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Facts
The assessee's income tax return for AY 2014-15 was scrutinized, leading to additions related to negative cash balance (treated as cash credit u/s 68), disallowance u/s 40A(3), and undisclosed receipts. The Assessing Officer initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income and imposed a penalty, which was subsequently upheld by the CIT(A).
Held
The Tribunal found that the show cause notice for penalty proceedings u/s 274 was defective as it did not clearly specify whether the charge was for concealment of income or furnishing inaccurate particulars. Citing various High Court and Supreme Court decisions, the Tribunal concluded that such an ambiguous notice lacked proper satisfaction and rendered the penalty proceedings invalid.
Key Issues
Whether the penalty levied under Section 271(1)(c) is valid when the show cause notice under Section 274 does not explicitly state the exact charge (concealment or furnishing inaccurate particulars) and lacks proper satisfaction.
Sections Cited
143(3), 271(1)(c), 274, 271(1), 68, 40A(3), 271AAB, 162, 153A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against the order of Commissioner of Income Tax (Appeals)- NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 26.06.2024 for AY 2014-15.
Assessment Year: 2014-15 Subrata Moitra 2. Brief facts of the case of the assessee are that the assessee filed return of income for AY 2014-15 declaring total income of Rs. 29,94,830/-. The case of the assessee was selected for scrutiny, an order u/s 143(3) of the Act was passed by assessing total income at Rs. 86,11,216/-. Penalty proceedings for levying of penalty u/s 271(1)(c) of the Act was initiated in the assessment order. In the notice u/s 274 read with Section 271(1) was issued as it was noticed during assessment proceedings that as per cash book of M/s Samridhi Construction for a period of 01.04.2013 to 31.03.2014, the assessee had negative cash balance on different occasion. The assessee was asked to show cause to explain the negative cash balance as to why negative cash balance should not be treated as cash credit and should not have treated to be undisclosed income. The assessee did not reply to the same. Considering the fact there was negative cash balance and the highest negative cash balance was Rs. 16,23,931/-, the same was treated as cash credit and added to the total income of the assessee under the head income from other sources. Further the AO has also disallowed an amount of Rs. 16,80,681/- u/s 40A(3) and added to the total income of the assessee. The AO has further disallowed an amount of Rs. 1,58,06,810/- which was declared by the assessee in the profit and loss account being treated as undisclosed receipts.
The said order has been challenged by the assessee before the Ld. CIT(A) wherein the appeal of the assessee allowed on the ground of addition of Rs. 23,11,773/- on account of difference in contract receipt as per Form 26AS but dismissed the appeal of the assessee on the addition of Rs. 16,23,931/- as cash credit u/s 68 of the Act and addition of Rs. 16,80,681/-u/s 40A(3) of the Act. In the penalty proceedings u/s 271(1)(c) of the Act the AO held that the assessee has furnished inaccurate particulars of income to the tune of Rs. 33,04,612/- (1623,931 + 16,80,681) and a impose the penalty u/s 271(1)(c ) of the Act of Rs. 10,21,124/-.
Aggrieved by the said order of imposition of penalty, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed.
Being aggrieved and dissatisfied the assessee preferred an appeal before us.
