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Facts
The assessee filed appeals against the orders of the CIT(A) confirming penalty levies under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars for Assessment Years 2014-15, 2015-16, and 2016-17. The penalty was imposed in respect of additions made in search assessments.
Held
The Tribunal held that the penalty proceedings were vitiated due to a vague notice issued by the AO, which failed to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal relied on the jurisdictional High Court's decision in Mohammed Farhan A Shaikh v/s DCIT.
Key Issues
Whether penalty proceedings under Section 271(1)(c) are vitiated due to a vague show cause notice that fails to specify the exact ground for levy (concealment vs. inaccurate particulars).
Sections Cited
271(1)(c), 275, 143(3), 153A, 274, 275
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Before: SHRI RAHUL CHAUDHARY & SMT. RENU JAUHRI
सुिवधई की िधरीख / Date of Hearing 03.03.2025 घोर्णध की िधरीख/Date of Pronouncement 27.03 .2025 आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These appeals are filed by the assessee against the orders of the Learned Commissioner of Income-tax (Appeals), Mumbai-53 [hereinafter referred to as 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani “CIT(A)”] dated 28.11.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Years [A.Ys.] 2014-15, 2015-16 & 2016-17.
The assessee has raised the following grounds of appeal: AY 2014-15 “GROUND NO. 1: LEVY OF PENALTY U/S 271(1)(c) OF RS. 91,360/- (a) The Id. CIT(A) erred in law and on facts in confirming the levy of penalty u/s. 271(1)(c), for concealment of income, by ld. AO of Rs. 91,360/- being 100% of the tax on notional income of Rs. 3,91,467/- representing the annual letting value determined by AO and further erred in levying penalty u/s 271(1)(c) in respect of a search assessment u/s 143(3) r.w.s. 153A ignoring that; i. AO had failed to re-compute the Annual Letting Value as per the direction of ITAT, and was yet to give effect to the order of ITAT ii. provisions of S. 271(1)(c) were inapplicable to the case of search assessments iii. the addition was made vide an order u/s 153A, iv. the addition was in respect of such income for which no incriminating material was available, v. the addition was not sustainable in law, vi. the penalty was initiated without specifying any charge in the assessment order or penalty notices or penalty orders, vii. the appellant was prevented by a reasonable cause, viii. the order passed was beyond the time permissible u/s 275, ix. passing an order dt. 02.03.2022 u/s. 271(1)(c) in respect of the proceedings which had been time barred by operation of law and provisions of S. 275 of the Income Tax Act, x. levying penalty u/s. 271(1)(c) simply by relying on the order of assessment without examining the facts afresh in penalty proceedings, xi. the appellant had requested the Id. AO for extension of time pending the adjudication of appeal on merits of the case by the ITAT. xii. levying the penalty @ 100% of tax when there had been no concealment of income and appellant had furnished accurate particulars of income, xiii. ignoring the fact that the appellant had determined the total income as per the provisions of the Income Tax Act, xiv. by simply relying on the finding in the assessment order without in any manner applying his mind as to whether in the assessment order could be construed to represent any concealment of income, xv. without determining whether the assessee had furnished any inaccurate particulars of income or concealed income xvi. ignoring that the appellant had neither furnished accurate particular of income and nor had concealed any income, 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 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016
