M/S RESOURCES REALTY P. LTD.,MUMBAI vs. ACTI-CENTRAL CIRCLE-11(1)(1), MUMBAI

O R D E R

PER ABY T. VARKEY, JM:

preferred by the assessee it reveals that it has challenged the action of the Ld. CIT(A) upholding penalty levied by the AO u/s 271(1)(c) of the Act on the ground that the assessee company has furnished inaccurate particulars of income by claiming interest expenditure of Rs.2,17,00,000/- under the head other sources and Foreign Exchange loss of Rs.3,40,001/- under the head business income. Since the legality of the levy of penalty by AO has been 2 A.Y. 2011-12 Resource Realty Pvt. Ltd. challenged, we have carefully gone through the penalty order passed by the AO u/s 271(1)(c) of the Act dated 30.03.2016 for AY 2011-12 and take note of the AO’s observation “Penalty proceedings u/s 271(1)(c) of the Act were initiated in respect of the above disallowance made in the order for furnishing inaccurate particulars of income/concealment of income and accordingly penalty notice u/s 274 r.w.s. 271(1)(c) of the Income tax Act, 1961 was issued along with the order u/s 143(3) of the Act dated 31.10.2013 and duly served upon the assessee.”

3. From a perusal of the aforesaid admission made by the AO in the penalty order, we infer that in the show cause notice issued by the AO (u/s 274 r.w.s 271(1)(c) of the Act) he had called upon the assessee to respond as to why penalty u/s 271(1)(c) of the Act should not be levied for furnishing inaccurate particulars of income/concealment of income. In such an event, i.e, when such a notice is received by the assessee, it is natural that the assessee may be wondering as to what fault it has committed for which AO was proposing penalty on it. So resultantly the assessee was in the dark as to what specific fault/charge for which penalty was being proposed to be levied against the assessee. It should be borne in mind that the assessee can be proceeded against for levy of penalty for either of the two faults i.e. (i) “furnishing of inaccurate particulars or (ii) concealment of particulars of income.” However, in this case as noted by us (supra), the AO himself accepts that notice did not specify the specific fault/charge against the assessee. Therefore, the notice itself is bad in law as held by the Hon’ble Bombay High Court full bench 3 A.Y. 2011-12 Resource Realty Pvt. Ltd. decision in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bombay) dated 11.03.2021 wherein their Lordships has held that the show cause notice issued prior to levy of penalty without specifying the fault/charge against which the assessee is being proceeded against would vitiate the penalty itself. And thus the Hon’ble Court upheld the view of the division bench order in the case of PCIT Vs. Goa Dourado Promotions (P.) Ltd. (Tax Appeal No.18 of 2019, dated 26.11.2019) and held that the contrary view taken by another division bench in the case of CIT Vs. Smt. Kaushalya (1995) 216 ITR 660 (Bom) does not lay down the correct proposition of law.

4. As noted earlier we find that the specific fault/charge against which the assessee was called upon to explain vide the notice dated 30.03.2016 did not explicitly convey to the assessee for which fault/charge the assessee is being proceeded against. Resultantly, the show cause notice is vague, so is defective/invalid, and therefore bad in law as held in similar/identical cases wherein the Tribunal has held that when the notice itself is found invalid, the penalty levied thereafter is also bad in law and deleted the penalty. For that we note the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) and the Department’s SLP against it has been dismissed by the Hon’ble Supreme Court. We also find that Hon’ble Karnataka High Court in the case of CIT Vs. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory (supra) and held as under:-

4 A.Y. 2011-12 Resource Realty Pvt. Ltd. “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar).