M/S. SINGH CONSULTANCY PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

Facts of the case, in brief, are that the assessee is private limited company, engaged in the business of share, commodity trading and investment activities. It filed its return of income on 29.09.2009, declaring loss of Rs.2,20,67431/-. The Assessing Officer completed the assessment under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) on 30.12.2011 determining total income of the assessee at Rs.26,39,389/-, wherein, he made addition of Rs.2,47,06,820/- treating unsecured loan of Rs.2,47,06,820/- as bogus and ingenuine. The addition so made was confirmed by the learned CIT(A). Thereafter, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act. Rejecting the various explanations given by the assessee and observing that the assessee has concealed its income to the extent of Rs.2,47,06,820/- willfully and knowingly by furnishing inaccurate particulars of income, he levied penalty of Rs.74,12,046/- being 100% of the tax sought to be evaded.

In appeal, the learned CIT(A) sustained the addition by observing as under:-

Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal by raising following grounds of appeal:-

The learned counsel for the assessee strongly challenged the order of the CIT(A) in confirming the penalty so levied by the Assessing Officer.

He further submitted that a perusal of the assessment order shows that while making addition of Rs.2,47,06,820/-, there is no satisfaction whatsoever of the default committed within the meaning of section 271(1)(c) and the relevant limb of default appears in the assessment order. He submitted that recording of satisfaction is sine qua-non for valid initiation of penalty proceedings which is evident from the wording of sec 271(1) of the Act which places emphasis on the satisfaction by the AO while initiating penalty proceedings. He submitted that in absence of any satisfaction of recording nature of default by the AO in the assessment order qua this addition, the penalty cannot be imposed on such addition. Referring to the decision of the Hon’ble Delhi High Court in the case of Madhushree Gupta vs Union of India reported in 317 ITR 143(Del), he submitted that Hon’ble High Court in the said decision has held that the presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away as the provision stands even today, i.e post amendment. Relying on various other decisions, he submitted that where it is mentioned that penalty proceedings u/s 271(1)(c) of the Act are intiated separately, it is held that the same doesn’t comply with the word ‘direction’ as contemplated under section 271(1)(c) of the Act.

The learned counsel for the assessee submitted that penalty has been levied for concealment of particulars of income of Rs.2,47,06,820/- for which addition has been made u/s 68 of the Act. Referring to para-3 of the assessment order, he submitted that the Assessing Officer simply relies on the finding given in the assessment order for AY 2008-09. This shows that the Assessing Officer has not conducted any enquiry to verify the evidences furnished by the assessee in support of the cash credit of Rs.2,47,06,820/- for this year. Thus, the addition is not based on the rejection of the evidences furnished after due enquiry by the Assessing Officer. Therefore, such addition is not tenable in law in view of the following decisions:-

He submitted that the Assessing Officer in the penalty order, failed to support the charge of furnishing of inaccurate particulars without identifying which of the particulars filed by the assessee regarding the cash credit were inaccurately furnished in the absence of enquiry conducted by him. He submitted that the assessee during the assessment proceedings had furnished the required evidences in support of the cash credit. The details furnished by the assessee during the assessment proceedings was not found to be unsubstantiated and there is no question of the same not being bona-fide and all the details regarding the acceptance of credit were furnished before the Assessing Officer and therefore, it cannot be said that it is a case of furnishing of inaccurate particulars of income. Relying on various decisions, he submitted that although the addition has attained finality in quantum proceedings, the assessee can always make a new plea during the penalty proceedings. He, accordingly, submitted that both legally and factually penalty so levied by the Assessing Officer and sustained by the learned CIT(A) is not justified.

Learned DR, on the other hand, strongly supported the order of the Assessing Officer and the CIT(A). He submitted that the Assessing Officer has initiated penalty proceedings after recording satisfaction. Referring to the copy of the notice issued u/s 274 r.w.s 271 of the Act on 30.12.2011, he submitted that there is tick mark against “have concealed the particulars of income or furnished inaccurate particulars of such income in terms of Explanation 1, 2, 3, 4 and 5”. This shows that Assessing Officer has put the tick mark for concealment of particulars of income, therefore, the argument of the learned counsel for the assessee that the Assessing Officer has not mentioned under which limb of section 271(1)(c) of the Act, penalty has been levied is not correct. He submitted that the addition has attained finality and the Assessing Officer has validly initiated the penalty proceeding, therefore, such order levying penalty by the Assessing Officer and sustained by the CIT(A) should be upheld.

We have considered the rival arguments made by both the sides, perused the orders of Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We find that the Assessing Officer in the instant case levied penalty of Rs.74,12,046/- being 100% of tax sought to be evaded on the ground that the assessee has concealed its income to the tune of Rs. 2,47,06,820/- willingly and knowingly by furnishing inaccurate particulars of income. We find that the learned CIT(A) upheld the penalty so levied by the Assessing Officer, reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the learned counsel for the assessee that since the inappropriate words in the said notice has not been struck of, therefore, it is not clear as to under which limb the penalty u/s 271(1)(c) has been initiated. A perusal of the notice issued u/s 274 r.w.s. 271 issued by the Assessing Officer shows that the Assessing Officer has simply put a tick mark against “have concealed the particulars of income or furnished inaccurate particulars of such income in terms of Explanation 1,2,3,4 and 5”. A perusal of the assessment order shows that penalty has been initiated in general terms and the assessment order is not clear as to under which limb of the penalty i.e. for concealment of income or for furnishing inaccurate particulars of income has been mentioned. Similarly, in the case of penalty order, where it is mentioned that assessee has concealed its income to the tune of Rs.2,47,06,820/- willingly and knowingly by furnishing inaccurate particulars of income. We, therefore, find merit in the arguments of the learned counsel for the assessee that in order to initiate penalty proceedings, the Assessing Officer has to specify in the show-cause notice u/s 271(1(c) r.w.s 274 of the Act, if the assessee has concealed the particulars of income or has furnished inaccurate particulars of income which is in instant case, the Assessing Officer has failed to do. The Hon’ble Apex Court in the case of CIT vs SSA’s Emerald Meadows reported in 73 taxmann.com 248, while dismissing the SLP filed by the Revenue quashing the penalty by the Tribunal as well as by the Hon’ble Delhi High Court on the ground that the penalty notice does not specify under which limb the penalty has been levied has held as under:-

Hon’ble Delhi High Court in case of Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra) while deciding the identical issue held as under :-

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), the Co-ordinate Benches of the Tribunal are taking the consistent 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 penalty notice has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable.

Respectfully following the decisions cited above, we hold that since, the particular limb under which the penalty has been levied is not coming out from the notice as well as the assessment order and penalty order, therefore, such levy of penalty under these facts and circumstances is not justified. Accordingly, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the penalty so levied.

In the result, appeal filed by the assessee is allowed.