17. Raju Mohan Gurnani 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. xix. levying the penalty without giving any opportunity to your appellant to present the case on merits as to why penalty be not levied, xx. Ignoring the explanations furnished by the appellant in good faith vide letter dt. 07.08.2024, 16.10.2024, 19.11.2024 and 22.11.2024 in response to the Show Cause Notice dt. 11.07.2024, 10.10.2024 and 08.11.2024 (b) Your appellant strongly submits that the appellant had furnished accurate particulars of income for the year under consideration. (c) Your appellant prays that the penalty of Rs. 91,360/- levied u/s. 271(1)(c) of the Act be deleted. GROUND NO. 2: VIOLATION OF PROVISION OF S. 275 (a) The Id. CIT(A) erred in law and on in facts in confirming the order of penalty passed by AO in violation of limitation u/s 275 of the Act. (b) Your appellant submits that the provisions of s. 275 required an AO to pass the order within the time prescribed under the law on passing the order by CIT(A) on merit of the case. (c) Your appellant prays that an order passed in specific violation of s. 275 be quashed. GROUND NO. 3: SERIOUS VIOLATION OF NATURAL JUSTICE AND OF S. 274 AND S. 275 (a) The Id. CIT(A) erred in law in confirming the order of the AO in gross violation of the provisions of natural justice; i. by denying any opportunity to your appellant to present the case on merits. ii. by not giving effect to the order of ITAT on merits of the case, iii.in not giving any opportunity to show cause on merits as to why penalty shall not be levied. (b) Your appellant submits that the Id. AO has grossly violated the provisions of natural justice, (c) Your appellant pleads that a penalty order passed in violation of the provisions of natural justice be quashed. AY 2015-16 “GROUND NO. 1: LEVY OF PENALTY U/S 271(1)(c) OF RS. 92,566/- (a) The Id. CIT(A) erred in law and on facts in confirming the levy of penalty u/s. 271(1)(c), for concealment of income, by ld. AO of Rs. 92,566/-being 100% of the tax on notional income of Rs.3.91,467/- representing the annual letting value determined by AO and further erred in levying penalty u/s 271(1)(c) in respect of a search assessment u/s 143(3) r.w.s. 153A ignoring that; i. AO had failed to re-compute the Annual Letting Value as per the direction of ITAT, and was yet to give effect to the order of ITAT 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016
17. Raju Mohan Gurnani ii. provisions of S. 271(1)(c) were inapplicable to the case of search assessments iii. the addition was made vide an order u/s 153A, iv. the addition was in respect of such income for which no incriminating material was available, v. the addition was not sustainable in law, vi. the penalty was initiated without specifying any charge in the assessment order or penalty notices or penalty orders, vii. the appellant was prevented by a reasonable cause, viii. the order passed was beyond the time permissible u/s 275, ix. passing an order dt. 03.03.2022 u/s. 271(1)(c) in respect of the proceedings which had been time barred by operation of law and provisions of S. 275 of the Income Tax Act, x. levying penalty u/s. 271(1)(c) simply by relying on the order of assessment without examining the facts afresh in penalty proceedings, xi. the appellant had requested the Id. AO for extension of time pending the adjudication of appeal on merits of the case by the ITAT. xii. levying the penalty @ 100% of tax when there had been no concealment of income and appellant had furnished accurate particulars of income. xiii. ignoring the fact that the appellant had determined the total income as per the provisions of the Income Tax Act, xiv. by simply relying on the finding in the assessment order without in any manner applying his mind as to whether in the assessment order could be construed to represent any concealment of income, xv. without determining whether the assessee had furnished any inaccurate particulars of income or concealed income xvi. ignoring that the appellant had neither furnished accurate particular of income and nor had concealed any income, 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. xix. levying the penalty without giving any opportunity to your appellant to present the case on merits as to why penalty be not levied, xx. ignoring the explanations furnished by the appellant in good faith vide letter dt. 07.08.2024, 16.10.2024, 19.11.2024 and 22.11.2024 in response to the Show Cause Notice dt.11.07.2024, 10.10.2024 and 08.11.2024 b) Your appellant strongly submits that the appellant had furnished accurate particulars of income for the year under consideration. (c) Your appellant prays that the penalty of Rs. 92,566/- levied u/s. 271(1)(c) of the Act be deleted. GROUND NO. 2: VIOLATION OF PROVISION OF S. 275 (a) The Id. CIT(A) erred in law and on in facts in confirming the order of penalty passed by AO in violation of limitation u/s 275 of the Act.
