ARTMICA LAMINATES P.LTD,DELHI vs. ITO, WARD-3(2), NEW DELHI

That the learned CIT (Appeals) has erred both in law and on facts by confirming the penalty order passed by the AO under section 271(l)(c) without appreciating the fact that Learned CIT (Appeal) while passing the order, against the quantum of appeal, estimation of income has been made, by using the three (3) different tools as under: a. Estimation of income due to negative cash Rs. 27,52,695/- b. Estimation of expenses incurred while cash was negative Rs. 4,00,000/- c. Estimation of income due to reduction of GP Ration From 8.84% to 7.31% Rs. 14,93,522/- Thus, alternatively the imposition of the penalty under section 271(l)(c) of the act must be made on the basis of each tool adopted by the CIT (Appeal) on the amount of addition confirmed and not at all on the total amount confirmed in the quantum of appeal.”

Heard and perused the record.

The basic argument of the ld AR of the Assessee was that the penalty proceeding notice issued u/s 274 read with section 271 of the Act is defective as same does not disclose as to if the penalty has been levied for concealment of the income or for furnishing inaccurate particulars of income. In this context judgment of the Hon'ble Delhi High Court in case of Pr. CIT Vs. Sahara Life Insurance Company Ltd (2019) 108 Taxmann.com 597 (Delhi) was relied. On merit it was also submitted that as assessment order was passed u/s 144 on the basis of estimate of profits therefore, there can be no case of concealment of income or submitting inaccurate particulars. Reliance in this regard was placed on the judgment of Hon'ble Delhi High Court in CIT Vs. Aero Traders (P) Ltd (2010) 322 ITR 316 (Delhi). 6. On the other hand the ld Sr. DR submitted that in the assessment order the AO had observed specifically in para No. 7 that there was concealment of income. It was submitted, in the penalty order also the ld AO had mentioned that there was concealment of income and accordingly he defended the orders of the ld Tax Authorities below. 7. Appreciating the matter in record and the submissions, it can be observed that there is no dispute to the fact that the notice u/s 274 read with section 271 of the Act dated 27.03.2015, did not categorically specify if the penalty proceeding u/s 271(1)(c) have been initiated on finding of concealment of particulars of income or furnishing inaccurate particulars of such income. It can be further appreciated that in the assessment order dated 27.03.2015 the Ld. AO had though observed that there is concealment of income and accordingly Assessee company is liable for penalty proceeding u/s 271(1)(c) of the Act. However, when the notice was issued on 27.03.2015 there was no specific indication of the limb of the default. Further during the penalty proceeding while making the conclusion the Ld. AO observed “in view of the above discussions and decided case laws, I hold that the Assessee had concealed/ furnished inaccurate particulars of its income and is liable for imposition of penalty u/s 271(1)(c) of the Act as follows”. Thus, inspite of giving observation in the assessment order that there is concealment of income. The Notice issued and the penalty order makes it ambiguous as to under which limb, the penalty order has been passed. Para 7 of the order of Ld FAA shows that this argument was specially raised and relevant precedents were cited but Ld. CIT(A) has failed to make any discussion on this aspect. Thus, following the settled proposition of law recognized in Pr. CIT Vs. Sahara Life Insurance Company Ltd (supra) that where there is failure on the part of the AO to indicate and specify under which limb of section 271(1)(c) penalty proceedings has been initiated, the penalty order cannot be sustained. Page | 4