M/S. CAPITAL POWER INFRASTRUCTURE PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

Grounds of appeal by the assessee are as under :-

“1. The Ld. CIT(A) has erred in law as well as in facts by upholding the penalty order dated 25.09.2015 passed by Ld. AO imposing the penalty u/s 271(1)(c) amounting to Rs1,69,497/- of the Income Tax Act, 1961.

Facts of the case, in brief, are that the assessee is a private limited company engaged in the business of trading and installation of Infrastructure Project. It filed its return of income on 28.09.2012 declaring total income of Rs.2,45,80,480/-. During the course of assessment proceedings, the Assessing Officer observed from the ledger account of Diwali expenses that the assessee has debited an amount of Rs.5,48,534/- on account of purchase of pure gold (ginni). He asked the assessee to furnish its justification along with business exigency for the same. However, the assessee failed to furnish any reply on this issue and agreed to surrender the same as unexplained expenditure. In view of the above, the Assessing Officer made addition of Rs.5,48,534/- to the total income of the assessee. Subsequently, the Assessing Officer initiated penalty proceedings u/s 271(1)(c). Rejecting the explanation given by the assessee, the Assessing Officer levied penalty of Rs.1,69,497/- u/s 271(1)(c) of the I.T. Act, 1961.

Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal.

The ld. counsel for the assessee, at the outset, referred to the copy of the notice u/s 274 r.w.s. 271 dated 18.03.2015 which is placed at page 15 of the Paper Book. Referring to the assessment order, he submitted that the Assessing Officer in the said order has mentioned that penalty proceedings are being initiated u/s 271(1)(c) separately for furnishing of inaccurate particulars of income or concealment of income. Referring to the notice, ld. counsel for the assessee submitted that the show cause notice issued u/s 274 r.w.s. 271 did not define the nature of default i.e. whether the penalty is levied for concealment of income or for furnishing of inaccurate particulars of income. Referring to the penalty order, he submitted that the Assessing Officer imposed the penalty u/s 271(1)(c) in this case on the ground that the assessee has concealed his income/ furnished inaccurate particulars of income.

Referring to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. M/s SSA’S Emerald Meadows vide of 2015 order dated 23.11.2015, he submitted that the Hon'ble High Court in the said decision, following the decision in the case of Manjunath Cotton and Ginning Factory reported in 359 ITR 565, has upheld the decision of the Tribunal cancelling the penalty and dismissed the appeal filed by the Revenue on the ground that the notice issued by the Assessing Officer u/s 274 r.w.s. 271 is bad in law since it did not specify under which limb of section 271(1)(c) penalty proceedings have been initiated. He submitted that the SLP filed by the Revenue has been dismissed by the Hon’ble Supreme Court. Referring to various other decisions filed in the Paper Book, he submitted that under identical circumstances various Benches of the Tribunal are cancelling the penalty so levied where the inappropriate words are not struck off from the notice issued u/s 274 r.w.s. 271 of the Act. He accordingly submitted that on this preliminarily ground itself the order of the ld. CIT(A) sustaining the penalty levied by the Assessing Officer should be set-aside and the penalty should be cancelled.

The ld. DR on the other hand while supporting the order of ld. CIT(A) relied on the following decisions :-

He submitted that since the assessee in the instant case could not justify the expenses claimed by it in the Profit & Loss Account and has surrendered the income during the course of assessment proceeding, therefore, the assessee has concealed its particulars of income and furnished inaccurate particulars and, therefore, penalty levied by the Assessing Officer and sustained by the ld. CIT(A) is fully justified.

We have considered the rival arguments made by both the sides and perused the material available on record. We find penalty of Rs.1,69,497/- has been levied by the Assessing Officer u/s 271(1)(c) on the ground that the assessee could not justify the business exigency of incurring of the expenditure of Rs.5,48,534/- on account of Diwali expenses. We find ld. CIT(A) upheld the penalty so levied by the Assessing Officer. We find from page 2 of the assessment order that the Assessing Officer, while initiating the penalty proceedings u/s 271(1)(c), has mentioned as under :-

A perusal of the notice issued u/s 274 r.w.s. 271 dated 18.03.2015 shows that the inappropriate words in the said notice has not been struck off i.e. the notice does not specify under which limb of section 271(1)(c) the penalty proceedings has been initiated i.e. whether for concealment of income or for furnishing of inaccurate particulars. We find the Hon’ble Karnataka High Court in the case of M/s SSA’S Emerald Meadows (supra) has observed as under :-

In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

We find the SLP filed by the Revenue has been dismissed by the Hon’ble Apex Court. Further, the various Benches of the Tribunal, following the above decisions, are cancelling the penalty so levied by the Assessing Officer and confirmed by the ld. CIT(A) on account of non-striking of the inappropriate words from the notice issued u/s 274 r.w.s. 271 of the Act. Since in the instant case, the Assessing Officer has not struck off the inappropriate words in the notices issued u/s 274 r.w.s. 271, therefore, the notice does not specify under which limb of section 271(1)(c) the penalty proceedings has been initiated i.e. whether for concealment of income or for furnishing of inaccurate particulars of income. Therefore, the penalty proceedings become bad in law. We, therefore, set-aside the order of the ld. CIT(A) and direct the Assessing Officer to cancel the penalty so levied. The appeal filed by the assessee is accordingly allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 29th August, 2018.