SMT. REEMA VIVEK KOTHARI,MUMBAI vs. INCOME TAX OFFICER WARD 19(3)(1), MUMBAI

The brief facts of the case are that the assessment was completed under section 143(3) of the Act and the total income sought to be evaded amount to Rs 18,19,935/- related to the disputed purchases. The penalty proceedings was initiated under section 271(1)(c) of the Act and the notice under section 274 read with section 271(1)(c) was duly issued and served. After hearing the same, the penalty was levied @100% of the tax sought to be evaded amount to Rs.3,71,603/-. The aggrieved assessee filed an appeal before the Ld. CIT(A) and submitted all the relevant documents. The assessee had challenged the validity of notice issued by the Ld. AO u/s 271(1)(c) before the Ld. CIT(A). But the Ld. CIT(A) rejected the appeal both on quantum & legal issue. Being aggrieved, the assessee filed an appeal before us.

The Ld.AR submitted a paper book comprising pages 1 to 58 which has been kept in the record (APB). The Ld.AR first invited our attention in the notice issued by the Ld.AO under section 274 read with section 271(1)(c) of the Act dated 19/02/2016. The copy of the notice is reproduced as below:-

The Ld.AR contended that the Ld.AO has not specified the limb under which the penalty was initiated, in the notice and also during the finalization of the assessment order. The Ld.AO relied on the order of the Hon’ble Bombay High Court (Panaji Bench) in the case of Mohammed Farhan A Shaikh vs DCIT reported in (2021) 434 ITR 1 (Bom [FB]) held as under:- “Question No. 1 : If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in section 271(l)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings ?

The Ld. DR vehemently argued and placed that the judgment of the Hon’ble Supreme Court in the case of State Bank of Patiala & Ors vs S.K. Sharma, AIR 1996 SUPREME COURT 1669 date of order 27/03/1996. The Ld. DR stands in favour of the order of the revenue authorities.

We heard the rival submissions and considered the documents available in the record. The Ld.AO has issued the notice without mentioning the specific limb in the notice issued under section 274 read with section 271((1)(c) of the Act. In the assessment order also, the particular limb was not mentioned. The issue was duly agitated by the assessee before the Ld. CIT(A). The submission dated 01/05/2024 filed before the Ld. CIT(A) is duly annexed in the paper book pages 13 to 22. Further the assessee had taken specific ground before the Ld. CIT(A) for validity of show cause notice which was adjudicated by the Ld. CIT(A) and rejected the same. The issue is entirely legal and was decided by the Hon’ble Jurisdictional High Court in Mohammed Farhan A Shaikh (supra). The ld. DR relied on the case State Bank of Patiala (supra) & the judgments relied by the Ld. CIT(A) are factually distinguishable. As held in various judicial pronouncements including the decision of Hon’ble Karnataka High Court in CIT V/s SAS’s Emerald Meadows (73 taxmann.com 241) against which Special Leave Petition (SLP) filed by the department stood dismissed by Hon’ble Supreme Court which is reported in 73 taxmann.com 248. The notice u/s 274/271(1)(c) of the Act is not carrying the specific limb as well as in assessment order also. Therefore, this is a case where both the parts of the offences i.e., concealment of income as well as furnishing of inaccurate particulars of income were involved. 7. Finally, respectfully following the binding judicial precedents as cited aforesaid, we are of the considered opinion that the impugned penalty is not sustainable on legal grounds. Hence, by deleting the same, we allow the appeal of the assessee. Order pronounced in the open court on 31st day of August 2026