247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani (b) Your appellant submits that the provisions of s. 275 required an AO to pass the order within the time prescribed under the law on passing the order by CIT(A) on merit of the case. (c) Your appellant prays that an order passed in specific violation of s. 275 be quashed. GROUND NO. 3: SERIOUS VIOLATION OF NATURAL JUSTICE AND OF S. 274 AND S. 275 (a) The Id. CIT(A) erred in law in confirming the order of the AO in gross violation of the provisions of natural justice; i by denying any opportunity to your appellant to present the case on merits, ii. by not giving effect to the order of ITAT on merits of the case, iii. in not giving any opportunity to show cause on merits as to why penalty shall not be levied. (b) Your appellant submits that the Id. AO has grossly violated the provisions of natural justice, (c) Your appellant pleads that a penalty order passed in violation of the provisions of natural justice be quashed.” AY 2016-17 GROUND NO. 1: LEVY OF PENALTY U/S 271(1)(c) OF RS. 94,155/- (a) The ld. CIT(A) erred in law and on facts in confirming the levy of penalty u/s. 271(1)(c), for concealment of income, by ld. AO of Rs. 94,155/-being 100% of the tax on notional income of Rs. 3,91,467/- representing the annual letting value determined by AO and further erred in levying penalty u/s 271(1)(c) in respect of a search assessment u/s 143(3) r.w.s. 153A ignoring that; i. AO had failed to re-compute the Annual Letting Value as per the direction of ITAT, and was yet to give effect to the order of ITAT ii. provisions of S. 271(1)(c) were inapplicable to the case of search assessments iii. the addition was made vide an order u/s 153A, iv. the addition was in respect of such income for which no incriminating material was available. v. the addition was not sustainable in law, vi. the penalty was initiated without specifying any charge in the assessment order or penalty notices or penalty orders, vii. the appellant was prevented by a reasonable cause, viii. the order passed was beyond the time permissible u/s 275, ix. passing an order dt. 02.03.2022 u/s. 271(1)(c) in respect of the proceedings which had been time barred by operation of law and provisions of S. 275 of the Income Tax Act, x. levying penalty u/s. 271(1)(c) simply by relying on the order of assessment without examining the facts afresh in penalty proceedings. xi. the appellant had requested the ld. AO for extension of time pending the adjudication of appeal on merits of the case by the ITAT, xii. levying the penalty @ 100% of tax when there had been no concealment of income and appellant had furnished accurate particulars of income.
247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani xiii. ignoring the fact that the appellant had determined the total income as per the provisions of the Income Tax Act, xiv. by simply relying on the finding in the assessment order without in any manner applying his mind as to whether in the assessment order could be construed to represent any concealment of income, xv. without determining whether the assessee had furnished any inaccurate particulars of income or concealed income xvi. ignoring that the appellant had neither furnished accurate particular of income and nor had concealed any income. 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. xix. levying the penalty without giving any opportunity to your appellant to present the case on merits as to why penalty be not levied, xx. Ignoring the explanations furnished by the appellant in good faith vide letter dt. 07.08.2024, 16.10.2024, 19.11.2024 and 22.11.2024 in response to the Show Cause Notice dt. 11.07.2024, 20.09.2024, 10.10.2024 and 08.11.2024 (b) Your appellant strongly submits that the appellant had furnished accurate particulars of income for the year under consideration. (c) Your appellant prays that the penalty of Rs. 94,155/- levied u/s. 271(1)(c) of the Act be deleted. GROUND NO. 2: VIOLATION OF PROVISION OF S. 275 (a) The Id. CIT(A) erred in law and on in facts in confirming the order of penalty passed by AO in violation of limitation u/s 275 of the Act. (b) Your appellant submits that the provisions of s. 275 required an AO to pass the order within the time prescribed under the law on passing the order by CIT(A) on merit of the case. (c) Your appellant prays that an order passed in specific violation of s. 275 be quashed. GROUND NO. 3: SERIOUS VIOLATION OF NATURAL JUSTICE AND OF S. 274 AND S. 275 (a) The Id. CIT(A) erred in law in confirming the order of the AO in gross violation of the provisions of natural justice; i. by denying any opportunity to your appellant to present the case on merits, ii. by not giving effect to the order of ITAT on merits of the case, iii. in not giving any opportunity to show cause on merits as to why penalty shall not be levied. (b) Your appellant submits that the Id. AO has grossly violated the provisions of natural justice, 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani (c) Your appellant pleads that a penalty order passed in violation of the provisions of natural justice be quashed.”
