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Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
ORDER \nPER PRABHASH SHANKAR [A.M.] :-\nThe present appeal is preferred by the assessee against the order\npassed by the Learned Commissioner of Income-tax (Appeals)/National\nFaceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”]\npertaining to a penalty order passed u/s.271(1)(c) of the Income-tax Act,\n1961 [hereinafter referred to as “Act”] dated 30.06.2017 for the\n Assessment Year [A.Y.] 2014-15.\nPage 2\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\n2. The grounds of appeal
are as under:\n1. The learned CIT (A), NFAC, Delhi has erred in confirming the penalty\nlevied by the Learned Assessing Officer u/s 271(1)(c) of the Income\nTax Act, 1961 since the notice issued u/s 274 r.w.s.271(1)(c) of the Act\nis not in accordance with law especially since he has grossly erred in\nnot specifying the limb under which he intends to initiate penalty\nproceedings.\n2. The learned CIT(A), NFAC, Delhi has erred in confirming the penalty\nlevied by the Learned Assessing Officer of amount of Rs.29,05,812 /-\nwithout appreciating the fact of the case in the right perspective.\n3. In this case, penalty of Rs 29,05,812/- was imposed by the AO\nu/s 271(1) of the Act which is being agitated by the assessee mainly on\nthe ground that the AO while initiating penalty proceedings, did not\nstrike off the relevant limb in the show cause notice u/s 274 of the Act\nso as to categorically give a finding that the assessee was either defaulter\nfor concealment of income or for filing inaccurate particulars thereof. In\nthe subsequent appeal, the ld.CIT(A) upheld the penalty.\n4. Before us,the ld. DR has contended that the issue of striking\noff of one of the limbs in the show cause notice was never raised before\nthe lower authorities. He further placed reliance on the decision of co-\nordinate bench of ITAT, Mumbai wherein it held in the case of Earth\nmoving Equipment Service Corporation vide its order reported in (2017)\nPage 3\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\n166 ITD 113 (Mumbai)/(2017) 187 TTJ 233 (Mumbai Tribunal) that\nmere non-ticking of the relevant clause in notice would not invalidate\nthe penalty proceedings.The ld.DR submitted that from the quantum\norder, it is seen that the AO clearly initiated the penalty proceedings,\nafter due deliberation, for furnishing of inaccurate particulars which\nshows due application of mind qua penalty proceedings. Section 292B of\nthe Act comes to the rescue of the revenue in such a case as in substance\nand effect the notice was in conformity with the intent and purpose of\nthe act. He also placed reliance on hon'ble Madras High Court held in\nthe case of Sundaram Finance Ltd. (2018) 403 ITR 407 (Madras)inter\nalia held that” if the case of the assessee is that they have been put to\nprejudice and principles of natural justice were violated on account of\nnot being able to submit an effective reply, it would be a different\nmatter. This was never the plea of the assessee either before the\nAssessing Officer or before the first Appellate Authority or before the\nTribunal or before this court when the tax case appeals were filed and\nit was only after 10 years, when appeals were listed for final hearing,\nthis issue is sought to be raised. Thus, on facts, it could be safely\nconcluded that even assuming that there was defect in the notice, it had\ncaused no prejudice to the assessee and the assessee clearly understood\nwhat was the purport and import of notice issued under Section 274\nPage 4\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nr/w, section 271 of the Act. Principles of Natural Justice cannot be read\nin abstract and the assessee, being a limited company, having wide\nnetwork in various financial services, should definitely be precluded\nfrom raising such a plea at this belated stage. By claiming depreciation\non machinery which either did not exist or was never supplied, the\nassessee had not only concealed particulars of its income, but had also\nfurnished inaccurate particulars of income. \"SLP against this decision\nwas dismissed by Hon'ble Supreme Court of India as reported in (2018)\n99 taxmann.com 152 (SC)/(2018) 259 Taxman 220 (SC).He also relied\non the hon'bleBombay High Courtheld in the case of Kaushalya 216\nITR 660 that mere mistake in the language used or mere non-striking\noff of inaccurate portion could not by itself invalidate the notice. The\nHon'ble Supreme Court in the case of Dharmendra Textile\nProcessors (2008) 306 ITR 277 (SC) held that “the explanations\nappended to