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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Kissan Engineering Works Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 31.07.2017
passed by the Commissioner of Income-tax (Appeals), Ghaziabad affirming the penalty order dated 28.03.2016 passed under section
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271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’) qua the
assessment year 2010-11 on the grounds inter alia that :-
“(i) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the penalty u/s 271(1) (c) of the Act in respect of addition made on account of difference in the sale amount disclosed by assessee and value as per stamp valuation authority u/s.SOC of the Act. The penalty so confirmed by Ld. CIT (A) is unjustified, unwarranted and bad in law. (ii) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the penalty u/s 271(1) (c) of the Act in respect of disallowance of electricity expenses and treating them to be of prior period, even when relevant documents to justify the claim were filed during the assessment proceedings. The penalty for concealment so confirmed by Ld. CIT (A) is unjustified, unwarranted and bad in law. (iii) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the penalty u/s 271(1) (c) of the Act in respect of disallowance of expenses of one of the units of the assessee, M/s. Sushila Steels on the basis that the operations of the said unit had ceased to exist. The penalty for concealment so confirmed by Ld. CIT (A) is unjustified, unwarranted and bad in law. (iv) That the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the penalty u/s 271(1) (c) of the Act in respect of addition on account of surrender of additional income. The penalty for concealment so confirmed by Ld. CIT (A) on this count is unjustified, unwarranted and bad in law.”
Briefly stated the facts necessary for adjudication of the
controversy at hand are : On the basis of assessment framed under
section 143 (3) of the Act at the income of Rs.77,22,051/-, penalty
proceedings have been initiated by the Assessing Officer under
section 271(1)(c) of the Act on the basis of addition made on
account of prior period expenses, on account of section 50C, on
account of disallowance of Sushila Steel and on account of
3 ITA No.6983/Del./2017
surrender of additional income, total amounting to Rs.39,03,618/-.
Declining the contentions raised by the assessee, AO proceeded to
levy the penalty to the tune of Rs.18,09,327/- @ 150% of the tax sought to be evaded.
Assessee carried the matter before the ld. CIT (A) by way of
filing the appeal who has reduced the penalty from 150% to 100%
by partly allowing the appeal. Feeling aggrieved by the order
passed by the ld. CIT (A), the assessee has come up before the
Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the
parties to the appeal, gone through the documents relied upon and
orders passed by the revenue authorities below in the light of the
facts and circumstances of the case. 5. Undisputedly, penalty proceedings have been initiated on the
basis of four disallowances viz. on account of prior period
expenses, on account of section 50C, on account of disallowance of
Sushila Steel and on account of surrender of additional income
made by the AO. It is also not in dispute that assessee has taken
benefit of amnesty scheme from Electricity Department and
thereby made a bonafide claim. It is also not in dispute that
genuineness of the expenses claimed by the assessee has never
4 ITA No.6983/Del./2017
been disputed by the AO/ld. CIT (A) rather disallowed the same by
taking different view.
In the backdrop of the aforesaid facts and circumstances of
the case, order passed by the lower authorities and arguments
addressed by the authorized representatives of both the parties, the
sole question arises for determination in this case is:-
“as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings?”
Ld. AR for the assessee contended that AO has failed to
specify in the show-cause notice issued under section 271(1)(c)
read with section 274 of the Act if the assessee has filed inaccurate
particulars of income or concealed particulars of income and relied
upon the decisions of Hon’ble Karnataka High Court in CIT vs.
SSA’s Emerald Meadows -73 taxmann.com 241 (Kar.)
(Revenue’s SLP dismissed in 242 taxman 180) and Hon’ble
High Court of Delhi in Pr. CIT vs. Sahara India Life Insurance
Company Ltd. in ITA 475/2019 order dated 02.08.2019.
In order to proceed further, we would like to peruse the
notice dated 27.10.2020 issued by AO u/s 274 read with section
271(1)(c) of the Act to initiate the penalty proceedings which is
extracted as under for ready perusal:-
5 ITA No.6983/Del./2017
“Penalty notice under section 271(1)(c) NOTICE U/S 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961. PAN AAACK5966G Dated: 28.12.2012 To M/s. Kissan Engineering Works Pvt. Ltd., Plot No.3, South of G.T. Road, BSR Road, Indl. Area, Ghaziabad. Whereas in the course of proceedings before me for the assessment year 2010-11 it appears to me that you :- have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under Section 139(1) or by a notice given under Section 139(2)/148 of the Income Tax Act, 1961 dated………… or have without reasonable cause failed to furnish it which the time allowed in the manner required by the said Section 139(1) or by such notice.
