Loading judgment…
Facts
The assessee filed a return declaring a loss. The AO assessed the loss after making additions, and the CIT(A) confirmed some of these additions. The AO initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income and levied a penalty.
Held
The Tribunal held that the penalty notice issued under Section 274 read with Section 271(1)(c) was bad in law as it did not specify the limb of Section 271(1)(c) under which the penalty was being levied. Following judicial precedents, the Tribunal set aside the penalty.
Key Issues
Whether the penalty levied under Section 271(1)(c) is valid when the notice fails to specify the specific limb of the section under which proceedings were initiated?
Sections Cited
271(1)(c), 275, 143(3), 274
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
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 10.02.2025 for A.Y 2016-17.
Page 1 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT
The sum and substance of the grievance of the assessee is that the penalty of Rs. 3,73,655/-levied u/s 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] is bad and imposed beyond the period prescribed u/s 275 of the Act.
Roots for levy of penalty lie in the assessment order dated 28.02.2015 framed u/s 143(3) of the Act.
Brief facts of the case are that the return of income was filed on 10.09.2016 declaring a loss of Rs 44,77,924/-.
However, the Assessing Officer assessed the loss of the assessee at Rs. 23,41,600/- after making certain additions.
Assessment was challenged before the ld. CIT(A) who confirmed the addition of 12,09,241/-.
The AO initiated the penalty proceedings u/s 271(1)(c) of the Act wherein he held that the assessee has committed default in respect of furnishing inaccurate particulars of Page 2 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT income, and levied the minimum penalty of Rs. 3,73,655/- @ 100% of the amount of tax payable, on the assessee.
The assessee carried the matter before the ld. CIT(A) but without any success.
The ld counsel of the assessee argued that the notice u/s 271(1)(c) has not 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 is as under:
Page 3 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT
GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT CIRCLE 61(1), DELHI
OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX To KHAITAN AND PARTNERS W-13 W-13, GREATER KAILASH-II 110048, Delhi India
PAN: AAJFK0419Q Assessment Year: 2016-17 Date: 27/12/2018
Notice No.:ITBA/PNL/S/271(1)(c)/2018- 19/1014635661(1)
Notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961
Sir/Madam, Whereas in the course of proceedings before me for the Assessment Year 2016-17, it appears to me that you have concealed the particulars of income and furnished inaccurate particulars of such income.
You are hereby requested to appear before me either personally or through a duly authorised representative at 01:39 PM on 28/01/2019 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income Tax Act, 1961.
If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c) of the Income Tax Act, 1961.
PAYEL-PRAKASH CIRCLE 61(1), DELHI
Page 4 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT
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 Page 5 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT 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.
Page 6 of 8 [A.Y. 2016-17] Khaitan & Partners Vs. ACIT
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 of Rs. 3,73,655/-. is allowed. The order is pronounced in the open court on 19.08.2025.