section 271(1)(c) entirely indicate the element of strict\nliability on the assessee for concealment or for giving inaccurate\nparticulars of income while filing return. The penalty under that\nprovision is a civil liability. Willful concealment is not an essential\ningredient for attracting civil liability, as is the case in the matter of\nprosecution. It is well settled principle, in law that the court cannot\nread anything into a statutory provision or a stipulated condition\nPage 5\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nwhich is plain and unambiguous. A statute is an edict of the\nLegislature. The language employed in a statute is the determinative\nfactor of the legislative intent.”\n4.1 Per contra, the ld.AR has submitted that the AO has failed to\ncategorically charge the assessee since both the limbs have remained\nunchanged as one of them needed to be struck off which has not been\ndone.He placed reliance on various judicial decisions in support of the\ngrounds of appeal in this regard.\n5. We have gone through the above penalty notice and find that\nthe AO issued notice u/s 271(1)(c)/274 of the Act, stating that: “you have\nconcealed the particulars of your income by furnishing inaccurate\nparticulars of income.". These are both limbs of the notice, that is,\n"concealment of income" and for "furnishing inaccurate particulars of\nincome". Therefore, it is abundantly clear that the AO has initiated\npenalty on both the limbs, that is, concealment of income and furnishing\nof inaccurate particulars of income. He did not strike off the irrelevant\nportion and has not shown whether he has initiated penalty on\nconcealment of income or on furnishing inaccurate particulars of\nincome. Therefore, the assessee has not been informed by way of notice\nabout the correct charge. In this situation, the assessee was not aware\nPage 6\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nabout the exact nature of penalty and correct charge, whether it is on\nconcealment of income or it is on furnishing of inaccurate particulars of\nincome. Thus, we find that there is no definite charge on the assessee as\nto whether the assessee should be penalized for \"furnishing inaccurate\nparticulars of income\" or \"for concealment of income\" therefore, on this\naccount the penalty initiated by the AO is bad in law and therefore the\npenalty so levied by the AO is liable to be cancelled. This approach is not\nsanctioned by the statute and amounts to an overreach of the AO's\nauthority, for that reliance is placed on the judgement of the Hon'ble\nSupreme Court in the case of Dilip N. Shroff v. Joint\nCommissioner of Income Tax (supra), wherein the Hon'ble\nSupreme Court held as follows:\n\"66. Section 271(1) (c) remains a penal statute. Rule of strict construction shall\napply thereto. Ingredients of imposing penalty remains the same. The purpose\nof the Legislature that it is meant to be deterrent to tax evasion is evidenced by\nthe increase in the quantum of penalty, from 20 per cent under the 1922 Act to\n300 per cent in 1985.\n67. 'Concealment of income' and 'furnishing of inaccurate particulars' are\ndifferent. Both concealment and furnishing inaccurate particulars refer to\ndeliberate act on the part of the assessee. A mere omission or negligence\nwould not constitute a deliberate act of suppressioveri or suggestiofalsi.\nAlthough it may not be very accurate or apt but suppressioveri would amount\nto concealment, suggestionfalsi would amount to furnishing of inaccurate\nparticulars.\n68. The authorities did not arrive at a finding that the consideration amount\nfixed for the sale of property was wholly inadequate. The authorities also do\nnot show that what are the inaccurate particulars furnished by the assessee.\nThey also do not state that what should have been the accepted principles of\nvaluation. We, therefore, do not accept the submissions of the learned\nAdditional Solicitor General that concealment or furnishing of inaccurate\nparticulars would overlap each other, the same would not mean that they do\nPage 7\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nnot represent different concepts. Had they not been so, the Parliament would\nnot have used the different terminologies.\"\n5.1 The ld. CIT-DR made an argument based on the decision of\nthe hon'ble Bombay High Court in the case of Smt. Kaushalya &\nOthers, 216 ITR 660 (Bom.) to canvass support for his plea that\nnon-striking off of the irrelevant portion of notice would not invalidate\nthe imposition of penalty u/s 271(1)(c) of the Act. A combined reading of\nthe decision rendered by hon'ble Bombay High Court in the case of Smt.