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Facts
The assessee company is engaged in real estate construction and development. An addition/disallowance was made on account of business promotion expenses. Consequently, penalty proceedings were initiated under Section 271(1)(c) of the Income Tax Act for concealment of income, but the penalty order was levied for furnishing inaccurate particulars of income.
Held
The Tribunal held that the initiation of penalty proceedings for concealment of income while levying penalty for furnishing inaccurate particulars of income is a fatal defect. The notice and penalty order must clearly specify the limb of the section under which the penalty is levied, and any ambiguity renders the order invalid.
Key Issues
Whether penalty proceedings initiated for one limb of Section 271(1)(c) or Section 270A and penalty levied under another limb is legally sustainable?
Sections Cited
143(1), 143(3), 271(1)(c), 270A, 274
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM
O R D E R Per Kavitha Rajagopal, J M: These are captioned appeals filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2016-17 and 2017-18.
It is observed that the assessee has filed these appeals with a delay of 13 days beyond the period of limitation for which the assessee has filed an affidavit for condoning the delay along with the reasons specified for the delay. Upon perusal of the same, we deem it fit to condone the delay in filing the appeal for the reason that there was ‘sufficient cause’ and bonafide reasons for the delay. Delay condoned.
& 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. 3. As the facts are identical in both these appeals, we hereby pass a consolidated order by taking (A.Y. 2016-17) as a lead case.
A.Y. 2016-17 4. The assessee has raised the following grounds of appeal along with additional grounds of appeal filed vide letter dated 04.03.2025 which are reproduced herein under: Grounds of Appeal 1) For that on the facts and circumstances of the case, Ld. CIT (Appeals) NFAC was grossly erred in confirming the Penalty of Rs. 12.84.314/- imposed Uls 271(1)(c) of the Income Tax Act, 1961. 2) For that on the facts and circumstances of the case, Ld. CIT (Appeals) as well as td. Assessing Officer was grossly erred in imposing the penalty U/s 271(1)(c) for the disallowance of expenses without any finding that claim of expenses was bogus 3) For that on the facts and circumstances of the case, the considering the ratio of decision of Hon'ble Supreme Court in the case of Reliance Petro Products Ltd., the penalty Rs. 12,84,314/- imposed is liable to be deleted in full. Additional Grounds of Appeal 1. "That the order of the Ld. CIT(A) confirming the order of the Ld. AO imposing the penalty order passed u/s 271(1)(c) of the Act is bad in law as the assessment order as well as notice issued under section 274 r.w.s. 271(1)(c) of the Act initiated the penalty under one limb of the section 271(1)(c) alleging 'Concealment of Income, HOWEVER, the penalty was levied on two other limbs l.e. for Furnishing Inaccurate particulars of Income'and for 'Deemed concealment of income', where all three connotations have different meanings in law, showing improper opportunity of being heard and non application of mind on the facts and circumstances of the appellant's case and therefore, the impugned order passed deserves to be quashed."
5. As the additional grounds raised by the assessee goes to the root of the case, we hereby deem it fit to admit the same in terms of the proposition laid down by the Hon’ble Apex Court in the case of National Thermal Power Corporation vs. CIT (1999)
97. Taxmann.com 358/(1998) 229 ITR 383 (SC).
6. Brief facts of the case are that the assessee is engaged in the business of Real Estate Constructions and Development and had filed its return of income dated 14.10.2016 & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. declaring total loss at Rs. 60,58,380/- and the same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny through CASS and the learned Assessing Officer ('ld. A.O.' for short) passed the assessment order u/s. 143(3) of the Act dated 18.12.2018, determining total income at Rs. 19,02,023/- after making a disallowance of the business promotion expenses claimed by the assessee company amounting to Rs. 41,56,357/-. The ld. AO also initiated penalty proceedings u/s. 271(1)(c) of the Act, for concealment of particulars of income. The ld. AO then passed the penalty order dated 28.06.2019, u/s. 271(1)(c) of the Act, thereby levying a penalty of Rs. 12,84,314/-.
7. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 27.06.2024, upheld the penalty levied by the ld. AO.
The assessee is in appeal before us, challenging the impugned order.
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee has filed the additional ground of appeal pertinent to the legality of the penalty proceeding on the ground that the ld. AO initiated penalty proceeding for concealment of particulars of income, whereas penalty was levied for furnishing inaccurate particulars of income which are two different limbs as per Section 27(1)(c) of the Act. Further, the ld. AR contended that the show cause notice dated 18.12.2018 was also issued for concealment of income, whereas penalty was levied for furnishing of inaccurate particulars of income. The ld. AR relied on a catena of decisions in support of the assessee’s contention.
& 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd.
