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Facts
The assessee faced a penalty of Rs. 6,54,064/- under Section 271(1)(c) for an alleged unexplained investment in property (Rs. 23,10,010/- under Section 69) which was not proved before the Ld. AO. The Ld. CIT(A) confirmed the penalty, leading the assessee to appeal.
Held
The Tribunal dismissed the assessee's contention that the penalty notice under Section 274 was defective, citing a High Court judgment that the notice was valid as the charge of concealment was clear. However, on merits, the Tribunal noted that the assessee had provided prima facie evidence regarding the source of investment during penalty proceedings, which was ignored by the lower authorities. Emphasizing the distinction between assessment and penalty proceedings, the Tribunal remanded the issue back to the Ld. AO for fresh consideration of the assessee's submissions.
Key Issues
Whether a penalty notice under Section 274 is defective if it does not specifically mention 'concealment of income' or 'furnishing inaccurate particulars', and whether the Ld. AO and Ld. CIT(A) properly considered the assessee's submissions regarding the source of investment during penalty proceedings.
Sections Cited
250, 271(1)(c), 69, 274, 153A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH”, KOLKATA
Dipika De, C/o Subash Agarwal & Associates, Advocates Siddha Gibson, 1, Gibson Lane, Suite 213, 2nd Floor, Kolkata - 700069 [PAN: BCAPD0210L] ……..…...…………….... Appellant vs. ITO Ward-24(1), Kolkata, Aayakar Bhawan, Dakshin, 2 No., Gariahat Road, Kolkata ................................. Respondent Appearances by: Assessee represented by : Siddarth Agarwal, Advocate Department represented by : Soumitra Ghosh, Sr. DR Date of concluding the hearing : 30.06.2025 Date of pronouncing the order : 07.07.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER
This appeal arises from the order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”), passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi vide order dated 28.03.2025.
1.1 In this case, a penalty of Rs. 6,54,064/- has been levied u/s 271(1)(c) of the Act on the ground that there was an alleged investment in property by the assessee which was not proved before the Ld.AO.
1.2 In this case the facts, as culled out from the documents before us, need to be recapitulated as they have a bearing on the present adjudication.
(a) The Ld. AO has recorded in the body of the assessment order dated 18.12.2018: so it is crystal clear that it is an unexplained investment u/s 69 of the I.T. Act, 1961 by the assessee in the F.Y. 2013-14 and concealed income by the assessee. So Rs. 23,10,010/- is added with her return of income for A.Y. 2014-15.
(b) The Ld. AO in the penalty order dated 29.02.2024 has mentioned that:
The reply of the assessee has been examined. However, the same cannot be accepted. The property purchased by the assessee has not been reflected in the balance sheet. For this reason, the Ld. CIT(A) dismissed her appeal. Thus, it is clear that the assessee had deliberately concealed particular of her income.
(c) The Ld. CIT(A) has mentioned in para 2 at page 2 of the impugned order:
The Assessing Officer initiated penalty proceedings and impose a penalty of Rs. 6,54,064/- u/s 271(1)(c) of the Act for concealment of particulars of income. Aggrieved with this penalty imposition, the appellant preferred appeal. Hence this appeal.
(d) the notices u/s 274 r.w.s. 271(1)(c) dated 18.02.2018 states in the first para itself: whereas in the course of proceeding before me for the assessment year 2014-15, it appears to me that you have concealed the particulars of income or furnished inaccurate particulars of such income.
1.3 Needless to say, the Ld. CIT(A) has confirmed the action of Ld. AO for which the assessee being aggrieved, has filed the present appeal with the following grounds:
“1.For that on the facts and circumstances of the case, the Ld. CIT (Appeals) erred in confirming the penalty of ₹6,54,064/- imposed by the Ld. A.O under section 271(1)(c) is bad in law and liable to be quashed.
For that the Ld. CIT(A) ought to have considered that the Ld. A.O was not justified in ignoring the well settled legal position that the assessment and penalty proceedings are independent in nature.
3. For that the Ld. CIT(A) ought to have considered that the penalty order u/s 271(1)(c) is liable to be quashed inasmuch as the A.O. failed to specify the charge in the notice issued u/s 274 r.w.s 271(1)(c).
4. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal
.”
2. The Ld. AR vehemently argued with the help of a paper book that the notices u/s 274 of the Act contained an incurable legal defect, in as much as both of the conditions precedent to levy of penalty viz. “furnishing of inaccurate particulars of income” or “concealment of income”, have been mentioned, in place of only one of them. It has been averred that this is a fatal mistake which renders the subsequent penalty proceedings infructuous. It is further argued that the Ld. AO should have specified which of the two conditions was applicable on the facts of the case, for this purpose, the Ld. AR placed reliance on several authorities as under:
(a) In the case of Dr. Murali Mohan Kole, ITAT No. 306 of 2017, GA No. 2968 of 2017, order dated 18.07.2018 (Cal).
(b) In the case of Kolkata Port Trust, ITAT/60/2022, IA No. GA/1/2022, GA/2/2022, order dated 05.09.2022 (Cal).
(c) In the case of M/s Jai Loknath Oil Extraction (P) Ltd., dated 13.12.2017.