\nB Kaushalya and the decision rendered by Hon'ble Supreme Court in the\ncase of Dilip N Shroff (supra) would make it clear that there should be\napplication of mind on the part of the AO at the time of issuing notice.\n6. In the instant case, we are of the view that the AO has issued a\nnotice, that too incorrect one, in a routine manner. Hence, in our view,\nthe AO has failed to apply his mind at the time of issuing penalty notice\nto the assessee.As noted by the Hon'ble Supreme Court in the case\nof Dilip N. Shroff (supra), the quasi-criminal proceedings u/s\n271(1)(c) of the Act ought to comply with the principles of natural justice\nand in the present case, considering the observations of the AO in the\nassessment order alongside his action of non-striking off of the\nirrelevant clause in the notice shows that the charge being made against\nthe assessee qua section 271(1)(c) of the Act is not firm and, therefore,\nPage 8\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nthe proceedings suffer from non-compliance with principles of natural\njustice inasmuch as he is himself unsure and assessee is not made aware\nas to which of the two limbs of Sec. 271(1)(c) of the Act he has to\nrespond.\n6.1 The coordinate ITAT,Mumbai bench in the case of ITA No.\n962/Mum/2024 Triumph Securities Ltd has in an exhaustive\norder involving similar issue has taken the same view of the matter\nquashing the penalty order. Relevant parts are extracted as under:\n\"5. The Ld.AR invited our attention to the notice dated 27/12/2011 issued by the ACIT,\nCentral Circle 40, Mumbai, annexed in APB page
1. The Ld.AR argued that the notice\nwas duly reproduced by the Ld.CIT(A) in his order. The notice suffers from two\ndefects; first of allthere is absence of section under which the showcause notice U/s\n274 of the Act was issued and secondly, there is no mention about the limb under\nwhich the penalty was proposed to be levied whether for concealment of income or for\nfurnishing inaccurate particulars of income. So accordingly, the said notice is invalid.\nConsidering the fact of the case, the Ld.AR informed that related to addition of bad\ndebt amount to Rs.4,21,55,018/- is duly deleted by the order of the co-ordinate bench\nof ITAT, Mumbai bearing date of order 08/10/2021. So\nonly the disallowance of depreciation on BSE card, Rs.10,03,320/- is sustained for\naddition. But mere disallowance for expenses cannot be the point of penalty which is\nduly covered by the order of the Hon'ble Apex Court in CIT vs Reliance\nPetroproducts (P) Ltd 322 ITR 158 (SC). The Ld. CIT(A) in alleged appeal order\nhad respectfully referred the catena of judgements where the Hon'ble High Courts\nhave taken view against the revenue related issuance of the defective notice. The\nrelevant paragraphs of the alleged appeal order are reproduced as below:-\n\"
DECISION:\n6.
1. I have carefully considered the submissions and contentions of the\nappellant and have also gone through the assessment order, notice by which\nthe impugned penalty proceedings were initiated and also the impugned\npenalty order, it is seen that the AD had discussed the issues relating to the\ndisallowances of Rs.10,26,320/- and Rs.4,21,55,018 in paras 5 and 6,\nrespectively, of the assessment order dated 27/12/2011 passed us.143(3) road\nwith Section 254 of the Act. in both the paragraphs, the AO had mentioned\nthat the penalty proceedings uls 271(1)(c) of the Act were being initiated for\nfurnishing inaccurate particulars and concealment of income. The AO has\nstated in paras 2 and 4.1 of the impugned penalty order that the penalty\nPage 9\n \nA.Y. 2014-15\nMukon Construction Private Limited\nproceedings u/s 271(1)(c) of the Act had been initiated by notice uls.274 read\nwith Section 271(1)(c) issued on 27/12/2011 for concealment and furnishing\ninaccurate particulars of income. Further, as per para 13 of the impugned\norder, the penalty has been levied by the AO for concealment of income.\n6.2 Before me, the AR of the appellant has, inter alia, filed a copy of notice\ndated 27/12/2011 issued by the AO u/s.274 read with Section 271 of the Act\nfor initiating penalty proceedings u/s.271(1)(c) of the Act.