Penalty Notice Under Both Faults Held Void | ITAT

Case Details: St. Joseph’s Educational Trust vs. Deputy Commissioner of Income-tax - [2025] 175 taxmann.com 284 (Chennai-Trib.)

Judiciary and Counsel Details

• ABY T. Varkey, Judicial Member & Jagadish, Accountant Member
• V. Balaji, CA & K.R. Vasudevan, Adv. for the Appellant.
• Ms Anitha, Addl. CIT for the Respondent.

Facts of the Case

The assessee, a public charitable trust, was running an Engineering College and had claimed exemption under section 11 since its inception. During the relevant assessment year, the assessee had received corpus donation vide demand draft and filed a nil return of income.

The return was processed and accepted by the Assessing Officer (AO). Pursuant to a search of its premises, the assessee filed a return and treated the corpus fund as voluntary donations. Accordingly, the assessee offered gross income of Rs. 49.67 crores in its return of income filed and paid tax on it on the amount of shortfall in the application of funds to the extent of 85 per cent of the income [including corpus donation which was treated as voluntary donations] received during the relevant previous year in accordance with section 11.

The AO passed the assessment order under section 153A, read with section 144, accepting the income of Rs. 49.67 crores as returned by the assessee and determining the tax. Thereafter, the AO considered the entire voluntary contribution admitted by the assessee as underreported income for the purpose of penalty under section 270A. On appeal, the CIT(A) confirmed the penalty levied by the AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Chennai Tribunal held that AO issued a show cause notice under section 274, read with section 270A, calling upon the assessee to explain why a penalty for underreporting/misreporting income should not be imposed under section 270A. AO issued a notice regarding both underreporting and misreporting income, which were two distinct faults with different consequences.

The notice issued by the AO was vague and did not satisfy the requirements of law. AO was duty-bound to put the assessee on proper notice of what charge/fault the assessee should defend against the proposed penalty. Instead, when the assessee was put to notice for both the charges/faults, the assessee couldn’t be expected to defend the omnibus faults. Resultantly, the assessee would be treated unfairly, and the fair hearing guaranteed under section 274 would stand defeated. Accordingly, the penalty was held to be ab initio void.

List of Cases Reviewed

• R. Elangoan v. PCIT TCA No.770 & 771 of 2018, dated 30-03-2021 [para 24] followed

List of Cases Referred to

• R. Elangoan v. PCIT [TCA No.770 & 771 of 2018, dated 30.03.2021] (para 2)
• Mohd. Farhan A. Shaikh v. Dy. CIT [2021] 125 taxmann.com 253/280 Taxman 334/434 ITR 1 (Bombay) (FB) (para 24).