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Facts
The assessee appealed against penalty orders passed under Section 271(1)(c) for Assessment Years 2014-2015, 2015-2016, and 2016-2017. The Assessing Officer initiated penalty proceedings after making additions to the total income, but did not specify the exact limb of Section 271(1)(c) under which the penalty was levied.
Held
The Tribunal held that the Assessing Officer failed to record the statutory requirement of recording satisfaction and did not specify the specific limb of Section 271(1)(c) under which the penalty was to be levied, both at the time of initiating penalty proceedings and while passing the penalty order. Consequently, the penalty could not be sustained.
Key Issues
Whether penalty levied under Section 271(1)(c) is sustainable when the Assessing Officer fails to specify the charge (concealment of income or furnishing inaccurate particulars) in the assessment order, penalty notice, and penalty order.
Sections Cited
271(1)(c), 250, 143(3), 153A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, D BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER SMT RENU JAUHRI, ACCOUNTANT MEMBER & Moraj Building Concepts Private Limited Office No. 1803, The Affairs, Plot No. 9, Sector 17, Sanpada, Mumbai – 400705. [PAN: AABCM8573A] …………. Appellant Income Tax Officer Central Circle 5(2) Room No. 427, 4th Floor, Kautilya Bhavan, Vs Bandra Kurla Complex, Bandra East, …………. Mumbai – 400051. Respondent Appearance For the Appellant/Assessee : None For the Respondent/Department : Shri R. R. Makwana Date Conclusion of hearing : 03.03.2025 Pronouncement of order : 15.05.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are three appeals preferred by the Assessee challenging the order passed by the Commissioner of Income Tax, Appeal - 53, Mumbai [hereinafter referred to as the ‘CIT(A)’], whereby penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2014-2015, 2015-2016 and 2016-2017 was partly confirmed by the CIT(A) while disposing off three separate appeals preferred by the Assessee as partly allowed. Since identical grounds were raised in all the three appeals, the same were heard together, and are, therefore, being disposed off by ITA No.278,279 & 302 /Mum/2025 Assessment Year 2014-2015, 2015-2016 & 2016-2017 way of a common order.
We would first take up appeal preferred by the Assessee for the Assessment Year 2014-2015 which is directed against the order, dated 28/11/2024, passed by the CIT(A) under Section 250 of the Act, whereby the CIT(A) had partly allowed the appeal of the Assessee against the Penalty Order, dated 04/03/2022, passed under Section 271(1)(c) of the Act for the Assessment Year 2014-2015.
When the appeal was taken up for hearing none was present on behalf of the Assessee. We have heard the Learned Departmental Representative and have perused the material on record.
The relevant facts as emerging from the record are that the assessment under Section 143(3) read with Section 153A of the Act was framed on the Assessee, vide Assessment Order dated 26/12/2018, whereby the addition of INR.1,91,184/- was made in the hands of the Assessee. The Assessing Officer made the aforesaid addition in respect of the annual lettable value (computed on the basis of property tax valuation) in respect of flats/units held by the Assessee as closing stock-in-trade for the Assessment Year 2014-2015. The aforesaid addition made by the Assessing Officer were confirmed by the CIT(A) vide Order, dated 15/12/2021.
Thereafter, in the penalty proceedings initiated under Section 271(1)(c) of the Act for the Assessment Year 2014-2015, vide notice, dated 03/02/2022, the Assessee was asked to show cause why penalty under Section 271(1)(c) of the Act should not Assessment Year 2014-2015, 2015-2016 & 2016-2017 be levied in respect of the aforesaid addition. In response, the Assessee, vide reply letter dated 09/02/2022, requested the Assessing Officer to keep the penalty proceedings in abeyance since the appeal preferred by the Assessee against the Order, dated 15/12/2021, passed by the CIT(A) in the quantum proceedings was pending adjudication before the Tribunal. However, the Assessing Officer rejected the aforesaid request of the Assessee and passed Penalty Order, dated 04/03/2022, levying penalty of INR.59,080/- under Section 271(1)(c) of the Act.