\n6.3 It can be seen from the above that there is no mention at all about the\ncharge of either furnishing of inaccurate particulars of income or concealment\nof the particulars of income, in the notice dated 27/12/2011 issued by the\nAO u/s.274 read with Section 271 of the Act for initiating the penalty\nproceedings u/s.271(1)(c) of the Act. The notice refers only to the failures to\nfurnish return of income and to comply with notices issued, and here also, the\nrelevant details are left blank and the clause which is not relevant is not struck\noff. It is only in the last paragraph that there is a mention about imposing of\npenalty u/s.271(1)(c) of the Act on the appellant. Thus, I find that in the\naforesaid notice, the AO had not specified any of the relevant charges either\nfurnishing of inaccurate particulars of income or concealment of the\nparticulars of income-being brought against the appellant.\n6.4 It is pertinent to note that the entire legal controversy about identification\nof the relevant limb of penalty in the notice u/s.274 read with Section 271 of\nthe Act started with the judgment of Hon'ble Karnataka High Court in the\ncase of CIT & Anrs Vs. Manjunatha Cotton and Ginning\nFactory (2013) 359 ITR 0565 (Kar.), wherein it was held that the\nnotice u/s.274 of the Act should specifically state the grounds mentioned\nin Section 271(1)(c), ie, whether it is for concealment of income or for\nfurnishing of incorrect particulars of income.\n6.5 Subsequent to the above judgment, in the case of CIT v. SSA's Emerald\nMeadows 73 taxmann.com 241 (Kar.) (HC), a Division Bench of\nHon'ble Karnataka High Court, again taking note of the Manjunatha's case,\ndismissed the appeal filed by the Revenue holding that no substantial\nquestion of law arose for determination by the Court.\n6.6 However, the Hon'ble Bombay High Court, in the case of CIT Vs.\nSmt. Kaushalya &Ors. (1995) 216 ITR 0660, has held that assessment\nhaving already been made before issue of notice under s 274(1) and assessee\nfully knowing in detail the exact charge of the Department against him, the\nnotice could not be said to have prejudiced the assessee by any ambiguity in\nits wordings and mere mistake in language would not invalidate the same.\n6.7 Thereafter, the Hon ble Bombay High Court has taken a different view in\nPCIT v. Goa Coastal Resorts [TXA/24/2019 (Bom)); (8) PCIT v. Goa\nDorado [TXA/18/2019 (Bom)): (9) and in the case of PCIT v. New\nEra Sova Mine [TXA/70/2019 (Bom)).\n6.8 I find that this very issue has now been considered by the Full bench of\nHon'ble Bombay High Court in the case of Mohd. Farhan A.\nShaikhreported in (2021) 125 taxmann.com 253 (Bom). In this case,\nthe Larger Bench of the Hon'ble Jurisdictional High Court was referred an\nPage 10\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nissue, that is, mere failure to tick mark the applicable grounds' in the notice\nissued under Section 271 of the Income Tax Act, 1961 (IT Act) vitiate the\nentire penalty proceedings. To this, it was held that a penal provision even\nwith civil consequences, must be construed strictly and ambiguity, if any,\nmust be resolved in the affected assessee's favour.\n6.9 While making observation on the Judgment of Dilip N. Shroff, it was\nobserved by the Hon'ble High Court that primary burden of proof is on the\nRevenue. The Assessing Officer must satisfy himself that there is primary\nevidence to establish that the assessee had concealed the amount or furnished\ninaccurate particulars. And this onus is to be discharged by the Revenue\nWhile considering whether the assessee has discharged his burden, the\nAssessing Officer should not begin with the presumption that he is guilty.\nOnce the Revenue discharges its primary burden of proof, the secondary\nburden of proof, would shift on to the assessee. It is because the proceeding\nunder Section 271(1)(c) is of penal nature in the sense that its consequences\nare intended to be an effective deterrent which will put a stop to practices\nwhich the Parliament considers to be against the public interest\", So, it was\nfor the Revenue to establish that the assessee shall be guilty of the particulars\nof income\". The Hon'ble High Court also relied on the Judgments of\nCIT v. Samson Pericherry, ITA/1154/2014 (Bom); PCIT v. Goa\nDorado, TXA/18/2019 (Bom) and PCIT v. New Era Sova Mine\nTXA/70/2019 (Bom), wherein it was observed that \"No notice could be\nissued under Section 274, read with Section 271, of the Act without indicating\nwhich particular limb of Section 271(1)(c) was invoked for initiating the\npenalty proceedings\". Finally, the larger Bench of Hon'ble high Courthas\ndecided the matter with following findings:\nAnswers:\nQuestion No. 1: If the assessment order clearly records satisfaction for\nimposing penalty on one or the other, or both grounds mentioned in Section\n271(1)(c), does a mere defect in the notice-not striking off the irrelevant\nmatter-vitiate the penalty proceedings?