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Facts
The assessee filed a return declaring a loss, but the Assessing Officer assessed income at NIL and initiated penalty proceedings under Section 271(1)(c). A penalty of Rs. 3,32,17,106 was imposed. The CIT(A) initially dismissed the appeal but later upheld the penalty on the second round.
Held
The Tribunal held that the penalty notice issued under Section 274 r.w.s. 271(1)(c) was defective because it did not specify which limb of Section 271(1)(c) was being invoked (concealment or furnishing inaccurate particulars). Relying on various High Court and Supreme Court decisions, the Tribunal found the penalty unsustainable.
Key Issues
Whether the penalty order is sustainable when the penalty notice under Section 271(1)(c) fails to specify the limb under which the penalty is being levied.
Sections Cited
271(1)(c), 143(3), 274
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Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: MS. MADHUMITA ROY, & SHRI NAVEEN CHANDRA
This appeal by the assessee is preferred against the order of NFAC, Delhi dated 28.02.2025 for A.Y 2008-09.
The sum and substance of the grievance of the assessee is that the penalty order u/s 271(1)(c) of the Income-tax Act, Page 1 of 7 1961 [hereinafter referred to as 'the Act'] imposing penalty of Rs. 3,32,17,106 is illegal and unsustainable in law and is fatally defective for not specifying the limb under which the penalty action has been initiated.
Roots for levy of penalty lie in the assessment order dated 23.10.2010 framed u/s 143(3) of the Act.
Brief facts of the case are that the return of income was filed on 07.10.2008 declaring loss of Rs. 11,07,23,687.
However, the Assessing Officer assessed the income of the assessee at NIL and initiated penalty proceedings u/s 271(1)(c) separately. Ultimately, the Assessing Officer imposed penalty of Rs. 3,32,17,106/- u/s 271(1)(c) of the Act vide order dated 26.06.2011.
The penalty order was challenged before the ld. CIT(A) and the ld. CIT(A), vide appellate order dated 08.05.2017 dismissed the appeal of the assessee. Upon being set aside by the ITAT, the CIT(A), in the 2nd round upheld the penalty order.
The aggrieved assessee is before us.
Before us, the ld. counsel for the assessee vehemently argued that the notice u/s 271(1)(c) dated 23.12.2010 has not Page 2 of 7 specified the limb of section 271(1)(c) under which the AO proposed to levy the penalty and produced the copy of notice.
Per contra, the ld DR submitted that no prejudice is caused to the assessee.
We have heard the rival submissions and have perused the relevant material on record. The submission of the assessee that the notice u/s 271(1)(c) does not specify the limb under which the penalty is to be levied was examined. We find that the notice u/s 274 r.w.s. 271(1)(c) of the Act which was issued and served upon the assessee, the AO specifies the following:
“have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1,2,3,4 and 5.”
A perusal of the aforementioned notice clearly shows that the Assessing Officer did not specify under which limb of the provision he has initiated the proceedings. Where the penal proceedings are separate from assessment proceedings, while initiating penalty proceedings u/s 271(1)(c) of the Act, it is incumbent upon the Assessing Officer to demonstrate under which limb he is proposing to levy penalty.
On identical circumstances, the Hon'ble High Court of Delhi in the case of Sahara India Life Insurance Company Ltd of 2019 order dated 02.08.2019 has held as under:
“21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of inc me or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar) , the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of2016 by order dated 5th August, 2016.”
If the notice is read with the decision of the Hon'ble High Court of Delhi [supra], in our considered opinion, the penalty will not survive. It would not be out of place to refer to the decision of the Hon'ble High Court of Delhi in the case of Virgo Marketing Pvt Ltd [2008] 171 Taxmann 156 [Delhi] wherein the Hon'ble High Court held as under:
“We are unable to discern from a reading of the assessment order why the Assessing Officer chose to initiate penalty proceedings against the assessed and under which part of Section 271(1)(c) of the Act. In other words, we are unable to discern from the assessment order the reason for initiating penalty proceedings. Therefore, the concurrent view held by both the authorities below must be accepted.”
Further, the Hon'ble Supreme Court in the case of SSA’s Emerald Meadows Pvt Ltd [2016] 8 TMI 1145 has confirmed the Karnataka High Court order where it was held that notice issued by the Assessing Officer u/s 274 r.w.s 271(1)(c) of the Act to be bad in law as it did not specify which limb of section 271(1)(c) of the Act the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. Further the hon’ble Supreme Court in the case of PCIT V Unitech Reliable Projects Pvt Ltd 166 taxmann.com 135(SC) has dismissed the SLP against PCIT V Unitech Reliable Projects Pvt Ltd 462 ITR 307(Del) where the hon’ble Delhi High Court held the penalty as unsustainable where limbs are not specified.
Considering the facts of the case in totality, in the light of judicial decisions referred to hereinabove, we set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the penalty.
In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 19.08.2025.