ITAT Delhi Quashes Penalty Under Section 271(1)(c) for Defective Notice; Holds Non-Specification of Charge Fatal

Key Facts and Tribunal Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, allowed the appeal of M/s ZF Sterling Gear (India) Ltd. for Assessment Year 2014–15 and quashed penalty imposed under Section 271(1)(c) of the Income Tax Act on the ground of defective initiation of penalty proceedings.

The dispute arose from penalty proceedings initiated pursuant to an assessment order wherein the Assessing Officer proposed penalty under Section 271(1)(c). The assessee challenged the validity of the penalty on the ground that the Assessing Officer failed to specify whether the penalty was for “concealment of income” or for “furnishing inaccurate particulars of income.”

The Tribunal examined the assessment order, show cause notice, and penalty order, and found that the Assessing Officer had invoked both limbs of Section 271(1)(c) without striking off the inapplicable portion. Further, while the penalty order referred to furnishing inaccurate particulars, the actual imposition was made for concealment of income, indicating inconsistency and lack of clarity.

Relying on settled judicial precedents, including SSA’s Emerald Meadows and subsequent High Court rulings, the Tribunal held that failure to specify the exact charge at the stage of initiation renders the penalty proceedings invalid in law.

The Tribunal emphasized that clear satisfaction regarding the specific limb under Section 271(1)(c) is a mandatory requirement, and vague or omnibus notices violate principles of natural justice.

Accordingly, the Tribunal quashed the penalty order in entirety. As a consequence, other grounds raised in the appeal were rendered academic.