\n181. It does. The primary burden lies on the Revenue. In the assessment\nproceedings, it forms an opinion, prima facie or otherwise, to launch penalty\nproceedings against the assessee. But that translates into action only\nthrough the statutory notice under section 271(1)(c), read with section 274 of\nIT Act. True, the assessment proceedings form the basis for the penalty\nproceedings, but they are not composite proceedings to draw strength from\neach other. Nor can each cure the other's defect. A penalty proceeding is a\ncorollary; nevertheless, it must stand on its own. These proceedings\nculminate under a different statutory scheme that remains distinct from the\nassessment proceedings.Therefore, the assessee must be informed of the\ngrounds of the penalty proceedings only through statutory notice. An\nomnibus notice suffers from the vice of vagueness.\n182. More particularly, a penal provision, even with civil consequences, must\nbe construed strictly. And ambiguity, if any, must be resolved in the affected\nassessee's favour.\n183. Therefore, we answer the first question to the effect that Goa Dourado\nPromotions and other cases have adopted an approach more in consonance\nPage 11\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nwith the statutory scheme. That means we must hold that Kaushalya does\nnot lay down the correct proposition of law.\nQuestion No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'?\n184. Indeed, Kaushalya did discuss the aspect of prejudice. As we have\nalready noted, Kaushalya noted that the assessment orders already\ncontained the reasons why penalty should be initiated. So, the assessee,\nstresses Kaushalya, \"fully knew in detail the exact charge of the Revenue\nagainst him\". For Kaushalya, the statutory notice suffered from neither non-\napplication of mind nor any prejudice. According to it, \"the so-called\nambiguous wording in the notice [has not] impaired or prejudiced the right\nof the assessee to a reasonable opportunity of being heard\". It went onto\nobserve that for sustaining the plea of natural justice on the ground of\nabsence of opportunity, it has to be established that prejudice is caused to the\nconcerned person by the procedure followed\". Kaushalya closes the\ndiscussion by observing that the notice issuing \"is an administrative device\nfor informing the assessee about the proposal to levy penalty in order to\nenable him to explain as to why it should not be done\".\n185 No doubt, there can exist a case where vagueness and ambiguity in the\nnotice can demonstrate non-application of mind by the authority and/or\nultimate prejudice to the right of opportunity of hearing contemplated\nunder section 274. So asserts Kaushalya. In fact, for one assessment year, it\nset aside the penalty proceedings on the grounds of non- application of mind\nand prejudice.\n186. That said, regarding the other assessment year, it reasons that the\nassessment order, containing the reasons or justification, avoids prejudice to\nthe assessee. That is where, we reckon, the reasoning suffers. Kaushalya's\ninsistence that the previous proceedings supply justification and\ncure the defect in penalty proceedings has not met our\nacceptance.\nQuestion No. 3: What is the effect of the Supreme Court's decision in Dilip N.\nShroff on the issue of non-application of mind when the irrelevant portions\nof the printed notices are not struck off?\n187 In Dilip N. Shroff, for the Supreme Court, it is of \"some significance that\nin the standard Pro-forma used by the assessing officer in issuing a notice\ndespite the fact that the same postulates that inappropriate words and\nparagraphs were to be deleted, but the same had not been done\". Then, Dilip\nN. Shroff, on facts, has felt that the assessing officer himself was not sure\nwhether he had proceeded on the basis that the assessee had concealed his\nincome or he had furnished inaccurate particulars.\n188. We may, in this context, respectfully observe that a contravention of a\nmandatory condition or requirement for a communication to be valid\ncommunication is fatal, with no further proof. That said, even if the notice\ncontains no caveat that the inapplicable portion be deleted, it is in the\ninterest of fairness and justice that the notice must be precise. It should give\nno room for ambiguity. Therefore, Dilip N. Shroff disapproves of the routine,\nPage 12\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nritualistic practice of issuing omnibus show-cause notices. That practice\ncertainly betrays non application of mind. And, therefore, the infraction of a\nmandatory procedure leading to penal consequences assumes or implies\nprejudice.