M/S SILICON GRAPHICS SYSTEMS (INDIA) PVT. LTD.,,NEW DELHI vs. DCIT, NEW DELHI

This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-XI, New Delhi dated 18.02.2013 for AY 2003-04, challenging the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961.

Briefly the facts of the case are that return declaring nil income after setting off the brought forward loss of Rs. 6.45 crores was filed on 02.12.2003. The assessment was completed u/s 143(3) of the Act vide order dated 21.03.2006 at an income of Rs. 11,52,99,860/- making various additions. The penalty proceedings were initiated in the assessment order. The AO vide separate order levied the penalty u/s 1

Ld. Counsel for assessee contended that the AO issued show cause notice for levy of the penalty u/s 271(1)(c) of the Act dated 21.03.2006 for assessment year under appeal in which the AO has mentioned as under: “have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2, 3, 4 and 5.”

He has submitted that in the penalty notice the AO has mentioned both the ingredients of section 271(1)(c) of the Act, therefore, notice is invalid and bad in law and, as such, penalty is liable to be cancelled.

On the other hand, Ld. DR relied upon the orders of the authorities below and has submitted that this point was not raised before the authorities below.

We have considered the rival submission and perused the material on record.

In this case, AO passed the assessment order u/s 143(3) dated 21.03.2006 making certain additions to the returned income. The AO at the end of the order has mentioned “I am satisfied that the assessee has concealed his income and furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. Accordingly, penalty proceedings u/s 274 read with section 271(1)(c) of the Act are initiated”. The AO on the same day issued penalty notice dated 21.03.2006 in which the AO has mentioned the same facts (supra). It would, therefore, show that AO has mentioned both the limbs of section 271(1)(c) of the Act in the assessment order as well as in the notice issued for levy of the penalty. In the case of CIT Vs. M/s SSA’s Emerald Meadows reported in 73 taxmann.com 241, the Hon’ble Karnataka High Court confirm the I.T.A.No.2978/Del/2013 order of the Tribunal in which the Tribunal held that the notice issued by the AO u/s 274 read with section 271(1)(c) of 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 Departmental appeal was accordingly dismissed. Judgment of the Karnataka High Court has been confirmed by the Hon’ble Supreme Court by dismissing the SLP of the Department reported in 73 taxmann.com 248. The Hon’ble Delhi High Court following the above decision of Karnataka High Court in the case of CIT Vs. M/s Sahara India Life Insurance Company Limited (2019) (8-TMI-409) also dismissed the Departmental appeal.

In view of the above, it is clear that the notice issued by the AO for levy of the penalty was bad in law and, as such, vitiated the entire penalty proceedings and, as such, no penalty could be imposed against the assessee. Since, it is a legal issue arising on the basis of the facts mentioned in the assessment order and issue of notice by the AO, therefore, assessee could raise such point at any stage which being legal in nature. The contention of Ld. DR is, therefore, rejected.

In view of the above, we set aside the order of the authorities below and cancel the penalty.

In the result, the appeal of assessee is allowed.