ITAT: 270A Penalty SCN Invalid Without Specific Charge; Penalty Order Quashed

The Chennai Income Tax Appellate Tribunal (ITAT) recently set aside a substantial penalty of Rs. 10.92 crore imposed under Section 270A(9) of the Income Tax Act for 'under reporting of income' and 'misreporting of income.' The tribunal's decision highlights the critical need for specificity in penalty notices issued under Section 274 read with Section 270A.

Background

The case arose when the Revenue initiated penalty proceedings against an assessee following a search operation that uncovered unaccounted money. The Revenue accepted the additional income admitted by the assessee. However, the penalty notice issued was found to be vague, failing to specify whether the penalty was for 'under reporting of income' or 'misreporting of income.'

Tribunal's Findings

The ITAT held that the penalty order was unsustainable due to the Revenue's failure to specify the exact charge in the penalty notice. This omission was seen as a clear non-application of mind and a violation of the principles of natural justice. Without a specific charge, the assessee could not adequately respond to the show cause notice, compromising their ability to defend against the allegations.

The tribunal referenced several key judgments, including:

• SSA's Emerald Meadows (Supreme Court)
• Babuji Jacob (Madras High Court)
• Manjunatha Cotton & Ginning Factory (Karnataka High Court)
• Prem Brothers Infrastructure (Delhi High Court)

These cases consistently held that a vague notice without specifying the limb of Section 270A being invoked is erroneous and arbitrary. The ITAT reinforced that 'under reporting of income' and 'misreporting of income' have distinct definitions and cannot be used interchangeably. Each term requires specific and clear satisfaction from the assessing officer (AO) before initiating penalty proceedings.

Importance of Specific Charge

The ITAT emphasized that without specifying the charge, the penalty proceedings are fundamentally flawed. The tribunal noted, "In absence of proper notice, which is mandatory, the AO cannot impose penalty, because, it is a clear violation of principles of natural justice." The ITAT further stated that issuing a vague notice vitiates the entire proceedings, as the assessee was not given an opportunity to explain its case on a specific charge.

Conclusion

The Chennai ITAT's decision underscores the importance of precise and clear communication in penalty proceedings under the Income Tax Act. The ruling ensures that the principles of natural justice are upheld, providing fair treatment to assessees and preventing arbitrary penalty impositions.

By quashing the penalty order, the ITAT reinforced the need for the Revenue to meticulously follow procedural requirements, thereby safeguarding the rights of taxpayers.

Citation:

[TS-369-ITAT-2024(CHNY)]