Assessment Year: 2014-15 Subrata Moitra 5. The Ld. A.R appeared on behalf of the assessee has challenged the very impugned order by citing several decisions of Hon’ble High Court as well as Tribunal and submitted that impugned penalty order is ab-initio void as there was no satisfaction recorded by the AO under which limb of Section 271(1)(c ) of the Act penalty was being sought to be imposed. The Ld. AR further submits that the AO did not state anything regarding whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The ld. Counsel further submits that the assessee is a contractor and AO has accepted the positive cash balance and did not reject the books. The ld. AR cited following decisions: i) Decision of Kolkata ITAT in the case of M/s D. K. Industries vs. ITO in dated 13.11.2024. ii) Decision of Hon’ble Supreme Court int eh case of CIT vs. M/s SSA’s Emerald Meadows in SLP 11485 of 2016 dated 05.08.2016. iii) Decision of Hon’ble Calcutta High Court in the case of PCIT vs. Dr. Murari Mohan Koley in GA No. 2968 of 2017 dated 18.07.2018. iv) Decision of Hon’ble Calcutta High Court in the case of PCIT vs. Smt. Jayashree Jayakar Mohanka reported in 291 Taxmann 273 (Cal)
Apart from the above cited judicial pronouncement the Ld. Counsel has cited a recent decision of Hon’ble Calcutta High Court passed in the case of KPC Medical College and Hospital vs. PCIT in RVWO/35/2016, ITA NO:GA /1/2016 (Old No.: GA/ 2496/2016)
6. Contrary to that the Ld. D.R supports the impugned order by citing the decision of Hon’ble Calcutta High Court passed in the case of PCIT vs. Thakur Prasad Sao & Sons Pvt. Ltd. in [2024] 340 CTR 10(Cal).
Upon hearing the submission of the counsel of the respective parties, we have perused the order passed by the AO u/s 271(1)( c) of the Act and find that the AO in its order has held thus:
Assessment Year: 2014-15 Subrata Moitra “5. From the foregoing facts and circumstances of the case and appellate order of the Ld. CIT(A), Durgapur on the discussed issues, it stands established that the assessee has furnished inaccurate particulars of income to the tune of Rs. 33,04,612/- ( 16,23,931 + 16,80,681).
I, therefore, hold the assessee in default and proceed to impose a penalty under Section 271(1)(c ) of the Act of Rs. 10,21,124/- which is worked out hereunder: Income for which inaccurate Particulars were furnished (as discussed above) Rs. 33,04,612/- Tax sought to be evaded Rs. 10,21,124/- Minimum penalty leviable @ 100% of tax sought to be evaded Rs. 10,21,124/- Maximum penalty leviable @ 300% of tax sought to be evaded Rs. 30,63,372/-“
The Ld. CIT(A) confirmed the order of AO by holding that the case law is not applicable in the instant case. In view of the same, we confirm the levy of penalty u/s 271(1)( c) of the Act by AO for furnishing inaccurate particulars of income.
We have gone through the copy of penalty of notice and find that the penalty notice has been issued by saying that in AY 2014-15, it appears that you have concealed the particulars of income or furnished inaccurate particulars of such income.
Going over the cited decision of the assessee, it appears to us that in dated 13.11.2024. This issue has been discussed by the Tribunal and held thus:
“2.1. It is apparent from the order of the ld. AO that the penalty proceeding has been started on two accounts; (i) concealed the particulars of income and (ii) furnishing of inaccurate particulars of income. Now, going over the provisions of Section 271(1)(c) of the Act which is thus: “Explaining the legal provisions it is submitted that sec. 271 (l)(c) of the Act is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four corners of the said provision, penalty cannot be imposed. Sub-sec. (1) of sec. 271 stipulates certain contingencies on the happening whereof the AO or the CIT(A) may direct payment of penalty by the assessee. The fundamentality provided in clause (c) of sec. 271(1) of the Act authorizes imposition of penalty when the AO is satisfied that the assessee has either: (a) concealed the particulars of his income; or (b) furnished inaccurate particulars of such income. Another facet of penalty proceedings are that while completing assessment proceedings, it is incumbent upon the Assessing Officer to record satisfaction as to whether the assessee has concealed its income or furnished inaccurate particulars of income in order to initiate penalty proceedings. The section has two limbs i.e. penalty is leviable where the assessee has concealed its income or furnished inaccurate particulars of income. While recording satisfaction, the Assessing Officer has to give a finding as to which limb for which the penalty proceedings are Assessment Year: 2014-15 Subrata Moitra being initiated so that the assessee is show caused to meet the case of Revenue. The section thus requires the concerned Officer to record satisfaction in the course of any proceedings under the Act. that the person has concealed the particulars of his income or furnished inaccurate particulars of his income. After recording the satisfaction, during the course of penalty proceedings also, the concerned Officer has come to a finding that as to whether the person has concealed the particulars of his income or furnished inaccurate particulars of such income and thereafter, levy the penalty accordingly. The word used between the two acts i.e. concealment of particulars of income and furnishing of inaccurate particulars of such income is 'or'. So the penalty levied by the concerned Officer is on satisfaction of any of the limbs and not the satisfaction of both the limbs. Where the assessee had concealed the particulars of income in particular circumstances, then the Assessing Officer may record satisfaction to that effect and initiate penalty proceedings and thereafter on fixation of charge, levy the penalty for such act of concealing the particulars of income. Similarly, in cases where the assessee concerned had furnished inaccurate particulars of such income, then similar exercise has to be carried out by the concerned officer.”