\n189. In Sudhir Kumar Singh, the Supreme Court has encapsulated the\nprinciples of prejudice. One of the principles is that \"where procedural\nand/or substantive provisions of law embody the principles of natural\njustice, their infraction per se does not lead to invalidity of the orders passed.\nHere again, prejudice must be caused to the litigant, \"except in the case of a\nmandatory provision of law which is conceived not only in Individual\ninterest but also in the public interest\".\n190. Here, section 271(1)(c) is one such provision. With calamitous, albeit\ncommercial, consequences, the provision is mandatory and brooks no\ntrifling with or dilution. For a further precedential prop, we may refer\nto Rajesh Kumar v. CIT ((2007) 2 SCC 181], in which the Apex Court has\nquoted with approval its earlier judgment in State of Orissa v. Dr. Binapani\nDei [AIR 1967 SC 1269]. According to it, when by reason of action on the part\nof a statutory authority, civil or evil consequences ensue, principles of\nnatural justice must be followed. In such an event, although no express\nprovision is laid down on this behalf, Triumph\nSecurities Ltd compliance with principles of natural justice would be\nimplicit. If a statue contravenes the principles of natural justice, it may also\nbe held ultra vires Article 14 of the Constitution.\n191. As a result, we hold that Dilip N. Shroff treats omnibus show-\ncause notices as betraying non-application of mind and\ndisapproves of the practice, to be particular, of issuing notices in\nprinted form without deleting or striking off the inapplicable\nparts of that generic notice. (emphasis added)\n6.10 Further, in another judgment, the Hon'ble Bombay High Court in Pr.\nCIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124\ntaxmann.com 248 (Bom) also took similar view that where inapplicable\nportions were not struck off in the penalty notice, the penalty was\nvitiated. The SLP of the Department against this judgment has recently been\ndismissed by the Hon'ble Apex Court in Pr.CIT Vs. Golden Peace Hotels and\nResorts (P.) Ltd. (2021) 124 taxmann.com 249 (SC).\n6.11 I find that this very issue has recently been considered by the Hon'ble\nDelhi ITAT as well in the case of ACIL Ltd. Vs ACIT, [2022] 137 taxmann.com\n339 (Delhi -Trib.), wherein it was held as follows:\n\"9. We have gone through the record in the light of the submissions made on\neither side. From the orders under challenge, it is very clear that the main\ngrievance of the assessee is that the levy of penalty on the basis of notice\nwhich is vague and illegal cannot be sustained. Such a question of the legality\nor otherwise of assumption of jurisdiction by the learned Assessing Officer\nunder a notice issued under section 271(1)(c) of the Act without striking off of\nthe relevant limb under which the penalty is proposed is no longer res integra,\nand the Hon'ble jurisdictional High Court in the case of Pr. CIT v. Sahara\nPage 13\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nIndia Life Insurance Co. Ltd. [2019] 108 taxmann.com 597/2021) 432 (TR 84\n(Delhi), while noticing the addition of the Hon'ble Karnataka High Court\nin CIT v Manjunatha Cotton & Ginning Factory (2013) 35 taxmarin.com\n250/218 Taxman 423/359 ITR 565 dealt with this issue.\n10. In the case of Manjunatha Cotton & Ginning Factory (supra). Vide\nparagraph 60, the Hon'ble Karnataka High Court has held as follows:-\n\"60, Clause (c) deals with two specific offences, that is to say, concealing\nparticulars of income or furnishing inaccurate particulars of income. No\ndoubt, the facts of some cases may attract both the offences and in some cases\nthere may be overlapping of the two offences but in such cases the initiation of\nthe penalty proceedings also must be for both the offences. But drawing up\npenalty proceedings for one offence and finding the assessee guilty of another\noffence or finding him guilty for either the one or the other cannot be\nsustained in low. It is needless to point out satisfaction of the existence of the\ngrounds mentioned in section 271(1)(c) when it is a sine qua non for initiation\nor proceedings, the penalty proceedings should be confined only to those\ngrounds and the said grounds have to be specifically stated so that the\nassessee would have the opportunity to meet those grounds. After, he places\nhis version and tries to substantiate his claim, if at all, penalty is to be\nimposed, it should be imposed only on the grounds on which he is called upon\nto answer. It is not open to the authority, at the time of imposing penally to\nimpose penalty on the grounds other than what assessee was