Since the issues involved in all three appeals are identical, these are being disposed of vide a common order and AY 2014-15 is taken up as a lead case.
AY 2014-15 4. This appeal is filed against the confirmation of penalty u/s 271(1)(c) of the Act by Ld. CIT(A) vide order dated 28.11.2024. A penalty of Rs. 24,11,180/- was imposed by the Ld. AO vide order dated 02.03.2022 in respect of the undisclosed notional income from house property. The same was partly upheld by the Ld. CIT(A). Aggrieved with the order of Ld. CIT(A), the assessee has preferred an appeal before the Tribunal.
Brief facts in this case are that the assessment u/s 143(3) r.w.s. 153C was completed on 29.03.2017 determining total income at Rs. 1,13,14,600/-. Vide order dated 02.03.2022, the Ld. AO also initiated therein, penalty proceedings u/s 271(1)(c) in respect of the additions made as under: i. Undisclosed income from seized documents - Rs. 68,38,600/- ii. Undisclosed income from house property - Rs. 3,91,461/- In the quantum appeal, Ld. CIT(A) deleted the addition on account of undisclosed income from seized documents of Rs. 68,38,600/- and partly confirmed the addition on account of undisclosed notional income from house property . Even though the second appeal of the assessee against the assessment 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani order was pending, Ld. AO proceeded to levy the penalty u/s 271(1)(c) on the amount of addition of Rs. 71,12,627/- sustained by the Ld. CIT(A). Vide order dated 02.03.2022, penalty of Rs. 71,12,627/- calculated @100% of the tax evaded was imposed u/s 271(1)(c) of the Act.
Aggrieved with this order, the assessee preferred an appeal before Ld. CIT(A) who observed that the quantum addition in respect of undisclosed income from seized documents stands deleted by the Tribunal vide order dated 13.07.2023. Accordingly, Ld. CIT(A) held that no penalty can be levied in respect of this addition . With regard to the penalty in respect of undisclosed income from house property, it was observed by Ld. CIT(A) that the appeal of the assessee on this issue was partly allowed by the ITAT vide aforesaid order wherein the Ld. AO was directed to take standard municipal rent and recompute the notional income from house property. Since the addition on account of notional income was, in principle, upheld by the co-ordinate bench, the Ld. CIT(A) confirmed the levy of the penalty on the house property income determined as per the direction of the coordinate bench.
Before us, the assessee has challenged the imposition of the penalty on various grounds including not specifying the relevant clause u/s 271(1)(c) of the Act.
We have heard the rival submissions. At the outset, it is seen from the copy of notice u/s 274 issued by the Ld. AO placed before us that he has not 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani specified as to whether the penalty is sought to be levied for concealment of income or for furnishing inaccurate particulars of income. In this regard, the Hon’ble Jurisdictional High Court in the case Mohammed Farhan A Shaikh v/s DCIT 434 ITR 1 has held that defect in the notice of not striking off the irrelevant matter, would vitiate the penalty proceedings. The relevant extract of the aforesaid judgment read as under: "Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings? 181.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 Appellant. 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 Appellant 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)”
In the present case, the assessment order also does not mention either of the grounds for initiation of the penalty and in the notices issued by the Ld.AO, both the grounds viz. concealment of income and furnishing inaccurate particulars of income have been mentioned. In view of the above, the penalty proceedings are vitiated on account of the fact that the notice is vague. The issue is squarely covered by the order of Hon’ble jurisdictional High Court cited hereinbefore. Accordingly, the penalty order u/s 271(1)(c) imposing of Rs. 247 & 248/Mum/2025 A.Y. 2014-15, 2015-16, 2016-17 Raju Mohan Gurnani 24,11,180/- is hereby quashed. Accordingly, the appeal of the assessee is allowed. & 248/Mum/2025 for AY 2015-16 & 2016-17 10. The issues involved in these two appeals are also identical to the AY 2014- 15, therefore, the above order will apply mutatis mutandis for both of these years also. 11. In the result, all three appeals of the assessee are allowed. Order pronounced in the open court on 27.03.2025.