PRAKASHCHAND JAIN,CHENNAI vs. DCIT, CC2(3), CHENNAI

ITA 68/CHNY/2024Status: DisposedITAT Chennai07 March 2025AY 2017-18Bench: SHRI ABY T. VARKEY (Judicial Member), SHRI JAGADISH (Accountant Member)1 pages

AI SummaryAllowed

Facts

The assessee, a doctor, filed his ROI for AY 2017-18. Post a search operation, his income was assessed higher, leading to penalty proceedings u/s.270A of the Income Tax Act. The CIT(A) confirmed the penalty. The assessee appealed to the Tribunal.

Held

The Tribunal held that the show cause notice issued by the AO was vague and did not specify the limb of Section 270A under which the penalty was being levied. This violated principles of natural justice, rendering the penalty order invalid.

Key Issues

Whether the penalty levied under Section 270A is sustainable when the show cause notice is vague and does not specify the exact charge against the assessee?

Sections Cited

270A, 153A, 143(3), 132, 274, 271(1)(c), 246A, 139(1), 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI JAGADISH

Hearing: 10.12.2024Pronounced: 07.03.2025

आदेश / O R D E R PER ABY T. VARKEY, J.M: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as “the Ld.CIT(A)”), Chennai-19, dated 15.12.2023 for the Assessment Years (hereinafter referred to as "AY”) 2017-18 confirming the penalty levied by the AO u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as "the Act”).

The brief facts regarding levy of penalty u/s.270A of the Act are that the assessee is a professional Doctor of M/s. Appollo Hospital and has filed his Return of Income (ROI) filed his Return of Income (ROI) on 23.10.2017 disclosing an income of on 23.10.2017 disclosing an income of Rs. 95,91,590/- for A.Y 2017 for A.Y 2017-18. A search and seizure operations . A search and seizure operations u/s.132 of the Act was carried out in hi of the Act was carried out in his residential premises residential premises on 08.06.2018. Pursuant to which, assessment u/s.153 . Pursuant to which, assessment u/s.153A r.w.s.143(3) of the r.w.s.143(3) of the Act was completed for AYs 2017 Act was completed for AYs 2017-18 on 26.02.2021 by making an addition .2021 by making an addition of Rs.29,30,000/-. Thereafter, the penalty proceedings u/s.270A of the . Thereafter, the penalty proceedings u/s.270A of the . Thereafter, the penalty proceedings u/s.270A of the Act was initiated separately for AYs 2017 d separately for AYs 2017-18 and penalty of 200% was 18 and penalty of 200% was levied and thereby penalty of Rs. levied and thereby penalty of Rs.29,17,418/- was imposed for the was imposed for the relevant year.

Aggrieved by the penalty levied by the AO, the assessee preferred Aggrieved by the penalty levied by the AO, the assessee preferred Aggrieved by the penalty levied by the AO, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to conf an appeal before the Ld.CIT(A) who was pleased to confirm i irm it by passing the impugned order.