called upon to\nmeet. Otherwise though the initiation of penalty proceedings may be valid and\nlegal, the final order imposing penalty would offend principles of natural\njustice and cannot be sustained. Thus once the proceedings are initiated on\none ground, the penalty should also be imposed on the same ground. Where\nthe basis of the initiation of penalty proceedings is not identical with the\nground on which the penalty was imposed, the imposition of penalty is not\nvalid. The validity of the order of penalty must be determined with reference\nto the information, facts and materials in the hands of the authority imposing\nthe penalty at the time the order was passed and further discovery of facts\nsubsequent to the imposition of penalty cannot validate the order of penalty\nwhich, when passed, was not sustainable.\"\nIn CIT v. SSA's Emerald Meadows (2016) 73 taxmann.com 241 the Hon'ble\nKarnataka High Court Considered the question of law as to,-\n\"Whether, omission if assessing officer to explicitly mention that penalty\nproceedings are being initiated for furnishing of inaccurate particulars or that\nfor concealment of income makes the penalty order liable for cancellation\neven when it has been proved beyond reasonable doubt that the assessee had\nconcealed income in the facts and circumstances of the case?\"\nAnd the Hon'be High Court ruled answered the same in favour of the assessee\nobserving that:\n\"The Tribunal has allowed the appeal filed by the assessee holding the notice\nissued by the Assessing Officer under section 274 read with section\n271(1)(c) of the Income-tax Act, 1961 (for short 'the Act') to be bad in law as it\ndid not specify which limb of section 271(1)(c) of the Act, the penalty\nproceedings had been initiated i.e., whether for concealment of particulars of\nincome or furnishing of inaccurate particulars of income. The Tribunal, while\nallowing the appeal of the assessee, has relied on the decision of the Division\nPage 14\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\nBench of this Court rendered in the case of Commissioner of Income Tax V.\nManjunatha Cotton And Ginning Factory (2013) 359 ITR 565. In our view,\nsince the matter is covered by judgment of the Division Bench of this Court,\nwe are of the opinion, no substantial question of law arises in this appeal for\ndetermination by this Court. The appeal is accordingly dismissed.\"\nThe Special Leave Petition filed by the Revenue challenging the aforesaid\njudgement of the High Court was dismissed by the Hon'ble Supreme Court .\n6.12 This issue has further been considered by the Hon'ble Jurisdictional\nHigh Court in another recent decision in the case of [2022] 135\ntaxmann.com 244 (Bombay) Ganga Iron & Steel Trading Co. vs\nCIT, wherein the penalty was directed to be deleted placing reliance on the\ndecision of Hon'ble Full Bench in the case of Mohd. Farhan A. Shaikh\n(supra), with following findings:\n\"B. We may at the outset refer to the judgment of the Full Bench of this Court\nin Mohd. Farhan A. Shaikh (supra) wherein this precise question was\nconsidered and answered. The said question reads as under:\n1. If the assessment order clearly records satisfaction for imposing penalty on\none or the other, or both grounds mentioned in section 271(1)(c), does a mere\ndefect in the notice-not striking off the irrelevant matter-vitiate the penalty\nproceedings?\n9. After considering various decisions of the Hon'ble Supreme Court and of\nthis Court including the decision in Dilip N. Shroff (supra) the Full Bench\nanswered the aforesaid question as under:\n\"181. It does. The primary burden lies on the Revenue. In the assessment\nproceedings, it forms an opinion, prima facie or otherwise, to launch penalty\nproceedings against the assessee. But that translates into action only through\nthe statutory notice under section 271(1)(c), read with Section 274 of the IT\nAct. True, the assessment proceedings form the basis for the penalty\nproceedings, but they are not composite proceedings to draw strength from\neach other. Nor can each cure the other's defect. A penalty proceeding is a\ncorollary, nevertheless, it must stand on its own. These proceedings culminate\nunder a different statutory scheme that remains distinct from the assessment\nproceedings. Therefore, the assessee must be of the grounds of the penalty\nproceedings only through statutory notice. An omnibus notice suffers from\nthe vice of vagueness.\n182. More particularly, a penal provision, even with civil consequences, must\nbe construed strictly. And ambiguity, if any, must be resolved in the affected\nassessee's favour.