Loading judgment…
Facts
The Assessing Officer (AO) levied a penalty of Rs. 13,60,455/- under section 271(1)(c) after making an addition of Rs. 1,29,53,126/- as deemed dividend under section 2(22)(e) during the assessment u/s 143(3)/147. This deemed dividend arose from a loan advanced by Kushang Technologies Ltd. (KTL) to Biggesto Technologies Ltd. (BTL), where the assessee was a common shareholder, and KTL had insufficient reserves to cover the loan. The assessee's appeal against the penalty was dismissed by the CIT(A), leading to the current appeal before the Tribunal.
Held
The Tribunal held that the penalty notice issued under section 274 r.w.s. 271(1)(c) was defective because it did not specifically indicate whether the penalty proceedings were initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Citing various High Court and Coordinate Bench precedents, the Tribunal ruled that such an omnibus and unspecific notice is illegal and not sustainable in law. Therefore, the penalty order passed by the AO and confirmed by the CIT(A) was quashed.
Key Issues
Whether a penalty imposed under section 271(1)(c) is valid if the notice issued under section 274 r.w.s. 271 fails to specifically state the grounds, i.e., concealment of particulars of income or furnishing inaccurate particulars of income.
Sections Cited
2(22)(e), 143(3), 147, 148, 271(1)(c), 274, 275(1)(a)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI SHAMIM YAHYA, & SHRI YOGESH KUMAR US
Appellant by : Ms. Ananya Kapoor, Adv. & Shri Shashwat Bajpai, Adv. Respondent by : Shri Piyush Tripathi, Sr. DR. Date of hearing : 06.11.2024 Date of pronouncement : 18.11.2024 ORDER
PER SHAMIM YAHYA, AM :
The Assessee has filed the instant Appeal against the Order of the Ld. CIT(A)-2 Delhi dated 08.11.2019, relating to assessment year 2013-14 on the following grounds:- 1. That the order passed by the Ld. CIT(A) is not only bad in law and nature but it also whimsical and liable to be quashed because: a) The Ld. CIT(A) has not controverted the facts submitted by the AR of the assessee stating the following: i) That the addition has been made on deemed basis u/s 2(22) (e) of the IT Act then how the question of submitting inaccurate particulars or concealment of the facts has arisen. ii) That when the addition has been made in the hands of Biggesto Technologies Ltd. u/s 148 of the IT Act for the same advance and for the same assessment year from the same party then how the same addition can be made again in the hands of Mrs. Sudesh Gupta for the same Assessment Year for the same amount and for the same advance u/s 2(22)(e) of the IT Act and how the same can be amounted to furnishing of inaccurate particulars or concealment of income. iii) That the Ld. AO has initiated the penalty proceedings u/s 271(l)(c) of the I.T. Act, 1961 separately in the assessment order dated 24.11.2016 and notice u/s 274 r.w.s. 271 of the Act was issued and again notice u/s 274 r.w.s. 271 of the Act was issued on 11.02.2019 without specifically stated that whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income, the Ld. CIT(A) has erred in not taking the cognizance thereof. b) the Ld. CIT(A) has erred in passing the order upholding the levy of the penalty ignoring the fact that the order passed by the Ld. AO is barred by the Law of limitation as per provisions of section 275(1)(a) of the Act and has erred on facts and law by not adjudicating this ground of appeal and not considering the submissions made against this ground. As such the order passed by the Ld. CIT(A) is not only errorneous but also whimsical and therefore liable to be quashed.
2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not adjudicating the fact that the order passed u/s 147/143(3) was passed wrongly assuming jurisdiction upon the assessee and the proceedings for penalty u/s 271(l)(c) were null and void ab initio as for the same amount, same cause and for the same reason, the addition has been made in the hands of another assessee i.e. M/s Biggesto Technologies Ltd. How the assuming of jurisdiction u/s 147/143(3) can be legal when the same addition in the case of another assessee has already been made, therefore the penalty proceedings are void ab initio and the Ld. CIT(A) has erred in law and facts by not adjudicating the same and ignoring the submission of the assessee.
3. That on the facts and circumstances of the case the Ld. CIT(A) has grossly erred in confirming penalty of Rs. 13,60,455/- u/s. 271(1)9c) and the same is liable to be deleted.
