner of Income Tax (Appeals) [CIT(A)], but the CIT(A) had not adequately addressed it. Instead, the CIT(A) upheld the penalty without considering the defect in the notice.

The revenue’s representatives countered by arguing that the penalty order clearly mentioned that the penalty was imposed for furnishing inaccurate particulars of income. However, they could not dispute the fact that the notice itself was ambiguous and did not clearly indicate whether the penalty was for concealment of income or for furnishing inaccurate particulars.

Tribunal’s Analysis and Decision

The tribunal carefully considered the arguments presented by both sides and reviewed the relevant case laws. The tribunal noted that the penalty notice issued to the assessee was indeed ambiguous, as it contained an omnibus charge stating that the assessee “concealed the particulars of your income or furnished inaccurate particulars of such income.” This lack of specificity in the notice was found to be contrary to the principles laid down by higher judicial authorities.

The tribunal referred to the Bombay High Court’s ruling in Mohd. Farhan A. Shaikh vs ACIT, where it was held that a penalty notice must clearly specify the charge under which the penalty is being levied, whether for concealment of income or for furnishing inaccurate particulars of income. The tribunal also cited the Delhi High Court’s decision in Pr. CIT vs Sahara India Life Insurance Co. Ltd., where a similar conclusion was reached.

Given that the penalty notice in this case did not clearly specify the charge, the tribunal concluded that the notice was invalid. Consequently, the tribunal held that the penalty imposed based on such an invalid notice could not be sustained.

The tribunal set aside the orders of the lower authorities and allowed the appeal filed by PHI Seeds Pvt. Ltd., thereby canceling the penalty imposed under Section 271(1)(c) for the assessment year 2002-03. The tribunal’s decision applied mutatis mutandis to the other assessment years under appeal, resulting in the cancellation of penalties for those years as well.

Conclusion

The case of PHI Seeds Pvt. Ltd., Telangana vs. ACIT, Special Range-7, New Delhi, highlights the critical importance of adhering to procedural correctness in tax proceedings. The tribunal’s decision underscores that a penalty notice under Section 271(1)(c) of the Income Tax Act must clearly specify whether the penalty is for concealment of income or for furnishing inaccurate particulars of income. Failure to do so renders the notice invalid and the penalty imposed under such a notice unsustainable.

This case serves as an important precedent for taxpayers and tax authorities alike, reinforcing the need for clarity and precision in the issuance of penalty notices. The tribunal’s ruling in favor of PHI Seeds Pvt. Ltd. not only provided relief to the assessee but also reiterated the judiciary’s commitment to ensuring fair and just legal processes.

Order Pronounced By: Shri Shamim Yahya, Accountant Member, and Shri Anubhav Sharma, Judicial Member

Final Order: Appeal Allowed, Penalty Imposed under Section 271(1)(c) Canceled

PHI Seeds Pvt. Ltd., Telangana vs. ACIT, Special Range-7: Case Filed for 2002-03 Assessment Year – Validity of Penalty Notice