“12. We have heard both the parties, perused the materials available We have heard both the parties, perused the materials available We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The A on record and gone through orders of the authorities below. The A on record and gone through orders of the authorities below. The AO levied penalty u/s.270A of the Act, for both the assessment years on the u/s.270A of the Act, for both the assessment years on the u/s.270A of the Act, for both the assessment years on the ground that the assessee has ‘under reporting of income and under ground that the assessee has ‘under reporting of income and under ground that the assessee has ‘under reporting of income and under reporting as a consequence of misreporting of income’. The AO invoked reporting as a consequence of misreporting of income’. The AO invoked reporting as a consequence of misreporting of income’. The AO invoked provisions of clauses (c) & (d) of Sec. 270A provisions of clauses (c) & (d) of Sec. 270A(9) of the Act, which deals (9) of the Act, which deals with claim of expenditure not substantiated by any evidence and with claim of expenditure not substantiated by any evidence and with claim of expenditure not substantiated by any evidence and recording of any false entry in the books of accounts. The AO has arrived recording of any false entry in the books of accounts. The AO has arrived recording of any false entry in the books of accounts. The AO has arrived at the above conclusion on the basis of findings in the assessment order, at the above conclusion on the basis of findings in the assessment order, at the above conclusion on the basis of findings in the assessment order, where income admitted by the assessee in the return of income filed in itted by the assessee in the return of income filed in itted by the assessee in the return of income filed in response to notice u/s.153A of the Act, has been accepted. In the response to notice u/s.153A of the Act, has been accepted. In the response to notice u/s.153A of the Act, has been accepted. In the revised return filed u/s.153A of the Act, the assessee has admitted revised return filed u/s.153A of the Act, the assessee has admitted revised return filed u/s.153A of the Act, the assessee has admitted taxable income of Rs.2,55,35,485/ taxable income of Rs.2,55,35,485/- which is higher than the last r which is higher than the last return filed u/s.139(1) of the Act. According to the AO, the assessee has ‘under filed u/s.139(1) of the Act. According to the AO, the assessee has ‘under filed u/s.139(1) of the Act. According to the AO, the assessee has ‘under reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of misreporting of income’ in respect of marketing expenses, which is clearly misreporting of income’ in respect of marketing expenses, which is clearly misreporting of income’ in respect of marketing expenses, which is clearly evident from information gathered during evident from information gathered during the course of search coupled the course of search coupled with statement recorded from the Director of the assessee company and with statement recorded from the Director of the assessee company and with statement recorded from the Director of the assessee company and also enquiries conducted with suppliers of ‘gift articles’ during the course also enquiries conducted with suppliers of ‘gift articles’ during the course also enquiries conducted with suppliers of ‘gift articles’ during the course of assessment proceedings. The AO further observed that had search of assessment proceedings. The AO further observed that had search of assessment proceedings. The AO further observed that had search was not taken place u/s.132 of the Act, ‘under reporting of income and en place u/s.132 of the Act, ‘under reporting of income and en place u/s.132 of the Act, ‘under reporting of income and under reporting as a consequence of misreporting of income’ would not under reporting as a consequence of misreporting of income’ would not under reporting as a consequence of misreporting of income’ would not have come to light. Therefore, the AO opined that it is a clear case of have come to light. Therefore, the AO opined that it is a clear case of have come to light. Therefore, the AO opined that it is a clear case of ‘under reporting of income and under reporting as a c ‘under reporting of income and under reporting as a consequence of onsequence of misreporting of income’ which attracts provisions of Sec.270A(9) of the misreporting of income’ which attracts provisions of Sec.270A(9) of the misreporting of income’ which attracts provisions of Sec.270A(9) of the Act, and thus, levied penalty for both the assessment years for ‘under Act, and thus, levied penalty for both the assessment years for ‘under Act, and thus, levied penalty for both the assessment years for ‘under reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of misreporting of income’. misreporting of income’.

13.

The fact with regard to seizure of huge ith regard to seizure of huge unaccounted cash during unaccounted cash during the course of search on 6 the course of search on 6-12-1018 was not disputed. It is also an 1018 was not disputed. It is also an admitted fact that the assessee company has offered additional income of admitted fact that the assessee company has offered additional income of admitted fact that the assessee company has offered additional income of Rs.16.39 Crs. & Rs.23.62 Crs. towards disallowance of estimate Rs.16.39 Crs. & Rs.23.62 Crs. towards disallowance of estimate Rs.16.39 Crs. & Rs.23.62 Crs. towards disallowance of estimated marketing expenses @ 1/3rd of total expenses incurred under the head marketing expenses @ 1/3 of total expenses incurred under the head ‘marketing expenses’ for both the assessment years. The cash seized ‘marketing expenses’ for both the assessment years. The cash seized ‘marketing expenses’ for both the assessment years. The cash seized during the course of search was telescoped against additional income during the course of search was telescoped against additional income during the course of search was telescoped against additional income offered by the assessee towards estimated disallowance of marketing offered by the assessee towards estimated disallowance of marketing offered by the assessee towards estimated disallowance of marketing expenses. The assessee has filed return of income in response to notice s. The assessee has filed return of income in response to notice s. The assessee has filed return of income in response to notice u/s.153A of the Act, for both the assessment years and offered additional u/s.153A of the Act, for both the assessment years and offered additional u/s.153A of the Act, for both the assessment years and offered additional income admitted during the course of search in respect of disallowance of income admitted during the course of search in respect of disallowance of income admitted during the course of search in respect of disallowance of marketing expenses and paid taxes. The AO marketing expenses and paid taxes. The AO has also accepted return of has also accepted return of income filed by the assessee in response to notice u/s.153A of the Act, income filed by the assessee in response to notice u/s.153A of the Act, income filed by the assessee in response to notice u/s.153A of the Act, without any further addition and also recorded a clear finding in the without any further addition and also recorded a clear finding in the without any further addition and also recorded a clear finding in the assessment order that after going through the circumstances in its assessment order that after going through the circumstances in its assessment order that after going through the circumstances in its entirety, the income offered by the assessee, including estimated me offered by the assessee, including estimated me offered by the assessee, including estimated disallowance of portion of marketing expenses, is found to be in order and disallowance of portion of marketing expenses, is found to be in order and disallowance of portion of marketing expenses, is found to be in order and accepted. In other words, there is no separate addition towards accepted. In other words, there is no separate addition towards accepted. In other words, there is no separate addition towards marketing expenses, but the assessment has been completed by marketing expenses, but the assessment has been completed by marketing expenses, but the assessment has been completed by accepting additional income offered by the assessee towards estimated g additional income offered by the assessee towards estimated g additional income offered by the assessee towards estimated disallowance of marketing expenses for both the assessment years. disallowance of marketing expenses for both the assessment years. disallowance of marketing expenses for both the assessment years.

