KEDAARA CAPITAL ADVISORS LLP ,MUMBAI vs. ACIT 17(2) , MUMBAI

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) (NFAC), Delhi dated 19.08.2021 for the assessment year 2013-14 against the penalty confirmed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”).

The main grievance of the assessee is against the action of Ld. CIT(A), confirming the penalty levied u/s 271(1)(c) of the Act to the tune of Rs.5,56,710/-. 3. At the outset, the Ld. AR of the assessee Shri Madhur Agarwal brought to our notice that the impugned penalty levied by AO is bad in law for issuing defective notice before levying the penalty. To buttress this contention he drew our attention to the fact that the show cause notice (SCN) issued by the AO u/s 274 read with section 271(1)(c) of 2 A.Y. 2013-14 Kedaara Capital Advisors LLP the Act dated 05.03.2016 is defective, since both the faults/charges i.e. have “concealment of income” or “furnishing inaccurate particulars of such income” are both featuring in the show cause notice and since the AO has not stricken-off the inapplicable fault/charges, the assessee was unable to know for what fault/charge the AO was proposing to levy the penalty. So according to Ld AR the show cause notice is bad in law and therefore, the penalty levied on the basis of a defective show cause notice is also bad in law, and so the penalty should be deleted and relied on the decisions of the Full bench of the Hon’ble Jurisdictional of High Court 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 to 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 an 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. We note that the notice in the instant case was issued by AO u/s 274 r.w. Section 271 of the Act dated 05.03.2016 calling upon the assessee to show cause as to why the penalty should not be imposed u/s 271(1)(c) of the Act for the following faults viz “to have concealed the particulars of his income” or furnished “inaccurate particulars of such income”. And further we note that from perusal of the notice, that 3 A.Y. 2013-14 Kedaara Capital Advisors LLP a tick mark has been put on the first limb i.e. concealment of particulars of income. At the same time, it is also taken note that the AO has not stricken down the other limb of the default/charge i.e. “furnishing of inaccurate particulars”. Thus, we note that the tick portion denote only the charge/fault of “concealment of particulars of its income”. However, on perusal of the penalty order, we find that the fault against which assessee has been proceeded against (as discernable from para no. 11 of the penalty order dated 30.01.2020) that it was for both ie for furnishing of inaccurate particulars of income and for furnishing of inaccurate particulars. However in the notice dated 05.03.2016, the disjunctive ‘or’ has been used between both faults and not the adjunctive ‘and’. So, we find that the specific fault/charge against which the assessee was called upon to explain vide the notice dated 15.03.2016 did not explicitly convey to the assessee for which fault/charge the assessee is being proceeded against. Resultantly, the show cause notice is found to be defective/invalid, and therefore held to be 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 pursuant to it 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 4 A.Y. 2013-14 Kedaara Capital Advisors LLP (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory (supra) and held as under:- “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).

In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

Respectfully following the judicial precedents as well as the binding decision of the Full bench decision of the Hon’ble jurisdiction High Court’s in the case of Mohd. Farhan A. Shaikh (supra), we direct the deletion of the penalty levied in this case.