HIMACHAL PRADESH FINANCIAL CORPORATION ,SHIMLA vs. ACIT, SHIMLA

Brief facts of the case are that the assessee filed its return of income declaring loss of Rs. 8,52,77,711/-. The case was selected for scrutiny and assessment was completed under section 143(3) of the Act, wherein disallowance of Rs. 1,17,71,017/- was made on account of provision for 2 gratuity. Consequent thereto, penalty proceedings under section 271(1)(c) were initiated and penalty was imposed, which was subsequently reduced to Rs. 20,92,244/- in rectification proceedings.

Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the penalty and dismissed the appeal of the assessee.

Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.

During the course of hearing, the Ld. AR submitted that the penalty is liable to be deleted both on merits as well as on legal grounds. It was contended that all material facts were duly disclosed and the disallowance was merely on account of a difference of opinion regarding allowability of provision for gratuity.

1 The Ld. AR further raised a legal contention that the show cause notice issued under section 274 read with section 271(1)(c) of the Act dated 31.07.2015 is defective inasmuch as the Assessing Officer has not specified the exact charge, i.e., whether the penalty is for “concealment of income” or for “furnishing inaccurate particulars of income”, and the notice was issued in a vague and omnibus manner by mentioning both the limbs. It was submitted that such a notice vitiates the entire penalty proceedings.

Per contra, the Ld. DR relied upon the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record. The first legal issue raised by the assessee goes to the root of the matter and therefore is taken up for adjudication. It is an admitted position that the show cause notice issued under section 274 read with section 271(1)(c) of the Act dated 31.07.2015 does not specify the exact charge and both the limbs, namely “concealment of income” and 3 “furnishing inaccurate particulars of income” have been mentioned in a routine manner without striking off the irrelevant portion.

1 We find that this issue is no longer res integra. The Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (359 ITR 565) has held that the Assessing Officer has to be clear and specific in the notice as to under which limb of section 271(1)(c) the penalty proceedings are initiated and failure to do so would render the penalty proceedings invalid.

2 The aforesaid proposition has been consistently followed in various judicial pronouncements, including the decision of the Hon’ble Supreme Court in the case of SSA’s Emerald Meadows, wherein the SLP filed by the Department against the judgment of the Hon’ble Karnataka High Court was dismissed, thereby affirming the principle that non-specification of charge in the notice vitiates the penalty proceedings.

3 Similar view has also been taken by various High Courts holding that a vague notice without specifying the exact charge deprives the assessee of a reasonable opportunity of being heard and thus violates the principles of natural justice.

4 In the present case, since the show cause notice itself suffers from the defect of non-specification of charge, the entire penalty proceedings stand vitiated and the penalty order passed in pursuance thereof cannot be sustained.

5 Even otherwise, on merits also, we find that the disallowance made by the Assessing Officer pertains to provision for gratuity which was duly disclosed in the tax audit report and there is no finding that the particulars furnished by the assessee were false or incorrect. The issue is clearly debatable and covered by the ratio laid down by the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd., wherein it has been 4 held that mere making of an unsustainable claim does not amount to furnishing inaccurate particulars of income.

6

In the result, the appeal of the assessee is allowed. Order pronounced on 22/04/2026 कृणव" सहाय लिलत कुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद"/ ACCOUNTANT MEMBER "ाियक सद" /JUDICIAL MEMBER AG आदेश की "ितिलिप अ"ेिषत/ Copy of the order forwarded to : 1. अपीलाथ"/ The Appellant

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File