Loading judgment…
Facts
A search was conducted on the assessee, a chartered accountant, in 2011. The assessee had not filed a return for AY 2007-08. Subsequently, a return was filed, and assessment proceedings led to an assessment order and initiation of penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. A penalty of INR 1,13,84,395 was levied.
Held
The Tribunal held that the penalty notice issued under Section 271(1)(c) read with Section 274 was an omnibus notice without striking off the irrelevant portions, thus vitiating the penalty proceedings. The Tribunal relied on the judgment of the Hon'ble Bombay High Court in Mohammed Farhan A Shaikh.
Key Issues
Whether a penalty under Section 271(1)(c) is sustainable when the penalty notice is vague and does not specify the charge against the assessee.
Sections Cited
139(1), 271F, 153A, 143(3), 271(1)(c), 250, 274, 271AAA(3), 46A
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, D BENCH, MUMBAI
order
: 27.02.2025 7 O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal has been preferred by the Assessee against the order, dated 12/11/2024, passed by the Commissioner of Income Tax, (Appeals) -54, Mumbai [hereinafter referred to as the ‘CIT(A)’], under Section 250 of the Income Tax Act, 1961[hereinafter referred to as ‘the Act’], whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Penalty Order, dated 22/09/2015, passed under Section 271(1)(c) of the Act, for the Assessment Year 2007-2008.
The relevant facts in brief are that the Assessee, a qualified chartered accountant, was at the relevant time a partner in M/s Jayantilal Thakkar & Co. and Jayantilal Thakkar Associates. The Assessment Year 2007-08 Assessee had not filed return of income for the Assessment Year 2007-08 under Section 139(1) of the Act and penalty proceedings were initiated under Section 271F of the Act.
Subsequently, a search was carried out in the case of the Assessee on 10/08/2011. Subsequently, in response to notice issued under Section 153A of the Act, the Assessee filed the return of income on 21/10/2018. The assessment proceedings culminated into passing of the Assessment Order, dated 30/03/2015 under Section 143(3) read with Section 153A of the Act. In the aforesaid Assessment Order, the Assessing Officer directed initiation of penalty proceedings under Section 271(1)(c) of the Act in the following manner:
“23. In conclusion the following ……………… This is not a case in which the action under Income Tax Act has been initiated in normal routine manner. It has a consistent background of suspected tax evasion and black money and the modus operandi followed in parking the money outside India in HSBC Bank Geneva. The assessee has followed the same modus operandi resorted to deposit of unaccounted money abroad in order to evade tax thereon.
Subject to the above remarks, the total income is completed as under: (Rs.) (Rs.) As per Computation of Income 19,16,156 3,38,21,732 Add: Total Income 3,57,37,888
Assessed under ………………………Issued notice under Section 274 rws. 271(1)(c) of the Act. Issued noticed under section 274 r.w.s. 271F of the Act.”
Accordingly, notice dated 30/03/2015, under Section 271(1)(c) of the Act read with Section 274 of the Act was issued to the Assessee. The penalty proceedings concluded with passing of 2 Assessment Year 2007-08 Penalty Order, dated 22/09/2015, under Section 271(1)(c) of the Act whereby a penalty of INR.1,13,84,395/- was levied on the Assessee under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income of INR.3,38,21,732/-.
The Assessee challenged the above penalty order in appeal before the CIT(A), inter alia, raising the following ground:
1. The penalty order passed by the Assessing Officer under Section 271(1)(c) of the Act is illegal and bad in law, in violation of statutory provisions of the law.
6. Before the CIT(A), vide submission dated 17/11/2018, contended that the notice under Section 271(1)(c) read with Section 274 of the Act was bad in law since the same was issued without striking off the irrelevant limb/portions. In support, reliance was placed by the Assessee on the judgment of the Full Bench of the Hon’ble Bombay High Court in the case of Mohd. Farhan A Shaikh Vs. DCIT, Central Circle-1, Belgaum: 434 ITR 1 (Bombay).
7. Vide order, dated 12/11/2024, the CIT(A) dismissed the appeal and rejected the above contention of the Assessee holding as under:
“5.3.3 Vide letter dated 17.11.2018 and 18.02.2024, the appellant submitted the notice issued u/s.271(1)(c) r.w.s. 274 is bad in law because the AO had not struck irrelevant line of the notice. To support the argument, the appellant relied upon the decision of Hon'ble Bombay High Court in the case of Mohammed Farhan A. Shaikh 434 ITR 1 Bom. Even though the appellant has stated that due to non-striking of irrelevant line in notice u/s.271(1)(c), the notice u/s.271(1)(c) is bad in law, the appellant has not raised any such ground in the grounds of the appeal. The appellant has not raised any Additional ground by way of application uls.46A of the Act. Thus, the argument taken by the appellant without taking such ground of the appeal cannot be entertained.