14.

In light of above factual back ground, if we examine the order In light of above factual back ground, if we examine the order In light of above factual back ground, if we examine the order passed by the AO imposing penalty passed by the AO imposing penalty u/s.270A(9) of the Act, it is necessary is necessary to refer to provisions of Sec.270A of the Act, and the reasons given by to refer to provisions of Sec.270A of the Act, and the reasons given by to refer to provisions of Sec.270A of the Act, and the reasons given by the AO to impose penalty u/s.270A(9) of the Act. The provisions of the AO to impose penalty u/s.270A(9) of the Act. The provisions of the AO to impose penalty u/s.270A(9) of the Act. The provisions of Sec.270A of the Act, deals with penalty for ‘under reporting of income Sec.270A of the Act, deals with penalty for ‘under reporting of income Sec.270A of the Act, deals with penalty for ‘under reporting of income and under reporting as a conseque and under reporting as a consequence of misreporting of income’. Sub nce of misreporting of income’. Sub- section 1 to 6 of Sec.270A of the Act, deals with ‘under reporting of section 1 to 6 of Sec.270A of the Act, deals with ‘under reporting of section 1 to 6 of Sec.270A of the Act, deals with ‘under reporting of income and under reporting as a consequence of misreporting of income’, income and under reporting as a consequence of misreporting of income’, income and under reporting as a consequence of misreporting of income’, has been specified in sub has been specified in sub-section 7 of Sec.270A of the Act. Sub section 7 of Sec.270A of the Act. Sub-section 8 & 9 deals with ‘under reporting of income and under reporting as a 9 deals with ‘under reporting of income and under reporting as a 9 deals with ‘under reporting of income and under reporting as a consequence of misreporting of income’ thereof by any person and such consequence of misreporting of income’ thereof by any person and such consequence of misreporting of income’ thereof by any person and such cases of ‘misreporting of income’ referred to in sub cases of ‘misreporting of income’ referred to in sub-sec.8 has been sec.8 has been specified in sub sec.9 of Sec.270A of the Act. From specified in sub sec.9 of Sec.270A of the Act. From the above, it is the above, it is manifestly clear that provisions of Sec.270A of the Act, has two limbs or manifestly clear that provisions of Sec.270A of the Act, has two limbs or manifestly clear that provisions of Sec.270A of the Act, has two limbs or two charges for which penalty can be levied. The first limb or first charge two charges for which penalty can be levied. The first limb or first charge two charges for which penalty can be levied. The first limb or first charge is ‘under reporting of income and such under reporting of income’ has is ‘under reporting of income and such under reporting of income’ has is ‘under reporting of income and such under reporting of income’ has been specifically referred to in sub referred to in sub-section 2 to 6 of Sec.270A of the Act. section 2 to 6 of Sec.270A of the Act. In the present case, these provisions are not relevant, because, the AO In the present case, these provisions are not relevant, because, the AO In the present case, these provisions are not relevant, because, the AO has not invoked under reporting of income. The second limb or charge is has not invoked under reporting of income. The second limb or charge is has not invoked under reporting of income. The second limb or charge is ‘under reporting of income as consequence of misrepor ‘under reporting of income as consequence of misreporting of income’ ting of income’ thereof and in the present case, the AO invoked second limb of provisions thereof and in the present case, the AO invoked second limb of provisions thereof and in the present case, the AO invoked second limb of provisions of Sec.270A of the Act. Admittedly, these provisions have been of Sec.270A of the Act. Admittedly, these provisions have been of Sec.270A of the Act. Admittedly, these provisions have been substituted by the Finance Act, 2016 w.e.f.01.04.2017 and applicable for substituted by the Finance Act, 2016 w.e.f.01.04.2017 and applicable for substituted by the Finance Act, 2016 w.e.f.01.04.2017 and applicable for AY 2017-18 onwards. Prior to 18 onwards. Prior to insertion of Sec.270A of the Act, a similar insertion of Sec.270A of the Act, a similar provision was existed in the statue by way of sec.271(1)(c) of the Act, for provision was existed in the statue by way of sec.271(1)(c) of the Act, for provision was existed in the statue by way of sec.271(1)(c) of the Act, for concealment of particulars of income or furnishing of inaccurate concealment of particulars of income or furnishing of inaccurate concealment of particulars of income or furnishing of inaccurate particulars of income. Provisions of Sec.271(1)(c) of the Act, was also particulars of income. Provisions of Sec.271(1)(c) of the Act, was also particulars of income. Provisions of Sec.271(1)(c) of the Act, was also having two limbs or two charges i.e. i) for concealment of particular of having two limbs or two charges i.e. i) for concealment of particular of having two limbs or two charges i.e. i) for concealment of particular of income and ii) furnishing of inaccurate particulars of income. If you go by income and ii) furnishing of inaccurate particulars of income. If you go by income and ii) furnishing of inaccurate particulars of income. If you go by provisions of Sec. 271(1)(c) of the Act & Sec.270A of the Act, and provisions of Sec. 271(1)(c) of the Act & Sec.270A of the Act, and provisions of Sec. 271(1)(c) of the Act & Sec.270A of the Act, and wordings therein both provisions are s wordings therein both provisions are similar and para materia to each imilar and para materia to each other. Although, the term ‘tax evasion’ has been redefined by way of other. Although, the term ‘tax evasion’ has been redefined by way of other. Although, the term ‘tax evasion’ has been redefined by way of ‘under reporting of income and under reporting as a consequence of ‘under reporting of income and under reporting as a consequence of ‘under reporting of income and under reporting as a consequence of misreporting of income’ but it is synonymous to concealment of particular misreporting of income’ but it is synonymous to concealment of particular misreporting of income’ but it is synonymous to concealment of particular of income or furnishing of inaccurate particulars of income. Therefore, it furnishing of inaccurate particulars of income. Therefore, it furnishing of inaccurate particulars of income. Therefore, it is necessary to examine whether penalty proceedings u/s.270A of the is necessary to examine whether penalty proceedings u/s.270A of the is necessary to examine whether penalty proceedings u/s.270A of the Act, is mandatory in nature and further, such penalty can be invoked Act, is mandatory in nature and further, such penalty can be invoked Act, is mandatory in nature and further, such penalty can be invoked without providing an opportunity to the assessee as requi without providing an opportunity to the assessee as required u/s.274 of red u/s.274 of the Act.