Being aggrieved, the Assessee has preferred appeal before the CIT(A) challenging the aforesaid penalty levied by the Assessing Officer. In appellate proceedings, the CIT(A) noted that by way of a Common Order, dated 31/03/2023, for the Assessment Years 2012-2013 to 2016-2017 [ITA Nos. 420, 264, 263, 265 & 266/Mum/2022], the Co-ordinate Bench of the Tribunal had disposed off the quantum appeals preferred by the Assessee against the Order, dated 15/12/2021, for the Assessment Year 2013-2014 passed by the CIT(A) and had directed the Assessing Officer to compute the notional rental income of the Assessee in respect of flats/units held as closing stock-in-trade by estimating rent on the basis of municipal ratable value. Therefore, the CIT(A) directed the Assessing Officer to re-compute the penalty by taking into consideration the income determined by the Assessing Officer as per the aforesaid Common Order, dated 31/03/2023, passed by the Tribunal in the quantum appeals. Thus, the CIT(A) granted partial relief and disposed off the appeal preferred by the Assessee against Penalty Order as partly allowed.
Being aggrieved, the Assessee has preferred the present appeal Assessment Year 2014-2015, 2015-2016 & 2016-2017 before the Tribunal. On perusal of the grounds raised, we find that the Assessee has challenged the levy of penalty under Section 271(1)(c) of the Act, inter-alia, on the following grounds:
vi. the penalty was initiated without specifying any charge in the assessment order or penalty notices or penalty orders, xx xx xv. without determining whether the assessee had furnished any inaccurate particulars of income or concealed income xx xx xvii. without identifying one of the two offences for which he proposed to levy penalty and informing the same to your appellant for responding to the same and further erred in passing the order of penalty once again by not identifying one of the two offences and instead levy penalty for allegedly concealing the particulars of income by furnishing inaccurate particulars of income, xviii. in initiating penalty proceedings without recording his satisfaction in the assessment order or in notice that the facts recorded in assessment satisfied him to initiate penalty proceedings.
8. By way of the above grounds it has been contended on behalf of the Assessee that the Assessing Officer has failed to invoke specific limb of Section 271(1)(c) of the Act at the time of initiating penalty proceedings as well as at the time of passing the penalty order. Therefore, the penalty levied under Section 271(1)(c) of the Act cannot be sustained.
Section 271(1)(c) of the Act reads as under:
“271. (1) If the Income-tax Officer or ….. in the course of any proceedings under this Act, is satisfied that any person: (a) xx xx, or Assessment Year 2014-2015, 2015-2016 & 2016-2017
(b) xx xx, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty."
Bare perusal of Section 271(1)(c) of the Act shows that the Assessing Officer must be satisfied, in the course of any proceedings under the Act, that an Assessee has (a) concealed particulars of income; or (b) furnished inaccurate particulars of income.
On perusal of the Assessment Order, dated 26/12/2018, for the Assessment Year 2014-2015 we find that while making the addition of INR.1,91,184/-, the Assessing Officer had directed initiation of penalty proceedings in the following manner: “6.6 Accordingly, a sum of Rs.1,91,184/- is added back to the total income of the assessee company. Penalty Proceedings u/s.271(1)(c) of the Income Tax Act 1961 is initiated on this issue for concealment of income.” (Emphasis supplied) Thus, while initiating the penalty proceedings under Section 271(1)(c) of the Act the Assessing Officer has recorded satisfaction that the penalty proceedings have been initiated for concealment of income. The Assessing Officer has not specified whether the concealment of income has taken place on account of concealment of particulars of income or on account of furnishing inaccurate particulars of income. We find that in the present case, even on reading the Assessment Order, dated 26/12/2018, it cannot be discerned whether the penalty proceedings were sought to be initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. At the time of initiation of penalty proceedings under Section 271(1)(c) of the Act, the Assessing Officer must specify Assessment Year 2014-2015, 2015-2016 & 2016-2017 which one of the two charges the Assessing Officer wishes to invoke. Therefore, in the present case the statutory requirement of recording satisfaction contained in Section 271(1)(c) of the Act is not fulfilled.