\n183. Therefore, we answer the first question to the effect that Goa Dourado\nPromotions and other cases have adopted an approach more in consonance\nwith the statutory scheme. That means we must hold that Kaushalya does\nnot lay down the correct proposition of law.\"\nIt is thus clear from the law as laid down that even if there was an order\nrecording satisfaction for imposing penalty on one or the other, or on both\ngrounds as mentioned in section 271(1)(c) of the said Act, if the show cause\nnotice suffers from the vice of vagueness the same would vitiate such notice\"\nPage 15\nITA No. 1152/Mum/2025\nA.Y. 2014-15\nMukon Construction Private Limited\n10. We find that the law as laid down by the Full Bench applies on all fours to\nthe facts of the present case as in the show cause notice dated 12-2-2008, the\nAssistant Commissioner of Income-tax is not clear as to whether there was\nconcealment of particulars of income or that the Assessee had furnished\ninaccurate particulars of income. We therefore find that issuance of such show\ncause notice without specifying as to whether the Assessee had concealed\nparticulars of his income or had furnished inaccurate particulars of the same\nhas resulted in vitiating the show cause notice.\"(emphasis added)\n6.13 It would be seen from the above decisions that where the charge is not\nproperly set out in the notice u/s 274, that is, both the limbs stand therein\nwithout striking off of the inapplicable limb, but the penalty has been levied\nfor one of the two, such a penalty order gets vitiated. However, in the present\ncase, the situation is even worse, as the notice does not mention either of the\ncharges/limbs. Accordingly, respectfully following the judgment of the Full\nBench of the Hon'ble jurisdictional High Court and other decisions referred to\nabove, I hold that the penalty in this case gets vitiated as the notice issued u/s\n274 r.w.s.271 has to be held as void ab initio.
therefore, overturn the\nimpugned order and direct the AO to delete the penalty of Rs.1,75,48,609/-\nlevied by the AO on the appellant u/s.271(1)(c) of the Act.\"\n6. We have considered the rival submissions and examined the documents on record.\nThe notice issued under Sections 271(1)(c) and 274 of the Act, dated 27/12/2011, does\nnot specify the particular provision under which the penalty is imposed or the specific\nlimb of the offense alleged. It is well-settled that when the basis for initiating penalty\nproceedings differs from the grounds on which the penalty is ultimately imposed, such\nimposition is invalid. The validity of a penalty order must be assessed based on the\ninformation, facts, and materials available to the authority at the time the order was\npassed. Subsequent discoveries or additional facts cannot validate an otherwise\nunsustainable penalty order. The DR has relied on the judgment of the Hon'ble\nCalcutta High Court in Thakur Prasad Sao & Sons (P.) Ltd. (supra), where the Hon'ble\nCourt ruled in favor of the revenue by taking a contrary view. However, this issue is\nentirely legal and has been conclusively decided by the larger bench of the Hon'ble\nJurisdictional High Court in Mohammed Farhan A. Shaikh (supra). Various judicial\npronouncements, including the decision of the Hon'ble Karnataka High Court in CIT\nv. SAS Emerald Meadows (73 taxmann.com241), against which the Special Leave\nPetition (SLP) filed by the department was dismissed by the Hon'ble Supreme Court\n(73 taxmann.com 248), have consistently held that a notice under Section\n274/271(1)(c) of the Act must explicitly state the specific charge or limb of the offense.\nIn this case, the notice fails to identify the specific charge and does not clearly\ndistinguish between \"concealment of income\" and \"furnishing inaccurate particulars\nof income.\"\n7. In light of the binding judicial precedents cited above and the\nprinciple of ratio decidendi emerging from a plethora of decisions\nincluding those of the jurisdictional High Court, we are of the considered\nview that the impugned penalty is not sustainable on account of\nPage 16\n \nA.Y. 2014-15\nMukon Construction Private Limited\ninfirmities in the penalty order as discussed above. Accordingly, the\nappellate order is set aside. Therefore, grounds of appeal of the\nassessee are allowed.\n8. In the result, the appeal of the assessee is allowed .\nOrder pronounced in the open court on 13/10/2025.\nSd/-\nSANDEEP GOSAIN\n(न्यायिक सदस्य / JUDICIAL MEMBER)\nPlace: मुंबई/Mumbai\nदिनांक / Date 13.10.2025\nLubhna Shaikh / Steno\nSd/-\nPRABHASH SHANKAR\n(लेखाकारसदस्य/ACCOUNTANT MEMBER)\nआदेश की प्रतिलिपि अग्रेषित/