R.R. Fleet Management Pvt. Ltd, Haryana vs. ITO Ward-3(3), Gurgaon: Penalty Dispute under Section 271(1)(c) for AY 2015-16

Case Overview

The case titled R.R. Fleet Management Pvt. Ltd, Haryana vs. ITO Ward-3(3), Gurgaon (ITA 6359/DEL/2019) pertains to the assessment year 2015-16. The case was filed on 29th July 2019, and the final tribunal order was pronounced on 14th February 2023. The case was heard by the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘F’, under the authority of Shri Shamim Yahya, Accountant Member, and Ms. Astha Chandra, Judicial Member.

Background of the Case

R.R. Fleet Management Pvt. Ltd, a company based in Haryana, filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)]-02, Gurgaon, relating to the assessment year 2015-16. The primary issue in this case revolves around the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961, by the Assessing Officer (AO).

The AO had rejected the books of accounts of the assessee due to the failure to submit complete details and proceeded to estimate the profit at 3% of the gross turnover based on past assessment history. This estimation led to an addition to the income, which in turn resulted in the imposition of a penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income.

Why the Case Was Filed

The case was filed by R.R. Fleet Management Pvt. Ltd. challenging the penalty imposed by the AO under Section 271(1)(c). The appellant argued that the penalty was unjustified, as the addition to the income was based on an estimation rather than any concrete evidence of concealment or misrepresentation. The appellant also contested the penalty on the grounds that the AO had not clearly specified the nature of the charge—whether it was for concealment of income or for furnishing inaccurate particulars of income.

Tribunal Proceedings

During the tribunal proceedings, the appellant was not represented, and the case was heard in the absence of any appearance on their behalf. The Revenue was represented by Ms. Princy Singla, Senior Departmental Representative (DR).

The tribunal noted that one of the key grounds of appeal was the non-specification of the charge in the penalty notice, which is a mandatory requirement under the law. The tribunal reviewed the order passed by the CIT(A) and found that this crucial aspect was not addressed adequately in the appellate order. Specifically, the CIT(A) did not consider whether the AO had met the mandatory requirement of specifying the charge of either concealment of income or furnishing of inaccurate particulars.

Tribunal’s Decision

In its order, the tribunal decided to remit the issue back to the file of the CIT(A) for fresh adjudication on the ground related to the non-specification of the charge in the penalty notice. The tribunal emphasized that addressing this issue was essential for ensuring justice and avoiding the multiplicity of proceedings.

The tribunal’s order states: “We have perused the entire order of the Ld. CIT(A), and we note that nowhere has this aspect been dealt with. Before us, also, the assessee has raised this ground. However, for proper adjudication of this ground, reference to factual records is necessary. Hence, in the interest of justice, we remit this issue to the file of the Ld. CIT(A). We are of the opinion that adjudicating part of the appeal and remitting the other part of the appeal to the file of the Ld. CIT(A) will lead to multiplicity of proceedings, and hence we are refraining to do that. The Ld. CIT(A) is directed to complete his order by adjudicating the ground relating to non-specification of charge in the penalty notice.”

As a result, the tribunal allowed the appeal for statistical purposes and remitted the case back to the CIT(A) for re-adjudication on the specific issue.

Significance of the Case

This case underscores the importance of procedural fairness and the adherence to statutory requirements in the imposition of penalties under the Income Tax Act. The tribunal’s decision highlights the necessity for the AO to clearly specify the charge when imposing a penalty under Section 271(1)(c). Failure to do so can render the penalty order void ab initio, as it violates the principles of natural justice.

The case also illustrates the challenges faced by taxpayers in defending against penalties imposed on the basis of estimated income. The tribunal’s decision to remit the case back to the CIT(A) reflects the judiciary’s commitment to ensuring that such penalties are imposed only after due consideration of all relevant facts and legal requirements.

Conclusion

The case of R.R. Fleet Management Pvt. Ltd, Haryana vs. ITO Ward-3(3), Gurgaon (ITA 6359/DEL/2019) serves as an important reminder of the need for transparency and precision in the issuance of penalty notices under the Income Tax Act. The tribunal’s decision to remit the case back to the CIT(A) for further adjudication on the issue of non-specification of charge underscores the judiciary’s role in upholding the principles of natural justice.

The outcome of this case may have significant implications for other taxpayers facing similar penalties, as it reaffirms the requirement for AOs to strictly comply with the procedural mandates of the law when imposing penalties under Section 271(1)(c). As the case is remitted for fresh consideration, it will be crucial for the CIT(A) to address the issues raised by the appellant comprehensively, ensuring that the final decision is both legally sound and fair to all parties involved.

R.R. Fleet Management Pvt. Ltd, Haryana vs. ITO Ward-3(3), Gurgaon: Penalty Dispute under Section 271(1)(c) for AY 2015-16