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Facts
The Assessing Officer reopened the case under Section 147 of the Income Tax Act, 1961, for Assessment Year 2011-12 and subsequently imposed a penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars. The Assessee's appeal against the penalty order was affirmed by the Ld. Commissioner.
Held
The Tribunal held that the penalty notice issued under Section 274 of the Act was defective as it did not specifically mention the limb (concealment or furnishing inaccurate particulars) under which the penalty proceedings were initiated. Relying on the jurisdictional High Court's judgment in Md. Farhan A Shaikh (supra), the Tribunal decided to delete the penalty.
Key Issues
Whether a penalty levied under Section 271(1)(c) is valid when the notice under Section 274 is defective or does not specify the exact charge against the assessee.
Sections Cited
147, 148, 143, 271(1)(c), 274
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI OMKARESHWAR CHIDARA
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 18.01.2022, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2011-12.
In the instant case, the case of the Assessee was reopened u/s 147 of the Act by issuing notice dated 29.03.2018 u/s 148 of the Act, by which the Assessee was asked to file its return of income. The Assessee, in response to notice u/s 148 of the Act filed its return of income on dated 23.04.2018 declaring income of Rs.13,96,586/-. Thereafter, the Assessing Officer (AO) by considering the total receipt amounting to Rs.23,39,857/- from the business, rent and interest income and accepting the deduction of Rs.11,24,572/- as expenditure claimed by the Assessee on account of salary and administrative expenses, computed the total taxable income of the Assessee to the tune of Rs.13,96,586/- vide assessment order dated 27.12.2018 u/s 143 r.w.s. 147 of the Act.
The AO also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing of inaccurate particulars and concealment of income.
Thereafter, the Assessee filed an appeal challenging the setting of inter head losses of Rs.13,96,586/- before the then Ld. CIT(A) who vide impugned order dated 03.06.2019 affirmed the decision of the AO in not allowing the set off of inter head losses.
Thereafter, the AO issued a show cause notice dated 27.12.2008 for concealment of the particular of income or/and furnishing of inaccurate particulars of such income and ultimately vide penalty order dated 18.01.2022 u/s 271(1)(c) of the Act imposed the penalty to the tune of Rs.9,97,234/- being 200% of the tax sought to be evaded on the income of Rs.14,95,851/-.
The Assessee, being aggrieved, challenged the said levy of penalty before the Ld. Commissioner, however, of no avail, as the Ld. Commissioner vide impugned order dated 17.12.2024 affirmed the levy of penalty.
The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner on various aspects including notice issued u/s 274 of the Act dated 27.12.2018 and by relying on the judgment passed by the Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh vs. DCIT (2021) 434 ITR 1 (Bom.) (HC) (FB).
On the contrary, the Ld. D.R. refuted the claim of the Assessee by placing reliance on the judgment in the case of Veena Estate (P.) Ltd. vs. CIT (2024) 461 ITR 483 (Bom.) passed by the Hon’ble Jurisdictional High Court, concerning the identical issue, wherein it was held that if an Assessee does not challenge the validity of notice during the penalty or appellate proceedings but instead responds substantially to the allegations, such objections are barred at a later stage.
We have heard the parties and perused the material available on record. As the issue/ground raised by the Assessee qua notice u/s 274 of the Act, goes to the root of the case, hence for the sake of brevity, we are inclined to decide this ground first. Admittedly, the AO issued the penalty notice dated 27.12.2018 u/s 274 of the Act which is reproduced herein below:
From the notice, it clearly appears that the AO has used or/and in between both of the limbs, which goes to show that the AO was not sure under which limb the penalty proceedings have been initiated and to be carried out. Therefore, issue emerges “as to whether the defective notice and/or not mentioning the charge/limb specifically in the notice u/s 274 r.w.s. 271(1)(c) of the Act can justify the levy of penalty”. The Hon’ble Jurisdictional High Court in the case of Md. Farhan A Shaikh (supra) has dealt with the identical issue and considered various judgments in this respect and ultimately held “mere defect in the notice – non striking of the irrelevant matter – vitiate the proceedings” and therefore respectfully following the dictum laid down by the Hon’ble Jurisdictional High Court, in our considered view, the penalty under consideration is liable to be deleted.
Coming to the judgment relied on by the Ld. D.R. in the case of Veena Estate (P.) Ltd. (supra), we observe that in that particular case the notice u/s 274 of the Act was challenged after 23 years for the first time before the Hon’ble High Court by raising additional ground, which was not admitted and rejected by the Hon’ble High Court by interim order. Here it is not the case so, as in the instant case the Assessee has challenged the notice u/s 274 r.w.s. 271 of the Act before the second appellate authority and within a reasonable time and therefore the judgment referred to by the Ld. D.R. is factually dissimilar.
Even otherwise, the Hon’ble Jurisdictional High Court in the Full Bench case in the case of Md. Farhan A Shaikh (supra) has elaborately dealt with the issue and the relevant judgments and therefore respectfully following the said judgment, we are inclined to delete the penalty imposed by the AO and affirmed by the Ld. Commissioner. Thus, the penalty is deleted.
As we have deleted the penalty, hence not delving in to the other aspects/issues/grounds raised by the Assessee, as the adjudication of the same would prove futile exercise.
In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 01.05.2025.