Have failed to comply with a notice under section (1) of Section 142 or sub section (2) of section 143 or failed to comply with a direction issued under sub section (2A) of the Income-tax Act,1961 dated…………
have concealed the particulars of your income or you have furnished inaccurate particulars of such income. You are hereby requested to appear before me at 11.30 AM on 14.01.2012 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income Tax Act, 1961. If you do not wish to avail of this opportunity of being heard in person or through your authorized representatives you may show cause in writing on or before the said date which will be considers before any such order is made under section 271(1)(c). Sd/- (S.K. Yadav) Joint Commissioner of Income-tax, Range-2, Ghaziabad.
Bare perusal of the notice issued u/s 274 read with section
271(1)(c) of the Act, extracted above, in order to initiate the penalty
proceedings against the assessee goes to prove that the AO himself was
not aware / sure as to whether he is issuing notice to initiate the
6 ITA No.6983/Del./2017
penalty proceedings either for “concealment of particulars of
income” or “furnishing of inaccurate particulars of such income”
by the assessee rather issued vague and ambiguous notice by
incorporating both the limbs of section 271(1)(c). When the charge
is to be framed against any person so as to move the penal
provisions against him/her, he/she is required to be specifically
made aware of the charges to be leveled against him/her.
Hon’ble Apex Court in case of CIT vs. SSA’s Emerald
Meadows - (2016) 73 taxmann.com 248 (SC) while dismissing
the SLP filed by the Revenue quashing the penalty by the Tribunal
as well as Hon’ble High Court on ground of unspecified notice has
held as under:-
“Section 274, read with section 271(1)(c), of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions precedent) - Assessment year 2009-10 - Tribunal, relying on decision of Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 1TR 565/218 Taxman 423/35 taxmann.com 250, allowed appeal of assessee holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )(c) was bad in law, as it did not specify under which limb of section 271 (1 )(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - High Court held that matter was covered by aforesaid decision of Division Bench and, therefore, there was no substantial question of law arising for determination - Whether since there was no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes [Para 2] [In favour of assessee]”
7 ITA No.6983/Del./2017
Hon’ble Delhi High Court in case of Pr. CIT vs. Sahara 11.
India Life Insurance Company Ltd. (supra) while deciding the
identical issue held as under :-
“21. The Respondent had challenged 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 the 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 judgment 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 of2016 by order dated 5th August, 2016.”
Following the decisions rendered in the cases of CIT vs.
Manjunatha Cotton and Ginning Factory, CIT vs. SSA’s
Emerald Meadows and Pr. CIT vs. Sahara India Life
Insurance Company Ltd. (supra), we are of the considered view
that when the notice issued by the AO is bad in law being vague
and ambiguous having not specified under which limb of section
271(1)(c) of the Act the same has been issued, the penalty
proceedings initiated u/s 271(1)(c) are not sustainable.
Not only this, even at the time of initiation of penalty
proceedings, AO has not applied his mind to record his satisfaction
if it is a case of concealment of particulars of income or has
8 ITA No.6983/Del./2017
furnished inaccurate particulars of income. Operative part of the
assessment order is extracted as under for ready perusal :-
“Therefore, total addition under the above head is comes to the tune of Rs.6,90,000/-. Since I am satisfied that the assessee has furnished inaccurate particulars of it’s income, penalty proceedings under section 271(1)(c) are being initiated separately.”
When AO has not recorded a valid satisfaction and has also
issued invalid notice u/s 271(1)(c) / 274 of the Act, as discussed in
the preceding paras, the entire penalty proceedings are vitiated and
not sustainable in the eyes of law. Not only this, AO while
recording the satisfaction for initiation of penalty proceedings
stated that he has furnished inaccurate particulars of income
whereas he has levied the penalty for concealment of particulars of
income. So, the entire exercise as to initiating the penalty
proceedings and levying the penalty are without application of
mind, hence not sustainable.
Even otherwise, AO by disallowing the prior period
expenses has not taken into account the benefit of amnesty scheme
taken by the assessee from the Electricity Department. Even AO
has not disputed genuineness of expenses claimed by the assessee
rather disallowed the same by taking a different view which does
not attract the provisions contained u/s 271(1)(c) of the Act.
9 ITA No.6983/Del./2017
In view of what has been discussed above, we are of the considered view that initiating penalty u/s 271(1)(c) of the Act on the basis of vague and ambiguous notice is not sustainable in the eyes of law. So, the question framed is answered in the negative and penalty levied by the AO and sustained by the ld. CIT (A) is ordered to be deleted. Consequently, the appeal filed by the assessee is allowed. Order pronounced in open court on this 9th day of July, 2021.
Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 9th day of July, 2021 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A), Ghaziabad. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.