15.

The order imposing penalty The order imposing penalty u/s.270A of the Act, is an appealable u/s.270A of the Act, is an appealable order u/s.246A of the Act before the First Appellate Authority. If penalty order u/s.246A of the Act before the First Appellate Authority. If penalty order u/s.246A of the Act before the First Appellate Authority. If penalty u/s.270A of the Act, has been mandatory, there have not been any u/s.270A of the Act, has been mandatory, there have not been any u/s.270A of the Act, has been mandatory, there have not been any provision of appeal u/ provision of appeal u/s.246A of the Act. Since, the order imposing s.246A of the Act. Since, the order imposing penalty Sec.270A of the Act, is an appealable order, then, it cannot be penalty Sec.270A of the Act, is an appealable order, then, it cannot be penalty Sec.270A of the Act, is an appealable order, then, it cannot be said that penalty u/s.270A of the Act, is not mandatory in nature. Since, said that penalty u/s.270A of the Act, is not mandatory in nature. Since, said that penalty u/s.270A of the Act, is not mandatory in nature. Since, penalty u/s.270A of the Act, is not mandatory in nature, the AO penalty u/s.270A of the Act, is not mandatory in nature, the AO penalty u/s.270A of the Act, is not mandatory in nature, the AO is required to give an opportunity to the assessee to show cause ‘as to why’ required to give an opportunity to the assessee to show cause ‘as to why’ required to give an opportunity to the assessee to show cause ‘as to why’ penalty should not be levied in terms of sec.274 of the Act. Admittedly, penalty should not be levied in terms of sec.274 of the Act. Admittedly, penalty should not be levied in terms of sec.274 of the Act. Admittedly, the AO issued notice u/s.274 r.w.s.270A of the Act. Sec.274 of the Act the AO issued notice u/s.274 r.w.s.270A of the Act. Sec.274 of the Act the AO issued notice u/s.274 r.w.s.270A of the Act. Sec.274 of the Act deals with the procedure for lev deals with the procedure for levy of penalty, wherein, it directs that no y of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard order imposing penalty shall be made unless the assessee has been heard order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of hearing. Thus, it is evident or has been given a reasonable opportunity of hearing. Thus, it is evident or has been given a reasonable opportunity of hearing. Thus, it is evident that the penalty u/s.270A of the Act, cannot be imposed unless the that the penalty u/s.270A of the Act, cannot be imposed unless the that the penalty u/s.270A of the Act, cannot be imposed unless the assessee has given a reasonable opportunity and the assessee is being assessee has given a reasonable opportunity and the assessee is being assessee has given a reasonable opportunity and the assessee is being heard. Once, the AO is bound to act to hear the assessee and give heard. Once, the AO is bound to act to hear the assessee and give heard. Once, the AO is bound to act to hear the assessee and give reasonable opportunity to explain its case, then, there is no mandatory reasonable opportunity to explain its case, then, there is no mandatory reasonable opportunity to explain its case, then, there is no mandatory requirement of imposing penalty, because the op requirement of imposing penalty, because the opportunity of hearing is portunity of hearing is not a mere formality, but it is to adhere to the principle of natural justice. not a mere formality, but it is to adhere to the principle of natural justice. not a mere formality, but it is to adhere to the principle of natural justice. Therefore, in our considered view, the penalty u/s.270A of the Act, is not Therefore, in our considered view, the penalty u/s.270A of the Act, is not Therefore, in our considered view, the penalty u/s.270A of the Act, is not mandatory and it is based on the facts and merits placed before the AO. mandatory and it is based on the facts and merits placed before the AO. mandatory and it is based on the facts and merits placed before the AO.