Further, we note that even while passing the Penalty Order, dated 04/03/2022, under Section 271(1)(c) of the Act, the Assessing Officer has not specified the charge and/or the specific limb of Section 271(1)(c) of the Act. The Assessing Officer has, while levying penalty under Section 271(1)(c) of the Act, recorded as under: “5. In this case, I find that the default of the assessee has elements of concealment of income. Relevant facts noted in the assessment order, have been confirmed by the Ld.CIT(A) in his order dated 15.12.2021. The mens-rea is also clear & established. Hence, Penalty u/s 271(1)(c) is attracted and is imposable. 6. In view of the above discussion and on careful consideration of facts and circumstances of the case, I find and hold that:
1. 1. The assessee's default within the meaning of section 271(1)(c) is clear and established as discussed above and also in the body of the assessment order.
2. The Ld. CIT(A) has confirmed the addition made by the A.O.
3. The assessee has failed to give any explanation or reply and defence for penalty u/s 271(1)(c) of the Act.
4. The assessee has deliberately concealed its taxable income by making inaccurate claims.
5. That this case is fit case for levying penalty u/s 271(1)(c) of the Income Tax Act, 1961.
7. The total income sought to be evaded is Rs.1.91,184/-. As per the provisions of section 271(1)(c): Assessment Year 2014-2015, 2015-2016 & 2016-2017 Minimum penalty @100% of tax sought to be evaded : Rs.59,076/- Minimum penalty @300% of tax sought to be evaded : Rs.1,77,228/- 8. In view of the above foregoing points, I hereby impose penalty u/s.271(1)(c) at Rs.59,080/- (Rupees Fifty Nine Thousand Eighty)”. (Emphasis Supplied) 13. In the Penalty Order, dated 26/12/2018, the Assessing Officer has recorded that the default of the Assessee has elements of concealment of income and that the Assessee has deliberately concealed this taxable income by making inaccurate claims. Thus, it is evident that the Assessing Officer has failed to refer to the specific limb of Section 271(1)(c) of the Act. The Assessing Officer is levied penalty without specifying whether penalty under Section 271(1)(c) of the Act has been levied for concealment of particulars of income or for furnishing inaccurate particulars of income. Thus penalty has been levied without specifying the charge or the specific limb of Section 271(1)(c) of the Act for which penalty has been levied.
In view of the above, given the facts and circumstances of the present case, we hold that the penalty levied under Section 271(1)(c) of the Act cannot be sustained and therefore, the same is deleted. Accordingly, Ground No.1(a)vi, 1(a)xv, 1(a)xvii and 1(a)xviii are allowed and all the other grounds raised
by the Assessee are dismissed as having been rendered infructuous. [Assessment Year 2015-2016] & ITA No. 302/MUM/2025 [Assessment Year 2016-2017]
15. Now we would take up appeals preferred by the Assessee for the Assessment Year 2015-2016 and 2016-2017 which are directed against the orders, dated 28/11/2024 respectively, passed by the CIT(A) under Section 250 of the Act.
For the Assessment Year 2015-2016 and 2016-2017 penalty of Assessment Year 2014-2015, 2015-2016 & 2016-2017 INR.3,22,870/- and INR.29,540/-, respectively, was levied on the Assessee under Section 271(1)(c) of the Act vide Penalty Orders, dated 03/03/2022 and 04/03/2022, respectively. In appeal, the CIT(A) granted partial relief by taking note of the Common Order , dated 31/03/2023, passed by the Co-ordinate Bench of the Tribunal in quantum appeal for the Assessment Years 2012-2013 to 2016-2017 [ITA Nos. 420, 264, 263, 265 & 266/Mum/2022]. Not being satisfied by the relief granted by the CIT(A), Assessee has preferred the appeals under consideration pertaining to Assessment Year 2015-2016 and 2016-2017.
On perusal of Penalty Order for the Assessment Year 2015-2016 and 2016-2017, we find that the Assessing Officer has not specified the charge and/or the specific limb of Section 271(1)(c) of the Act under which penalty has been levied. Therefore, keeping in view our findings/adjudication in appeal for the Assessment Year 2014-2015 hereinabove, we delete the penalty of INR.3,22,870/- and INR.29,540/-, levied under Section 271(1)(c) of the Act for the Assessment Years 2015-2016, and 2016-2017, respectively. Accordingly, Ground No.1(a)vi, 1(a)xv, 1(a)xvii and 1(a)xviii raised in both the appeals are allowed, while the balance grounds raised in both the appeals are dismissed as having been rendered infructuous.
In terms of the paragraph 14 and 17 above, all the three appeals preferred by the Assessee are allowed.