The learned Departmental Representative ('ld. DR' for short) for the revenue controverted the said fact and stated that though the ld. AO has specified that penalty is for concealment of income at para 4 of the penalty order, he concludes by stating that penalty is levied for furnishing of particulars of income. The ld. DR further contended that there was no prejudice caused to the assessee on the said discrepancy as the notice as well as part of the penalty order except for the conclusion was for concealment of income. The ld. DR relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee company has claimed expenditure of Rs. 41,56,357/- under the head sales promotion which according to the assessee pertains to the scholarship expenses of one of the assessee company’s director’s son. The assessee contends that it is towards the business promotion expenses which was not accepted by the ld. AO as the same is not expended for the business of the assessee. The ld. AO made an addition/disallowance on the same and initiated penalty proceedings u/s. 271(1)(c) of the Act for concealment of particulars of income. The ld. AO issued notice u/s. 274 r.w.s. 271(1)(c) of the Act dated 18.12.2018 which again was for concealment of particulars of income. The ld. AO then passed the penalty order u/s. 271(1)(c) of the Act, where it was explained that penalty was levied for concealment of particulars of income but the ld. AO concluded by stating that furnishing of inaccurate particulars of income was made out and the same being with malafide intention and hence proceeded to levy penalty of Rs. 12,89,314/- being 100% of the tax sought to be evaded out of Rs. 38,52,942/-. The assessee has challenged by way of additional ground, the legality of & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. the notice on the ground that the ld. AO has issued the notice for concealment of particulars of income but has proceeded to levy penalty for furnishing inaccurate particulars of income. The ld. AR’s argument was that the ld. AO has not recorded the correct satisfaction as to which limb the penalty was initiated, though the notice was for concealment of particulars of income. It is evident that the penalty order was for furnishing inaccurate particulars of income. The ld. AR further contended that it was non application of mind by the ld. AO and on that ground prayed that the penalty order be stuck off. It is not the case of the revenue that the ld. AO has erroneously mentioned it to be inaccurate particulars of income where the ld. DR argued on the ground that the assessment order on one limb and penalty order on another limb does not cause any prejudice to the assessee. We are not convinced with the argument of the ld. DR for the reasons that it is a settled proposition of law that before levying penalty, the ld. AO will have to give sufficient notice to the assessee specifying which of two limbs, the ld. AO has initiated penalty proceeding. There are also various decisions which has reiterated that the notice and the penalty order should not have any ambiguity as to the relevant limbs of the penalty provision u/s. 271(1)(c) of the Act and any defect in the same has been held to be not curable defect. There is no iota of doubt that in the present case in hand there are discrepancy, where the ld. AO has initiated the penalty for concealment and even in the penalty order has mentioned that it was for the same but unfortunately has concluded the penalty order by holding as under: “From the facts, it could be made out that furnishing of inaccurate particulars of income was deliberate and was executed with a malafide intention to defraud the revenue and evade the due taxes.”
& 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd.
From the above, it cannot be inferred that the same was a typographical error or rather to say a mistake apparent on record, for the reason that even the revenue has not taken the said defense. Assuming that the ld. AO has levied penalty for furnishing of inaccurate particulars of income, now the issue in hand is whether the assessment order and the notice was for one limb and the penalty order was on another limb could be a valid ground for holding the penalty order to be invalid in the eyes of law. For this, we would place our reliance on the decision relied upon by the ld. AR in the case of Commissioner of Income-tax vs. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka)/[2013] 218 Taxman 423 (Karnataka)/[2013] 359 ITR 565 (Karnataka)/[2013] 263 CTR 153 (Karnataka)[13-12-2012], where the Hon’ble High Court of Karnataka has elaborated extensively on what circumstances a penalty could be levied, were one of the similar circumstances mentioned in the said decision is as under: “Taking up of penalty proceeding on one limb and finding the assessee guilty on another limb is bad in law.”
The present case in hand squarely falls under the said category, where the ld. AO has initiated penalty proceeding for concealment of income and has concluded for furnishing inaccurate particulars of income.
On the above observation, we deem it fit to allow the additional ground of appeal
raised by the assessee and hereby direct the ld. AO to delete the penalty levied in the hands of the assessee for the year under consideration. As we have prima facie quashed the penalty proceedings by holding the same to be invalid and bad in law, the other grounds 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. of appeal on the merits raised by the assessee requires no separate adjudication and hence rendered academic.
15. In the result, the appeal filed by the assessee is allowed.
A.Y. 2017-18 16. The assessee has raised the following grounds of appeal along with additional grounds of appeal vide letter dated 04.03.2025 challenging the validity of the penalty order: “Grounds of appeal: 1) For that on the facts and circumstances of the case, Ld. CIT (Appeals) NFAC was grossly erred in confirming the Penalty of Rs. 4,82,473/- imposed by Assessing Officer U/s 270A of the Income Tax Act, 1961 for under reporting of the income. 2) For that on the facts and circumstances of the case, Ld. CIT (Appeals) NFAC was grossly erred in rejecting the explanation about the invocation of Clause (a) to sub-section (6) of Sec 270A for the treating the addition/disallowance as not an under reported income. 3) For that on the facts and circumstances of the case, the penalty-imposed U/s 270A Rs. 4,82,473/- is liable to be deleted in full as appellant offered a bonafide explanation and disclosed all the material facts to substantiate the explanation in respect of amount of income treated as under reported income.” Additional Grounds of Appeal:
1. That the order of the Ld. CIT(A) confirming the order of the Ld. AO imposing the penalty u/s 270A of the Income tax Act, 1961 is bad in law, as the notice issued under section 274 r.w.s. 270A of the Act is not discernible as to whether the penalty has been levied for Under-reporting of Income Or for Misreporting of income and has been issued without any application of mind to the facts and circumstances of the appellant's case and therefore, the impugned order passed deserves to be quashed in view of the ratio of the judgment of Hon'ble Apex Court in case of CIT vs. SSA's Emerald Meadows in SLP for Civil Appeal No. CC No.11485/2016 dated 11.01.2017 and others.