16.

Having said so, let us come back to notice issued u/s.274 aving said so, let us come back to notice issued u/s.274 aving said so, let us come back to notice issued u/s.274 r.w.s.270A of the Act. We have gone through notice u/s 274 r.w.s. 270A r.w.s.270A of the Act. We have gone through notice u/s 274 r.w.s. 270A r.w.s.270A of the Act. We have gone through notice u/s 274 r.w.s. 270A of the Act dated 26.07.2021, wherein, the AO has stated that ‘under of the Act dated 26.07.2021, wherein, the AO has stated that ‘under of the Act dated 26.07.2021, wherein, the AO has stated that ‘under reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of misreporting of income’. From the notice, it is not discernable whether misreporting of income’. From the notice, it is not discernable whether misreporting of income’. From the notice, it is not discernable whether penalty has been initiated for ‘under reporting of income’ as per section penalty has been initiated for ‘under reporting of income’ as per section penalty has been initiated for ‘under reporting of income’ as per section 270A (1) to (6) or ‘misreporting of income’ as per section 8 & 9 of 270A (1) to (6) or ‘misreporting of income’ as per section 8 & 9 of 270A (1) to (6) or ‘misreporting of income’ as per section 8 & 9 of Sec.270A of the Act. The AO issued a no Sec.270A of the Act. The AO issued a notice in a routine manner without tice in a routine manner without specifying under which clause of Sec.270A of the Act, the assessee is specifying under which clause of Sec.270A of the Act, the assessee is specifying under which clause of Sec.270A of the Act, the assessee is liable for penalty. Though, the AO while passing the impugned order has liable for penalty. Though, the AO while passing the impugned order has liable for penalty. Though, the AO while passing the impugned order has imposed penalty u/s.270A(9) of the Act, but no such ground was imposed penalty u/s.270A(9) of the Act, but no such ground was imposed penalty u/s.270A(9) of the Act, but no such ground was specified in the show cause notice dated 26.07.2021. In our considered show cause notice dated 26.07.2021. In our considered show cause notice dated 26.07.2021. In our considered view, notice u/s.274 r.w.s.270A of the Act, is not a valid notice for the view, notice u/s.274 r.w.s.270A of the Act, is not a valid notice for the view, notice u/s.274 r.w.s.270A of the Act, is not a valid notice for the reason that the AO did not specify the satisfaction as to whether assessee reason that the AO did not specify the satisfaction as to whether assessee reason that the AO did not specify the satisfaction as to whether assessee had either ‘under reporting of income’ or ‘misreport had either ‘under reporting of income’ or ‘misreporting of income’. In ing of income’. In absence of proper notice, which is mandatory, the AO cannot impose absence of proper notice, which is mandatory, the AO cannot impose absence of proper notice, which is mandatory, the AO cannot impose penalty, because, it is a clear violation of principles of natural justice, penalty, because, it is a clear violation of principles of natural justice, penalty, because, it is a clear violation of principles of natural justice, because, issuing a vague notice without specifying the charge under because, issuing a vague notice without specifying the charge under because, issuing a vague notice without specifying the charge under which limb the proposed p which limb the proposed penalty proceedings is initiated, would vitiate the enalty proceedings is initiated, would vitiate the entire proceedings, because, the assessee was not given an opportunity entire proceedings, because, the assessee was not given an opportunity entire proceedings, because, the assessee was not given an opportunity to explain its case on specific charge. Therefore, in our considered view, to explain its case on specific charge. Therefore, in our considered view, to explain its case on specific charge. Therefore, in our considered view, penalty levied on the basis of invalid or vague notice is penalty levied on the basis of invalid or vague notice is invalid and void invalid and void ab initio.