The recent judgment of Hon’ble Calcutta High Court passed in KPC Medical College and Hospital (supra) has also held thus:
We have perused the notice and we find that none of the relevant columns have been indicated nor have the irrelevant columns been struck off. Identical issue came up for consideration wherein one of the questions which was considered was with regards to the validity of the notice issued under section 274 read with 271 wherein the Court also took into consideration the effect of Section 271AAB read with 162 and answered the questions in favour of the assessee and against the revenue in the following terms: In CIT vs. SSA’s Emerald Meadows [2016] 73 Taxmann 241 (Kar), The High Court of Karnataka following the decision in CIT vs. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxmann 423/359 ITR 565 (kar) held that the imposition of penalty under Section 271(1)(c ) of the Act is bad in law and invalid for the reasons where the show cause notice u/s 274 of the Act did not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The said decision of the High Court of Karnataka was affirmed by the Hon’ble Supreme Court in the decision reported in CIT vs. SSA’s Emerald Meadows [2016] 73 taxmann.com 248/242 Taxman 180. On the same lines it is the decision of this Court in PCIT vs. Brijendra Kumar Poddar in [ITAT No. 215 of 2018, dated 23.11.2021]. As pointed out earlier, the show cause notice issued under section 274 read with section 271 of the Act did not furnish any particulars and all the relevant columns have been left blank. Thus, by applying the legal position in the aforementioned decision, this Court has no hesitation to hold that the show cause notice was bad in law. Consequently the initiation of penalty proceedings is vitiated.
It is further important to mention herein that details filed in the return are not found to be incorrect. Entries in the books has also been recorded, Books has not been rejected, positive cash balance accepted. In the show cause notice u/s 274 does not specify as to exact charge. It is apparent from the notice that penalty proceeding has been started on two counts concealed the particulars of income and furnishing of inaccurate particulars of income. In the case of CIT Vs Manjunath Cotton (as discussed Assessment Year: 2014-15 Subrata Moitra above) clearly held that “ if the show cause notice u/s 274 does not specify as to the exact charge then the imposition of penalty on the basis of such invalid show cause notice cannot be sustained.”
So far the cited decision of the revenue is concerned in such case assessee filed return u/s 153A disclosing undisclosed income which he admitted and the AO formed opinion in the assessment order that assessee had concealed particulars of income. In the present case no satisfaction recorded in the order of assessment. So the cited decision do not help the revenue because present case is completely distinguishable on the facts.
Keeping in view the above discussion and going over the notices issued, we do not have any hesitation to hold that notice is completely defective one, it suffers from infirmity that lack of satisfaction hence the same is liable to be quashed. Accordingly, the order of AO confirmed by the Ld. CIT(A) with respect of penalty proceedings is hereby set aside.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 24th April, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 24th April, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Subrata Moitra, 2/18, Dirojio Path, City Centre, Durgapur-713216 2. Respondent – CIT(A)-Delhi 3. Ld. CIT(A)- NFAC, Delhi 4. Ld. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)