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Facts
The assessee, an individual operating a bar-attached hotel and restaurant, filed an ITR for AY 2014-15. An assessment completed under Section 143(3) led to additions, and subsequently, penalty proceedings under Section 271(1)(c) were initiated with a notice under Section 274. A penalty of Rs.11,34,500 was imposed by the AO, which was upheld by the CIT(A), despite the assessee's contention that the notice under Section 274 was defective.
Held
The Tribunal held that the notice issued under Section 274 was defective as it only indicated "furnishing inaccurate particulars of income," while the penalty order included "concealment of income." Relying on the jurisdictional High Court's ruling in PCIT v. Shri Ambady Krishna Menon, the Tribunal concluded that such a defective notice, failing to specify the exact ground for penalty, renders the imposition of penalty unsustainable.
Key Issues
Whether a penalty imposed under Section 271(1)(c) is legally sustainable if the notice issued under Section 274 fails to specify the particular limb (i.e., concealment of income or furnishing inaccurate particulars) under which the penalty proceedings are initiated.
Sections Cited
250, 271(1)(c), 274, 143(3)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
O R D E R
Per George George K, Vice-President :
This appeal at the instance of assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income Tax (Appeals) [“CIT(A)”] dated 18.04.2024 passed u/s. 250 of Income Tax Act, 1961 ("the Act" hereinafter). The relevant assessment yearis 2014-2015.
The solitary issue raised in this appeal is whether the CIT(A) is justified in confirming penalty imposed u/s.271(1)(c) of the Act amounting to Rs.11,34,500.
Brief facts of the case are as follows:
. Sri.Padmakumar K.P. The assessee is an individual running a bar attached hotel and restaurant. For the assessment year 2014-2015, the return of income was filed on 29.11.2014 declaring total income of Rs.3,94,950. The assessment was completed u/s.143(3) of the Act vide order dated 27.12.2016 by determining total income at Rs.55,96,850. The assessee filed an appeal before the first appellate authority and further appeal to the ITAT. Partial relief was granted to the assessee. Thereafter penalty proceedings u/s.271(1)(c) of the Act was initiated and notice u/s.274 of the Act was issued on 27.12.2016. The assessee submitted his reply objecting to the initiation of penalty by stating that the additions / disallowances have been made on estimation and on an adhoc basis, hence, penalty cannot be imposed u/s.271(1)(c) of the Act. The Assessing Officer (“the AO”) however rejected the contentions of the assessee and imposed penalty of Rs.11,34,500 u/s.271(1)(c) of the Act.
Aggrieved by the order imposing penalty u/s.271(1)(c) of the Act, the assessee filed appeal before the first appellate authority. Before the first appellate authority, the assessee reiterated the contentions that the penalty is not sustainable, since the disallowances have been made on adhoc basis and the addition is based on estimation. Further, the assessee submitted that the notice issued u/s.274 of the Act does not spell out under which limb the penalty proceedings have been initiated. Hence, the penalty needs to be quashed. The CIT(A), however, rejected the contentions of the assessee and confirmed the imposition of penalty. The CIT(A) did not adjudicate the issue of notice issued u/s.274 of the Act being defective. The relevant finding of the CIT(A) in rejecting the contentions of the assessee reads as follow:-
. Sri.Padmakumar K.P. “I have gone through all the submissions and documents submitted by the appellant during the course of appellate proceedings. The appellant has not furnished any supporting documents to substantiate his claim of expenses and hence contention of the appellant is not tenable. The appellant failed to explain the expenses claimed and failed to establish that those expenses which he claimed in the return of income are genuine. In view of the above, I do not find any justification to interfere with the order of the AO and hence these grounds of appeal are, accordingly, dismissed and the addition made by AO on this account is, hereby, confirmed.”
5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper book enclosing therein copy of notice issued u/s.274 r.w.s. 271 of the Act, copy of the assessment order passed u/s.143(3) of the Act, copy of the CIT(A) order and the ITAT order in the quantum assessment, the reply to the penalty notice issued u/s.271(1)(c) of the Act. The learned AR reiterated the submissions made before the CIT(A) that the notice issued u/s.274 is defective since it does not specify under which limb of the section the penalty has been initiated. In this context, the learned AR relied on the recent judgment of the Hon’ble jurisdictional High Court in the case of PCIT v. Shri Ambady Krishna Menon (2024) 163 taxmann.com 141 (Ker).
The learned Departmental Representative supported the orders of the A.O. and the CIT(A).
We have heard rival submissions and perused the material available on record. On perusal of the notice issued u/s.274 r.w.s. 271 of . Sri.Padmakumar K.P. the Act, we find that the notice has been issued for initiating penalty proceedings for furnishing inaccurate particulars of income, whereas the penalty order specifies for concealment of income as well as for furnishing inaccurate particulars of income. The Hon’ble jurisdictional High Court in the case of Shri Ambady Krishna Menon (supra) had held that when the notice proposing penalty has been issued to the assessee, which does not specify the particular ground on which the Revenue had proceeded against the assessee for imposition of the penalty, the said notice is inherently defective and the imposition of penalty u/s.271(1)(c) of the Act cannot be legally sustained. The relevant findings of the Hon’ble jurisdictional High Court reads as follows:-
“11. We also find merit in the finding of the Appellate Tribunal in Annexure 'I' order that the notice proposing penalty, that was issued to the respondent/assessee, was inherently defective, in that, it had not specified the particular ground on which the Revenue was proceeding against the assessee for the imposition of the penalty. Thus, in any view of the matter, we find that the imposition of penalty under Section 271(1)(c) of the I.T. Act on the respondent/assessee for the assessment year 2011-12 cannot be legally sustained.”
In the instant case, on perusal of the assessment order (regular assessment passed u/s.143(3) of the Act), we find it is mentioned that penalty proceedings have been initiated separately. In the notice issued u/s.274 of the Act, we find that the tick mark is put only on furnishing inaccurate particulars of income”. In the penalty order, we find that the penalty has been imposed both for “concealment of income” and “furnishing inaccurate particulars of income”. Therefore, in the light of the judgment of the Hon’ble High Court in the case of PCIT v. Shri . Sri.Padmakumar K.P. Ambady Krishna Menon (supra), we hold that the notice issued u/s.274 of the Act (issued only for furnishing “inaccurate particulars of income”)is bad in law and consequential imposition of penalty arising therefrom is unsustainable and we quash the same. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 9th day of April, 2025.