SONIYA PUNJABI - ERSTWHILE SONIYA PUNJABI,NAVI MUMBAI vs. DY. COMMISSIONER OF INCOME TAX 27(3), MUMBAI, NAVI MUMBAI

THAT, the impugned order dated 26/06/2024 issued by NFAC is erroneous inasmuch upholding penalty order dated 29/03/2017, thereby levying penalty amounting to Rs.16,30,309/- on below mentioned additions/disallowances: - NATURE OF ADDITIONS/DISALLOWANCE AMOUNT Business profit estimated at 15% of the commission and Rs.10,74,418/- commission is estimated at 11% of the gross sales made by assessee. Alleged Unexplained cash credit in respect of unsecured Rs.35.000/- loan taken from Gopichand. Alleged Unexplained cash credit in Kotak Mahindra Bank Rs.22,50,000/- Alleged Explained investment in respect of the Payment Rs.5,00,000/- made to Thakral Computer Pvt Ltd. TOTAL Rs.38,59,418/- REVISED GROUNDS OF APPEAL

The Hon'ble. CIT (A) has erred in confirming the penalty u/s 271(1)(c) of the I.T. Act, 1961, levied by the Ld. Assessing Officer, without appreciating the fact that the penalty order passed by the Ld. Assessing Officer was bad in law:  As the Ld. Assessing officer has not specified any particular limb either in the assessment order or in the showcause notice as to under which limb the penalty had been proposed to be initiated in respect of the additions of Rs. 3,44,976/-, Rs. 9,55,615/-, Rs. 35,000/-, Rs. 4,226/- and Rs. 5,00,000/-,  As the Ld. Assessing officer has not proposed/ initiated the penalty at all in the assessment order in respect of additions of Rs. 1,50,065/- (which addition has ultimately been retained at Rs. 553/- only) and Rs. 22,50,000/-

The Hon'ble. CIT (A) has erred in confirming the penalty levied in pursuance to the assessment order passed u/s 143 (3) of the I.T. Act, without appreciating the fact that the assessment order passed was substantially modified by Hon'ble ITAT, whereafter the penalty could not have been levied in pursuance to the original assessment order passed u/s 143 (3) of the 1.T Act and the show cause notice issued alongwith the said assessment order.

The Hon'ble CIT(A) has erred in confirming penalty vis-à-vis an addition of Rs. 3,44,976/-, without appreciating the fact that said addition of Rs. 3,44,976/-was made purely on estimate basis.

Briefly stated facts of the case are that the assessee, an individual was engaged in the business as consignee agent for M/s. Casio India Pvt. Ltd. on commission basis and had filed her return of income declaring total income of Rs. 4,81,383/-, which was processed u/s 143(1) of the Act and whereafter the case having been selected for scrutiny under CASS, the assessment was completed vide an order dated 31/12/2008, passed u/s 143(3) of the Act assessing the total income at Rs. 83,38,000/- by making addition of Rs. 78,56,621/- details of which are as under:- Addition/Disallowances made by Assessing officer Difference in sales Rs. 10,45,383/-

1 Against the assessment order, assessee filed an appeal before the ld.CIT(A), wherein he decided the appeal granting partial relief to the assessee, against which order revenue filed an appeal before Hon'ble ITAT, 'D' Bench, Mumbai bearing ITA No.1588/Mum/2010, wherein the ITAT upheld the order passed by the appellate authority excepting setting aside the issue in respect of courier charges reimbursement amounting to Rs. 9,51,665/-.However, the said disallowance of Rs. 9,51,665/-, being Courier charges was again sustained by CIT(A), whereafter the Assessing officer passed the impugned penalty order levying penalty u/s 271(1)(c) of the Act in respect of the following additions/disallowances: Profit on sales Rs. 3,44,976/- VAT and CST Rs. 553/- Courier Charges Rs. 9,51,665/- Unexplained Cash Credit (Loan Gopichand) Rs. 35,000/- Unexplained Cash Credit Hyundai Rs.22,50,000/- Unexplained Cash Credit (Bank Interest) Rs. 4,226/- Unexplained Investment (Thakral Computers) Rs. 5,00,000/-

The ld.AR has submitted that against the said penalty order, the assessee filed appeal before the ld.CIT(A) who confirmed the penalty levied.It is further stated that the assessee had raised revised grounds of appeal, out of which last two grounds were general in nature. As regard other grounds of appeal, following were the issues to be adjudicated upon by the Bench: (i). Whether the Ld. Assessing officer having failed to specify in the assessment order/showcause notice as to under which limb of Sec 271(1)(c) of the 1.T. Act, 1961, the penalty was proposed to be initiated, can the penalty be levied? (ii). Whether the Ld. Assessing officer having not proposed initiation of penalty in the assessment order in respect of particular additions, can the penalty be levied while passing the penalty order? (iii). Whether penalty can be levied against addition made purely on estimated basis ? 5.1 As regard the first and second issue, it is stated that the AO failed to specify in the assessment order as to under which limb of Section 271(1)(c) of the Act,the penalty was proposed to be initiated.In this regard,it is contended that the AO having proposed initiation of penalty proceedings u/s 271(1)(c) of the Act without mentioning therein/without having recorded his satisfaction in respect of any particular charge as to whether penalty proceedings were initiated for having concealed the particulars of income or for furnishing inaccurate particulars of income and having not proposed the penalty at all against two additions, which act of the AO itself clearly proved that the penalty

The ld.DR did not contest the above factual aspects as stated by the ld.AR.

We have perused the relevant orders. The Revenue did not furnish the copy of show cause notice issued u/s 271(1)(c) of the Act despite specific instructions by the Bench vide order dated 18.12.2025.Therefore,the contentions of the assessee remained unrebutted by the Revenue. Perusal of the assessment order also reveals that the AO has not specified the charge for levy of penalty u/s 271(1)(c) of the Act as he has merely stated that penalty proceedings u/s 271(1)(c) have been intitated.The contentions of the ld.AR appears to be correct in as much as the AO failed to specify as to whether the penalty order pertained to furnishing of inaccurate particulars of income or concealment of income which makes the mistake fatal as held

As the provision stands, the penalty proceedings can be initiated on various grounds set out therein. If the order passed by the authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.

Clause (c) deals with two specific offences, that is to say, concealing par ticulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out the satisfaction of the existence of P a g e | 8 A.Y. 2006-07 Soniya Punjabi - Erstwhile Soniya Daswani the grounds mentioned in section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings Assessment Year: 2010-11 should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the assessee was called upon to meet. Otherwise, though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend the principles of natural justice and cannot be sustained. Thus, once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. xx xx 62. xx xx CONCLUSION

In the light of what is stated above, what emerges is as under: (a) Penalty under section 271(1)(c) is a civil liability. xx xx (p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Assessment Year: 2010-11 (s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law." (Emphasis Supplied) 7.1 The above judgment of Hon’ble Karnataka High Court was taken into consideration by the Full Bench of the Hon‟ble Bombay High Court in the case of Mohd. Farhan A Shaikh (supra) wherein it was held as under:

It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness." (Emphasis supplied)

2 In view of the above stated factual and legal aspects of the case,respectfully following the above cited decision,we are inclined to set aside the orders passed by the lower authorities and direct the AO to delete the penalty,thus allowing the specific revised ground filed by the assessee.

3 Since we have deleted the penalty on account of invalid notice issued under section 274 read with section 271(1)(c) of the Act other ground on merit are not adjudicated upon. Therefore, ground of appeal of the appeal stands allowed.

In the result, the appeal of the assessee is allowed.