2. That the order of the Ld. CIT(A) confirming the order of the Ld. AO imposing the penalty u/s 270A of the Income tax Act, 1961 is bad in law as Penalty was initiated under one limb i.e. for misreporting of income but the penalty was levied under the other limb 1.e. for under reporting of income, as such amounting to improper opportunity of being heard awarded to the assessee, in view of the ratio of the judgment of the Hon'ble High Court of Karnataka has held in the case of & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. Commissioner Of Income Tax &Anr. Vs. Manjunatha Cotton & Ginning Factory, 359 ITR 0565 (2013).
Without prejudice to the other grounds of appeal
, the order of the Ld. CIT (A) confirming the order of the Ld. AO imposing the penalty u/s 270A of the Income tax Act, 1961 is erroneous both on facts and in law because of failure of Ld.AO to specify the specific clause for misreporting of income section under section 270A(9) of I.T Act for initiating the penalty proceedings without even discussing the relevant provision/clause under which penalty is being levied.”
17. As the facts of this appeal is also identical, where nature of the addition/disallowance for the year under consideration is also the same, we hereby refrain from discussing the facts for the sake of repetitiveness.
18. The ld. AO initiated penalty proceeding on the addition of Rs. 32,16,489/- on the disallowance of the expenditure claimed on the scholarship of the director’s son under the head business promotion expenses u/s. 270A of the Act for under reporting of income. Notice u/s. 270A r.w.s. 274 dated 10.12.2019 was issued and served upon the assessee for under reporting/misreporting of income. The ld. AO then proceeded to levy penalty u/s. 270A amounting to Rs. 4,82,473/- for under reporting of income to the tune of Rs. 32,16,489/-
19. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 27.06.2024 upheld the penalty levied by the ld. AO.
20. The assessee is in appeal before us, challenging the impugned penalty.
21. The ld. AR by way of additional ground has challenged the penalty notice issued u/s. 274 r.w.s 270A of the Act as not being discernable as to whether the same was initiated for under reporting of income or for misreporting of income. The ld. AR contended that there was no application of mind by the ld. AO as to the facts and circumstances. The & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. ld. AR relied on the decisions of the Hon'ble Apex Court in the case of CIT vs. M/S SSA'S Emerald Meadows, special leave to appeal (c) CC NO. 11485/2016 and also the Hon'ble High Court of Karnataka in the case of Manjunatha Cotton & Ginning Factory (supra) 22. The ld. DR on the other hand controverted the said fact and stated that the ld. AO has initiated penalty for misreporting of income and confirmed penalty for under reporting of income which caused no prejudice to the assessee. The ld. CIT(A) upheld the order of the ld. AO for misreporting of income. It is observed that there has been various discrepancies in the order of the ld. AO where in the assessment order the ld. AO has initiated penalty proceeding u/s. 270A of the Act for misreporting of income due to under reporting of income caused on misrepresentation of facts and the impugned notice dated 10.12.2019 did not specify as to whether it was for under reporting or for misreporting of income. Further, the penalty order u/s. 270A was for under reporting of income.
23. On the above factual matrix of the case, the findings given in 271(1)(c) of the Act will apply mutatis mutandis to this appeal also, where the ld. AO initiated the penalty proceeding for misreporting of income and has issued notice without categorically specifying whether the same was for misreporting of income or under reporting of income and then concluded the penalty order by levying penalty for under reporting of income. It cannot be denied that the legislature in its wisdom has bifurcated each category of default for the purpose of the enhancing the ld. AO to levy penalty according to the nature of default as per the facts & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd. of the assessee’s case, for instance whether it is for under reporting of income or misreporting of income as per Section 270A of the Act or for concealment of income or furnishing inaccurate particulars of income u/s. 271(1)(c) of the Act, which by various decisions of the Hon'ble High Court and the Hon'ble Apex Court has been reiterated to be a mandatory condition to be without any ambiguity as to the specified limb as to why the penalty was initiated and levied thereafter.
24. From the above observation, we deem it fit to allow the legal grounds raised by the assessee by holding the penalty notice and consequential order to be bad in law. We hereby allow the grounds of appeal raised by the assessee and the grounds on merits requires no further adjudication and hereby rendered academic.
25. In the result, the appeal filed by the assessee is allowed.
26. In the result, both the appeals filed by the assessee are allowed. Order Pronounced under Rule 34(4) of the ITAT Rules by placing result on the notice board on 30.05.2025 Sd/- Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 30.05.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, & 4643/Mum/2024 (A.Y. 2016-17 & 2017-18) Ascot Realty Pvt. Ltd.