17.

The concepts of ‘under reporting of income’ and ‘misreporting of The concepts of ‘under reporting of income’ and ‘misreporting of The concepts of ‘under reporting of income’ and ‘misreporting of income’ are two different charges with very clear boundaries. As we have income’ are two different charges with very clear boundaries. As we have income’ are two different charges with very clear boundaries. As we have already discussed in earlier part of this order, sub already discussed in earlier part of this order, sub-section 2 to 6 of sec section 2 to 6 of sec Sec.270A of the Act, deals with concept of ‘under reporting of income’ of the Act, deals with concept of ‘under reporting of income’ of the Act, deals with concept of ‘under reporting of income’ and for this, separate rate of penalty is provided. Sub and for this, separate rate of penalty is provided. Sub-sec.9 deals with sec.9 deals with concept of ‘misreporting of income’ and for this, separate rate of penalty concept of ‘misreporting of income’ and for this, separate rate of penalty concept of ‘misreporting of income’ and for this, separate rate of penalty is provided. Therefore, ‘under reporting of is provided. Therefore, ‘under reporting of income’ and ‘misreporting of income’ and ‘misreporting of income’ shall not be used interchangeably nor are they synonymous, but income’ shall not be used interchangeably nor are they synonymous, but income’ shall not be used interchangeably nor are they synonymous, but each operates under strict definition and do not overlap each other. each operates under strict definition and do not overlap each other. each operates under strict definition and do not overlap each other. Since, ‘under reporting of income’ and ‘misreporting of income’ are two Since, ‘under reporting of income’ and ‘misreporting of income’ are two Since, ‘under reporting of income’ and ‘misreporting of income’ are two concepts and separate charges, the AO before initiating penalty separate charges, the AO before initiating penalty separate charges, the AO before initiating penalty proceedings should specifically arrive at a satisfaction to the effect that, proceedings should specifically arrive at a satisfaction to the effect that, proceedings should specifically arrive at a satisfaction to the effect that, for which charge, he has initiated penalty Sec.270A of the Act. In the for which charge, he has initiated penalty Sec.270A of the Act. In the for which charge, he has initiated penalty Sec.270A of the Act. In the present case, if you go by the assessment order passed by present case, if you go by the assessment order passed by the AO, there the AO, there is no satisfaction in respect of initiation of penalty proceedings u/s.270A is no satisfaction in respect of initiation of penalty proceedings u/s.270A is no satisfaction in respect of initiation of penalty proceedings u/s.270A of the Act, whether it is for ‘under reporting of income and under of the Act, whether it is for ‘under reporting of income and under of the Act, whether it is for ‘under reporting of income and under reporting as a consequence of misreporting of income’ thereof which is reporting as a consequence of misreporting of income’ thereof which is reporting as a consequence of misreporting of income’ thereof which is clearly evident from the as clearly evident from the assessment order passed by the AO, where, the sessment order passed by the AO, where, the AO simply referred to initiation of penalty proceedings u/s.270A of the AO simply referred to initiation of penalty proceedings u/s.270A of the AO simply referred to initiation of penalty proceedings u/s.270A of the Act. Further, said lapse is even continued while issuing show cause notice Act. Further, said lapse is even continued while issuing show cause notice Act. Further, said lapse is even continued while issuing show cause notice u/s.274 r.w.s.270A of the Act, where, the AO simply specified ‘un u/s.274 r.w.s.270A of the Act, where, the AO simply specified ‘un u/s.274 r.w.s.270A of the Act, where, the AO simply specified ‘under

reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of reporting of income and under reporting as a consequence of misreporting of income’, without specifying for which charge the assessee misreporting of income’, without specifying for which charge the assessee misreporting of income’, without specifying for which charge the assessee is directed to pay penalty u/s.270A of the Act. There is no whisper as to is directed to pay penalty u/s.270A of the Act. There is no whisper as to is directed to pay penalty u/s.270A of the Act. There is no whisper as to which limb of Sec.270A of the Act, is attra which limb of Sec.270A of the Act, is attracted and how the ingredients of cted and how the ingredients of sub-sec.9 of Sec.270A of the Act are specified. In absence of such sec.9 of Sec.270A of the Act are specified. In absence of such sec.9 of Sec.270A of the Act are specified. In absence of such particulars, the mere reference to the word ‘misreporting of income’ in particulars, the mere reference to the word ‘misreporting of income’ in particulars, the mere reference to the word ‘misreporting of income’ in the assessment order or in the show cause notice makes the impugned the assessment order or in the show cause notice makes the impugned the assessment order or in the show cause notice makes the impugned order manifestly arbitrarily. Therefore, we are of the considered view that arbitrarily. Therefore, we are of the considered view that arbitrarily. Therefore, we are of the considered view that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, without specifying the charge under which penalty is proposed u/s.270A without specifying the charge under which penalty is proposed u/s.270A without specifying the charge under which penalty is proposed u/s.270A of the Act, is a clear case of non of the Act, is a clear case of non-application of mind at the time of issuing he time of issuing show cause notice and thus, in absence of specific charge against the show cause notice and thus, in absence of specific charge against the show cause notice and thus, in absence of specific charge against the assessee, the assessee is not in a position to counter the show cause assessee, the assessee is not in a position to counter the show cause assessee, the assessee is not in a position to counter the show cause notice issued by the AO as well as cogent reply to the show cause notice. notice issued by the AO as well as cogent reply to the show cause notice. notice issued by the AO as well as cogent reply to the show cause notice. In view of vague notice In view of vague notice without any whisper as to which limb of section without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub 270A of the Act is attracted and how ingredients of sub-section 9 is section 9 is specified, initiation of penalty u/s.270A of the Act for ‘misreporting of specified, initiation of penalty u/s.270A of the Act for ‘misreporting of specified, initiation of penalty u/s.270A of the Act for ‘misreporting of income’ is not only erroneous, but also arbitrary and thus, pena income’ is not only erroneous, but also arbitrary and thus, pena income’ is not only erroneous, but also arbitrary and thus, penalty proceedings cannot be sustained. This legal position is strengthened by proceedings cannot be sustained. This legal position is strengthened by proceedings cannot be sustained. This legal position is strengthened by the decision of the Hon’ble Delhi High Court in the case of Prem Brothers the decision of the Hon’ble Delhi High Court in the case of Prem Brothers the decision of the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP (supra), where the Hon’ble Delhi High Court by Infrastructure LLP (supra), where the Hon’ble Delhi High Court by Infrastructure LLP (supra), where the Hon’ble Delhi High Court by following the earlier decision following the earlier decision in the case of Schneider Electric South East se of Schneider Electric South East Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of Asia (HQ) Pte Ltd. v. ACIT, International Taxation in WP (C) No.5111 of 2022 dated 28.03.2022, held that in view of vague notice without any 2022 dated 28.03.2022, held that in view of vague notice without any 2022 dated 28.03.2022, held that in view of vague notice without any whisper as to which lim whisper as to which limb of section 270A of the Act is attracted and how b of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of section 9 is specified, initiation of penalty u/s.270A of section 9 is specified, initiation of penalty u/s.270A of the Act for ‘misreporting of income’ is not only erroneous, but also the Act for ‘misreporting of income’ is not only erroneous, but also the Act for ‘misreporting of income’ is not only erroneous, but also arbitrary and bereft of any reason and consequently, penalty order arbitrary and bereft of any reason and consequently, penalty order arbitrary and bereft of any reason and consequently, penalty order passed by the AO, cannot be sustained. The releva passed by the AO, cannot be sustained. The relevant findings of the nt findings of the Hon’ble Delhi High Court are as under: Hon’ble Delhi High Court are as under:

7. This Court is of the opinion that the only addition in the 7. This Court is of the opinion that the only addition in the 7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No.1 is in respect of assessment order framed by Respondent No.1 is in respect of assessment order framed by Respondent No.1 is in respect of disallowance under secti disallowance under section 14A of the Act. The Petitioner has on 14A of the Act. The Petitioner has made a disallowance of Rs.3,20,14,010/ made a disallowance of Rs.3,20,14,010/- which was recomputed which was recomputed by the Assessing Officer at Rs.6,82,45,759/ by the Assessing Officer at Rs.6,82,45,759/-. Thus, this is a case . Thus, this is a case where the amount of underreporting of income is consequent to where the amount of underreporting of income is consequent to where the amount of underreporting of income is consequent to increase in the disallowance increase in the disallowance voluntarily estimated by the assessee. voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where This court is conscious of the fact that there can be cases where This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, underreporting of income may result in misreporting of income, underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting however, in peculiar facts of the present case, the underreporting however, in peculiar facts of the present case, the underreporting allegedly done by th allegedly done by the assessee cannot amount to misreporting as e assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions the assessee had furnished all the details of the transactions the assessee had furnished all the details of the transactions relating to disallowance made under Section 14A of the Act and relating to disallowance made under Section 14A of the Act and relating to disallowance made under Section 14A of the Act and the AO as well as assessee has used the same details to arrive at the AO as well as assessee has used the same details to arrive at the AO as well as assessee has used the same details to arrive at different conclusion different conclusions i.e. differing quantum of disallowances under s i.e. differing quantum of disallowances under Section 14A of the Act. This by no stretch of imagination can be Section 14A of the Act. This by no stretch of imagination can be Section 14A of the Act. This by no stretch of imagination can be held to be ‘misreporting’. held to be ‘misreporting’.

