IMPORTANT POINT
The court ruled that vague penalty notices under Section 271(1)(c) of the Income Tax Act invalidate the imposition of penalties, ensuring the assessee's right to a clear defense.

JUDGMENT :

RAVINDER DUDEJA, J.

1. These are three appeals by the Revenue against the impugned orders passed by the Income Tax Appellate Tribunal [“ITAT”].

2. ITA 90/2020 is directed against an order passed by ITAT in ITA No. 112/Del/2019 for the Assessment Year [“AY”] 2015-16, ITA No. 109/2023 is directed against an order passed by the ITAT in ITA No. 9058/Del/2019 for the AY 2008-09 and ITA No. 392/2023 is directed against an order passed by ITAT in ITA No. 3926/Del/2019 for the AY 2001-02.

3. The common issue sought to be urged by the Revenue in all these appeals is whether the ITAT was justified in deleting the penalty under Section 271(1) (c) of the Income Tax Act, 1961 [“Act”] by ignoring the fact that the Assessee had claimed inaccurate expenses imposed by the Assessing Officer [“AO”] on the Assessing Company for the reason that in the notice under Section 274 read with Section 271(1) (c), the AO has not marked the specified limb for which the penalty notice is issued, although, penalty was also imposed for furnishing inaccurate income as per the penalty order by the AO.

4. For the sake of convenience, it will be apposite to refer to the facts of ITA No. 90/2020. Shorn of all necessary details, the facts are that assessee filed return on 01.10.2015, declaring loss of Rs. 476,35,92,302/-.

5. On 19.03.2016, a notice under Section 143 (2) of the Act was issued and served upon the assessee company.

6. On 28.03.2017, the original return was revised and the assessee declared a loss of Rs. 354,34,84,148/-, which included loss from Business or Profession amounting to Rs. 5,00,14,046/-. The income from short term capital gain Rs. 97,02,942/- and long term capital loss Rs. 350,31,73,044/- was claimed as exempt.

7. During the assessment proceedings, it was noticed that the assessee had claimed advances written off under the head “other expenses” in the P & L and loss from business was primarily due to this.

8. Assessment Order under Section 143(3) of the Act was passed on 23.05.2017, vide which, an addition of Rs. 5,00,00,000/- was made on account of alleged advance given to M/s. TAIDIA Construction and written off in the year under consideration. The AO while disallowing the alleged business expenditure noted that the assessee company had failed to file any agreement or supporting evidence in respect of the advance.

9. AO further adjusted the business loss of Rs. 14,046/- with the income from short term capital loss and assessed the total income at Rs. 96,88,900/- as against loss of Rs. 5,00,14,046/-, claimed in the ITR.

10. Penalty proceedings u/s 271(1)(c) were initiated by the AO and after recording his satisfaction, notice u/s 274 read with 271(1)(c) was issued, whereby, the assessee was asked to show cause as to why penalty u/s 271 (1) (c) may not be imposed upon it.

11. On 29.11.2017, after considering the reply of the assessee, a penalty order u/s 271(1) (c) was passed and penalty at the rate of 100% of the tax sought to be evaded under Section 271(1) (c) amounting to Rs. 1,54,50,000/- was imposed.

12. Feeling aggrieved, assessee preferred an appeal before Commissioner of Income Tax (Appeal) [“CIT (A)”] against the penalty order. However, the appeal of the assessee was dismissed vide order dated 01.11.2018.

13. Aggrieved by the order of CIT (A), assessee preferred an appeal before the ITAT. The appeal of the assessee was allowed holding that the notice was vague as there was no specific charge for initiation of penalty proceedings which the assessee could explain. The relevant paragraphs of the order are reproduced below:-

“7. We have carefully considered the arguments of both the sides and perused the material placed before us. We will first deal with the assessee's contention that the levy of penalty is illegal because in the penalty notices, no specific charge was levied. We find that the first show cause notice issued to the assessee was dated 23'd May, 2017 and the relevant portion of which reads as under :-

"Where in the course of p