3 Assessment Year 2007-08 5.3.4 As discussed above, the appellant has not satisfactorily explained the amount lying in the bank account of CSFT with HSBC Geneva and deposit in the Bank of India account satisfactorily. Thus, in absence of satisfactory explanation with respect to the addition made in the assessment order, the AO was justified in levy of penalty uls.271(1) in respect of furnishing of inaccurate particulars of income. Thus, the penalty of Rs.3,72,75,698/- levied u/s.271(1)(c) is upheld.”
The Assessee is now in appeal before the Tribunal.
During the course of hearing the Assessee reiterated the submission made before the CIT(A). In addition the Assessee submitted that in view of the provisions contained in Section 271AAA(3) of the Act, no penalty under Section 271(1)(c) of the Act could have been levied.
Per contra the Learned Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A). She submitted that the submission made by the Assessee in relation to Section 271AAA(3) of the Act was raised for the first time before the Tribunal. Further, Section 271AAA of the Act was applicable in respect of undisclosed income of the ‘specified previous year’ as defined in Explanation (b) to Section 271AAA of the Act. Assessment Year under consideration did not fall within the definition of ‘specified previous year’.
We have given thoughtful consideration to the rival submission and have perused the material on record.
We, at the threshold, reject the contention of the Assessee that no penalty under Section 271(1)(c) of the Act could have been levied for the Assessment Year 2007-2008 in view of the provisions contained in Section 271AAA(3) of the Act. We note 4 Assessment Year 2007-08 Search took place on 10.08.2011. Explanation (b) to Section 271AAA defines ‘specified previous year’ as under:
(b) „Specified previous year‟ means the previous year: (i) which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted.
In the appeal before us pertains to previous year 2006-2007 which does not fall within the above definition of ‘specified previous year’. Section 271AAA(1) applied to undisclosed income of ‘specified previous year’ only, and consequently, Section 271AAA(3) of the Act would also apply only in case of specified previous year. Thus, Section 271AAA(3) has no application to the present case.
However, we do find that the primary contention raised by the Assessee stands decided in favour of the Assessee by the judgment of Full Bench of the Hon’ble Bombay High Court in the case Mohammed Farhan A Shaikh Vs DCIT (supra). In that case it was held by the Jurisdictional High Court that a mere defect in the notice - not striking off the irrelevant matter, would vitiate the penalty proceedings. The relevant extract of the aforesaid judgment reads 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?
5 Assessment Year 2007-08 181.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)
A perusal of the penalty notice, dated 30/03/2013, issued under Section 274 read with Section 271(1)(c) of the Act would show that it in an omnibus show-cause notice issued without deleting or striking off the inapplicable part. Thus, the statutory notice issued to the Appellant does not inform the Appellant about the charge against the Appellant – whether penalty under Section 271(1)(c) of the Act is sought to be levied for concealment of particulars of income or furnishing inaccurate particulars of income. Similarly, in the Assessment Order, while initiating penalty proceedings, the Assessing Officer has stated that ‘Issued notice under Section 274 rws. 271(1)(c) of the Act’. Though it was contended on behalf of the Revenue that it could be inferred from the Assessment Order that the penalty proceedings were initiated for furnishing inaccurate particulars on income, there is nothing on record to show that the Assessee was ‘informed of the grounds of the penalty proceedings through statutory notice’. In view of the aforesaid, we find merit in the contention advance on behalf of the Assessee that penalty levied Section 271(1)(c) of the Act cannot be sustained as per the judgment of the Full Bench decision of the Hon'ble jurisdictional High Court in case of Mohammed Farhan A Shaikh Vs DCIT 6 Assessment Year 2007-08 (supra). Thus, penal proceedings stand vitiated and accordingly, penalty of INR.1,13,84,395/- levied under Section 271(1)(c) of the Act is deleted.
Before parting we would like to observe that that CIT(A) has rejected the contention raised by the Assessee holding that no specific ground to this effect was raised by the Assessee. However, we find that Ground No. 1 raised by the Assessee in appeal before the CIT(A) (reproduced in paragraph 5 above) was specifically raised by the Assessee challenging the validity of the penalty order. Secondly, the ground raised by the Assessee was in the nature of legal plea not requiring consideration of any additional evidence and therefore, the provisions contained in Rule 46A of the Income Tax Rules, 1962 were not applicable.
In view of the above, Ground No. 3 raised by the Assessee is allowed, Ground No. 2 raised by the Assessee is dismissed and all the other grounds raised by the Assessee are dismissed as being fructuous.
In result, the appeal preferred by the Assessee is treated as allowed for statistical purposes.