18.

At this stage, it is relevant to consider the decision of Hon’ble At this stage, it is relevant to consider the decision of Hon’ble At this stage, it is relevant to consider the decision of Hon’ble Madras High Court in the case of Madras High Court in the case of Babuji Jacob v. ITO reported in [2021] Babuji Jacob v. ITO reported in [2021] 430 ITR 259 (Madras), where the Hon’ble High Court 430 ITR 259 (Madras), where the Hon’ble High Court has dealt with the has dealt with the issue of show cause notice u/s.274 r.w.s.271(1)(c) of the Act, and ow cause notice u/s.274 r.w.s.271(1)(c) of the Act, and ow cause notice u/s.274 r.w.s.271(1)(c) of the Act, and after considering its earlier decision in the case of Sudaram Finance Ltd. v. considering its earlier decision in the case of Sudaram Finance Ltd. v. considering its earlier decision in the case of Sudaram Finance Ltd. v. ACIT reported in [2018] 93 taxmann.com 250, ACIT reported in [2018] 93 taxmann.com 250, held that issuing a printed held that issuing a printed form of notice without striking inapplicable porti form of notice without striking inapplicable portion in the notice and not on in the notice and not charging the assessee for particular evasion vitiates the entire penalty charging the assessee for particular evasion vitiates the entire penalty charging the assessee for particular evasion vitiates the entire penalty proceedings, including the order passed by the AO imposing penalty proceedings, including the order passed by the AO imposing penalty proceedings, including the order passed by the AO imposing penalty u/s.271(1)(c) of the Act. A similar view has been taken by the u/s.271(1)(c) of the Act. A similar view has been taken by the u/s.271(1)(c) of the Act. A similar view has been taken by the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning t in the case of CIT v. Manjunatha Cotton & Ginning t in the case of CIT v. Manjunatha Cotton & Ginning Factory reported in [2013] 359 ITR 565, Factory reported in [2013] 359 ITR 565, where the issue of show cause where the issue of show cause notice and consequent penalty proceedings has been dealt in detail and notice and consequent penalty proceedings has been dealt in detail and notice and consequent penalty proceedings has been dealt in detail and held that penalty proceedings consequent to vague and invalid n held that penalty proceedings consequent to vague and invalid n held that penalty proceedings consequent to vague and invalid notice becomes invalid and liable to be quashed. The Hon’ble Supreme Court becomes invalid and liable to be quashed. The Hon’ble Supreme Court becomes invalid and liable to be quashed. The Hon’ble Supreme Court has upheld the decision of the Hon’ble Karnataka High Court in the case has upheld the decision of the Hon’ble Karnataka High Court in the case has upheld the decision of the Hon’ble Karnataka High Court in the case of CIT v. SSA’s Emerald Meadows reported in [2016] 73 taxmann.com CIT v. SSA’s Emerald Meadows reported in [2016] 73 taxmann.com CIT v. SSA’s Emerald Meadows reported in [2016] 73 taxmann.com 241. From the ratio of above case laws, it . From the ratio of above case laws, it is undisputedly clear that is undisputedly clear that satisfaction of the AO should be discernable from the show cause notice satisfaction of the AO should be discernable from the show cause notice satisfaction of the AO should be discernable from the show cause notice issued by the AO u/s.274 r.w.s.270A of the Act. In absence of any issued by the AO u/s.274 r.w.s.270A of the Act. In absence of any issued by the AO u/s.274 r.w.s.270A of the Act. In absence of any particular charge for which, the assessee is directed to pay penalty u/s particular charge for which, the assessee is directed to pay penalty u/s particular charge for which, the assessee is directed to pay penalty u/s 270A of the Act, entire penalty proceedings becomes invalid and liable to entire penalty proceedings becomes invalid and liable to entire penalty proceedings becomes invalid and liable to be quashed.