Delhi High Court Upholds Tax Penalty Decision for Omitting U/S Section 271(1)(c) Specification

The Delhi High Court has upheld the decision to remove the penalty imposed for the failure to specify the specific provision of Section 271(1)(c) of the Income Tax Act under which the penalty was imposed.

In this case, the respondent/assessee, Modi Rubber Ltd, provided inaccurate details regarding the disallowance of various additions made by the Assessing Officer (AO). When computing the penalty, the AO stated that the income particulars provided by the respondent/assessee were inaccurate or concealed. It was unjustified to apply the relevant provision, which falls under Section 271(1)(c) of the Income Tax Act, for imposing the penalty in this particular case.

The revenue filed an appeal questioning whether the ITAT (Income Tax Appellate Tribunal) had made a clear decision in removing the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The revenue contended that the notice concerning the penalty was not invalidated by merely the failure to specify the relevant clause of ‘concealment of income’ or ‘furnishing of inaccurate particulars of income.’ The revenue cited a Bombay High Court case (CIT v. Smt. Kaushalya), which held that the notice issued under Section 274 of the Income Tax Act is not invalidated solely by the non-striking of a specific limb, as the language of the section does not require the notice to be specific.

The Division Bench, consisting of Justice Rajiv Shakdher and Justice Girish Kathpalia, observed that Section 271(1)(c) of the Income Tax Act gives the AO the power to levy a penalty for either concealment of income particulars or providing inaccurate particulars of income. There was also a third possibility where the AO could impose a penalty on both grounds, depending on the facts of the case.

Upon examination of the notice, both the Tribunal and the Bench observed that the Assessing Officer (AO) did not specify to the respondent/assessee whether the case involved concealment of particulars, furnishing inaccurate particulars, or both, as mentioned earlier. The Bench noted that the penalty order itself added to the confusion in this matter.