With the help of these judicial orders, it has been argued that not satisfying of the particular charge against the assessee has rendered the penalty order bad in law. The Ld. AR also argued that on merit also the assessee’s case was not one of intended concealment but a case where proper representation was not made before the Ld. AO so that the source of impugned investment in property could be proved. The Ld. AR relied on several authorities to canvass the point that the assessment proceedings and penalty proceedings are entirely different and the Ld. AO was duty bound to examine the material before him while considering levy of penalty u/s 271(1)(c) of the Act.
2.1 The Ld. DR relied on the order of Ld. AO and the Ld. CIT(A) and stated that the fact of concealment of particulars of income have been spelt out by the Ld.AO clearly in the body of the assessment order and also in the body of the penalty order.
We have carefully considered the argument of the Ld. AR/DR and have also gone through the documents before us. It is pertinent to address the primary objection of the Ld. AR, whereby he has stated that the fact that in the notice u/s 274 of the Act, the Ld. AO has not specifically mentioned whether it is concealment of income or furnishing of inaccurate particulars, would render the penalty order infructuous. We have given our careful consideration to the orders placed before us in support of this contention. However, a review of the judicial precedents available on this issue reveals that we need to refer to the case of Pr. CIT Vs. Thakur Prasad Sao & Sons (P) Ltd. Reported in 163 taxman.com 449 (Calcutta, order dated 02.05.2024). It deserves to be considered that the order in the case of Thakur Prasad Sao & Sons (P) Ltd. (supra) is the latest order by the Hon’ble Jurisdictional High court where the issue under consideration has been discussed.
3.1. In the Thakur Prasad Sao & Sons case (supra), the facts were that for Assessment year 2006-07 and 2007-08 after search and seizure operations, the assessee declared certain undisclosed income which was added to the income disclosed in the returns filed in response to the notice issued u/s 153A of the Act. The assessment orders were followed by notices u/s 271(1)(c), read with section 274 of the Act, and after considering the assessee’s submissions, the Assessing Officer levied penalty u/s 271(1)(c) of the Act. On appeal, the Tribunal cancelled the penalty on the ground that show cause notice u/s 274 of the Act was defective as it did not spell out the grounds on which such penalty was sought to be imposed. It has been held that when the Assessing Officer had recorded in the assessment order particulars of concealed income/undisclosed income of the assessee and on that basis initiated penalty proceeding u/s 271(1)(c) of the Act, then consequential notice u/s 274 of the Act issued by Assessing Officer to the assessee to afford him opportunity of hearing, was specifically a notice for penalty for concealment of particulars of income/undisclosed income. It is also held that such a notice complied with the principles of natural justice and was a valid notice u/s 274 of the Act and the Tribunal had committed a manifest error of law by setting aside the penalty order on the ground that ‘grounds for imposition of penalty were not mentioned in the show cause notice under section 274 of Act and thus, show cause notice was defective’.
3.2 As has been mentioned earlier, the Ld.AO in the assessment order has mentioned concealment of particulars of income, the Ld.AO in the penalty order has also mentioned concealment of particulars of income and even the Ld. CIT(A) has mentioned in a similar manner. Thus, we find that there has been no doubt or confusion in the mind of any of the authorities below as to the reason why the said penalty was being imposed. Accordingly, respectfully following the judgment in Thakur Prasad Sao & Sons (P) Ltd. (supra) we hold that there is no infirmity in terms of initiation of impugned proceedings and that these proceedings are not vitiated in any manner due to the language of the impugned notice u/s 274 of the Act 3.3. Regarding the merit of the case, we are in agreement with the Ld. AR that penalty and assessment proceedings are entirely different. It is seen that the assessee had made the following submissions before the Ld. AO during the penalty proceedings:
“During the course of reassessment proceeding, the Balance Sheet of your assessee had been filed wherein the investment in the property in question is duly reflected. Copy of the Balance Sheet is annexed herewith and marked as Annexure: 'E'. (b) According to the Ld. A.O. your assessee failed to proof the source of investment. In this regard, it is humbly submitted that your assessee had an opening cash balance of Rs.4,32,817/-. Further, during the relevant year, there was a sum of Rs. 14,06,698/-recovered from the debtors as receivable as on 01.04.2013. It is further submitted that in the relevant year your assessee sold her jewelleries for the purpose of investment in the said property. Copy of the Balance Sheet for the A.Y: 2013-14 is annexed herewith and marked as Annexure: 'F'. It is further submitted that on perusal of the Balance Sheet of the relevant year, it is evident that your assessee had sufficient source to make such investment. (c) In view of the above-mentioned submission it is evident that the transactions is question is genuine and bonafide transaction. Therefore, penalty u/s. 271(1)(c) should not be attracted in the present case.” 3.4 It is seen that the Ld. AO chose to ignore these submissions and levied the penalty in any case. We also find that the Ld. CIT(A) has not paid any attention to these facts and has confirmed the action of Ld. AO. Since there is prima facie evidence available with the assessee in justification for the source of the impugned investment in property. We feel that in the interests of substantive justice, this issue needs to be duly considered by the Ld.AO and in case, if the assessee is not able to establish the source of investment, then only penalty could be exigible. Accordingly, we set aside the impugned order and remand the issue of investment for immovable property to the file of the Ld. AO for considering the assessee’s submission and thereafter passing a speaking order.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced on 07.07.2025