PAVILLE PROJECTS P. LTD,MUMBAI vs. DCIT CIR 7(3)(1), MUMBAI

O R D E R

PER RAM LAL NEGI, JM

s: “1. On the facts and circumstances of the case, and in law, the learned CIT (A) erred in confirming the validity of the impugned penalty order passed under section 271 (1) (c) of the Income Tax Act, 1961 (‘the Act’) by the learned Assessing Officer.

2. On the facts and circumstances of the case, and in law, the learned CIT (A) erred in confirming penalty levied by the assessing officer under section 271 (1) (c) of the Act.

3. The learned CIT (A) failed to appreciate and ought to have held that impugned penalty order passed under section 271 (1) (c) of the Act was invalid and bad in law, since the notice issued under section 274 of the Act is not discernible as to whether the penalty proceedings were initiated for ‘furnishing of inaccurate particulars of income’ or concealment of income’ under the facts and in the circumstances of the appellant’s case.

4. He also failed to appreciate that the Appellant has not furnished any inaccurate particulars of income.

5. The learned CIT (A) further failed to appreciate and ought to have held that to determine allowability of an ‘expenditure’ or whether an assessee is conducting any ‘business’, it is not necessary that any income should in fact have been earned by the assessee.

6. He also failed to appreciate that merely because the Appellant had claimed certain expenditure, which was not accepted or was not acceptable to revenue, that by itself would not attract penalty under section 271 (1) (c) of the Act. The Appellant therefore prays that the impugned penalty order be quashed.”

4. The assessee has challenged the impugned order inter alia on the legal ground that the impugned order is bad in law as the AO initiated the penalty proceedings by issuing notice u/s 274 r.w.s. 271 (1) (c) in a mechanical manner without application of mind. The Ld. counsel for the assessee submitted before us that the Ld. CIT (A) has failed to appreciate that since the notice issued u/s 274 of the Act is not clear as to whether penalty proceedings were to be initiated for furnishing of inaccurate particulars of income or 3 Assessment Year: 2014-15 concealment of income, the order passed under section 271 (1) (c) of the Act is invalid and bad in law. The Ld. counsel invited our attention the copy of notice dated 24.10.2016 issued u/s 274 r.w.s. 271 (1) (c) of the Act, which shows that the AO sent the notice without striking off the inapplicable portion of the contents of notice printed on a standard proforma. The Ld. counsel relying on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Samson Perinchery 392 ITR 4 (Bombay) submitted that failure on the part of the AO to state the specific charge on which the penalty was proposed to be levied would render the penalty order invalid. The Ld. counsel for the assessee further submitted that the Mumbai Benches of the Income Tax Appellate Tribunal (The Tribunal) have deleted the penalty levied by the AO after issuing notice u/s 274 r.w.s 271 of the Act in a mechanical manner without striking off the inapplicable/irrelevant portion printed on standard format in the following cases.

1. M/s G.L. Pharma & Associates vs. ITO, A.Y. 2011-12

2. Sapna N. Jhaveri vs. ITO, ITA No. 5017/Mum/2018, A.Y. 2009-10.

3. Kasturlal Sheth vs. Joint Commissioner of Income Tax, ITA Nos. 4463 to 4466/Mum/2018, AYs 1997-1998 to 2001-2002

4. Hiralal Kalpu Gupta vs. ITO, ITA No. 7446/Mum/2017, AY 2012-13.

5. Meherjee Cassinath Holdings (P.) Ltd., vs. Assistant Commissioner of Income Tax, IT Appeal No. 2555 (Mum) of 2012, AY 2008-09.

5. The Ld. counsel further pointed out that in the assessment order AO has only proposed to issue notice u/s 274 r.w.s. 271(1) of the Act, without mentioning whether the assessee has concealed its income or furnished inaccurate particulars of income. In view of the aforesaid facts and circumstances of the case and evidence on record, the Ld. counsel submitted that the impugned order is liable to be set aside.

6. On the other hand, the Ld. Departmental Representative (DR) supporting the order passed by the Ld. CIT (A) submitted that since the assessee has participated in the proceedings, no prejudice has been caused due to non- 4 Assessment Year: 2014-15 striking off of the irrelevant portion of the standard notice. Hence, there is no infirmity in the order passed by the Ld. CIT (A) to interfere with.