M/S. PRIME QUALITY CONSULTANTS (P) LTD.,NEW DELHI vs. ITO, NEW DELHI

Brief facts of the case are that the assessee filed the return of income for the assessment year 2006-07 on 29/3/2007 declaring an income of Rs. 2,228/-but by the of order dated 22/12/2008 passed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”), learned Assessing Officer made an addition of Rs. 2,29,23,400/-under section 68 of the Act. Learned Assessing Officer, simultaneously initiated proceedings under section 271(1)(c) of the Act against the assessee proposing penalty for furnishing inaccurate particulars of its income. By order dated 15/3/2012, learned Assessing Officer concluded the penalty proceedings levying a penalty of Rs. 77,15,082/-. Appeal preferred to the Ld. CIT(A) ended up in dismissal on the ground that the assessee had deliberately furnished inaccurate particulars of its income with a view to conceal the same.

Assessee is, therefore, before us in this appeal, mainly contending that where the penalty was initiated for furnishing of inaccurate particulars of income, it cannot be levied both for concealment of income and furnishing of inaccurate particulars thereof. He placed reliance on the decisions of the Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565, Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 taxman.com 241 (Kar) and also the decision of the Hon’ble jurisdictional High Court in the case of Ld. PCIT vs. Sahara India Life Insurance Co Ltd in and batch of 2019 in support of his contention that penalty cannot be sustained.

Per contra, it is the submission of the Ld. DR that the attempt of the assessee to evade the tax clearly falls under the term “furnishing of inaccurate particulars of income” and, therefore, the authorities below are justified in levying and sustaining the penalty. Reliance is placed on the decision reported in CIT vs. Zoom Communications Private Limited, 327 ITR 510. He further placed reliance on the decision of the Hon’ble Madras High Court in the case of Sundaram Finance Ltd vs. CIT (2018) 403 ITR 407 (Madras), Ld. DR submitted that the assessee understood the purport of the notice and without raising any objection whatsoever they have participated in the penalty proceedings as well as the proceedings before the Ld. CIT(A) and, therefore, no prejudice was caused to the case of the assessee. He therefore, prayed to dismiss the appeal.

We have gone through the record in the light of the submissions made on either side. Assessment order dated 22/12/2008 clearly shows that the proceedings under section 271(1)(c) of the Act were proposed against the assessee for furnishing inaccurate particulars of their income. Order dated 15/3/2012 passed under section 271(1)(c) of the Act reads that the notice dated 22.12.2008 was issued to the assessee asking him to explain why penalty under section 271(1)( c) of the Act should not be levied for concealment of income and furnishing of inaccurate particulars of income. Ultimately penalty was levied by order dated 20/3/2012 for concealment of its particulars of income and furnishing inaccurate particulars of its income. Ld. CIT(A) confirms the penalty stating that the assessee had deliberately furnishing inaccurate particulars of its income with a view to concealment of income.

It is, therefore, clear that in the assessment order the satisfaction of the learned Assessing Officer was recorded in respect of the furnishing of inaccurate particulars thereof, but in the notice issued under section 274 read with section 271 of the Act the charge was against the assessee concealing income as well as the furnishing of inaccurate particulars thereof. Likewise, penalty was levied under both the accounts and it was confirmed on the same lines.

In the case of CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar). Vide paragraph 60, the Hon’ble Karnataka High Court has held as follows :-

“60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.”

In Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 taxman.com 241 (Kar) the Hon’ble Karnataka High Court Considered the question of law as to,-

In PCIT vs. Sahara India Life Insurance company limited case and batch order dated 02/08/2019, Hon’ble Delhi High Court, upheld the view taken by the Tribunal basing on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) and SSA’s Emerald Meadows (supra) wherein it was held that the notice issued by the learned Assessing Officer would be bad in law if it did not specify which limb of section 271(1)( c ) of the Act the penalty proceedings had been initiated under i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars thereof. Relevant observations of the Hon’ble High Court read that,- “21. The Respondent had challenging the upholding of the penalty imposed under section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgement in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016.

On this issue again this court is unable to find any error having been committed by the ITAT.”

It is, therefore, clear that for the AO to assume jurisdiction u/s 271(1)(c), proper notice is necessary and the defect in notice u/s 274 of the Act vitiates the assumption of jurisdiction by the learned Assessing Officer to levy any penalty. In this case, facts stated supra, clearly establish that the notice issued under section 274 read with 271 of the Act is defective and, therefore, we find it difficult to hold that the learned AO rightly assumed jurisdiction to passed the order levying the penalty. As a consequence of our findings above, we direct the assessing officer to delete the penalty in question.

In the result, appeal of the assessee is allowed.