The brief facts of the case are that AO levied the penalty of Rs. 1,360,455/- u/s. 271(1)(c) of the Act. Prior to this, AO made the assessment u/s. 143(3)/147 on 24.11.2016. Addition of deemed dividend was made of Rs. 1,29,53,126/- u/s. 2(22)(e). The assessee was a common share holder in two companies – Kushang Technologies Ltd. (KTL) and Biggesto Technologies Ltd. (BTL). The share of assessee in KTL was 21.08% whereas the share in BTL was around 34.6%. During the year, KTL had advanced a loan of Rs. 2,34,00,000/- to BTL. On the date of loan, KTL had reserves and surplus upto Rs. 1,29,53,126/- only and it was not a position to advance the loan of Rs. 2,34,00,000/- to BTL. Accordingly, AO made the addition of Rs. 1,29,53,126/- in the hands of the assessee.
Aggrieved with the penalty order, assessee appealed before the Ld. CIT(A).
We have heard both the parties and perused the records. Ld. Counsel for the assessee submitted that AO has initiated the penalty proceedings u/s 271(l)(c) of the I.T. Act, 1961 separately in the assessment order dated 24.11.2016 and notice u/s 274 r.w.s. 271 of the Act was issued and again notice u/s 274 r.w.s. 271 of the Act was issued on 11.02.2019 without specifically stated that whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income, the Ld. CIT(A) has erred in not taking the cognizance thereof. For the sake of convenience, she place the copy of the notice dated 24.11.2016 before the Bench. She contended that in this view of the matter the said notice is illegal, bad in law and without jurisdiction. She also placed reliance on a detailed case law compilation including the following case laws, wherein Tribunals, as well as jurisdictional High Court had passed the order in favour of the assessee on similar issue: - Pr. CIT vs. Sahara India Life Insurance [2021] 432 ITR 84 (DHC) - Pr. CIT vs. Blackroak Securities Pvt. Ltd. – ITA 658/2023 (DHC) - PCIT vs. Gopal Kumar Goyal [2023] 153 taxmann.com 534 (Delhi)] - Biotronic Medical Devices Pvt Ltd. vs. ACIT, ITA No. 9568/Del/2019. (Del-Trib) - MA Projects Private Limited vs. ACIT, . (Del-Trib) 5. Per contra, Ld. DR relied upon the orders of the authorities below.
Upon careful consideration, we find considerable cogency in the contention of the Ld. AR that notice dated 24.11.2016 under Section 274 r.w.s. 271 (1)(c) of the Act was issued to the Assessee wherein, no specific limb of the penalty indicated i.e., whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income, which is not sustainable in the eyes of law and illegal, as per the settled law. 6.1 We find that in the case of Biotronic Medica Devices India Pvt Ltd. v. ACIT, I. T.A. No. 9568/DEL/2019, the Coordinate Bench, of Delhi Tribunal vide its order dated 21.10.2022 dealt exactly the similar issue and held as under:- “6. We have perused notice issued u/s 274 read with Section 271 of the Act for both the assessment years 2009-10 and 2010-11. It is found that the Ld. A.O. has not specified any limb or charge for which the notice was issued i.e. either for concealment of particulars of income or furnishing of inaccurate particulars of such income. It can be seen from 4 the notice issued u/s 274 read with Section 271(1) (c) of the Act, Assessing Officer did not strike off irrelevant limb in the notice specifying the charge for which notice was issued.
Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the Assessee’s case as the notice u/s. 274 r.w.s. 271(l)(c) of the Act was issued without striking off the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices were issued.
10. Thus, by following the above ratio, we are of the opinion that, the penalty order passed u/s 271(l)(c) of the Act by the Assessing Officer and the order of the CIT(A) in confirming the penalty order are erroneous. Accordingly, the penalty order dated 29.03.2019for A.Y 2009-10 and the penalty order dated 31.03.20190for A.Y 2010-11 are hereby quashed. Accordingly, Assessee's Grounds of Appeal in 1TA No. 9568/Del/2019 and lTA No. 9800/Del/2019 are allowed.” 6.2 We further find that in the case of M.A. Projects Private Limited v. ACIT, ITA No.1636/Del./2022 vide order dated 12.4.2023, the Coordinate Bench of the Delhi Tribunal had dealt exactly the similar issue and held as under:-
“8. Upon careful consideration and going through the notice submitted by the assessee at page no. 1 of paper book, we note that the notice is an omnibus notice without specifying the specific charge upon the assessee and in such circumstances, Higher Courts have held that penalty levied is not sustainable. In this regard, we refer to Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT in Tax Appeal No. 51 and 57 of 2012 dated 11.03.2021 wherein it has been held that no specification of charge in the penalty notice leads to same becoming void and penalty on that count is to be deleted. Hon’ble Court held as under :- “Head Note only:-
S.271(1)© : Penalty – Concealment – Non-striking off of the irrelevant part whiel issuing notice under section 271(1)© of the Income Tax Act, - Order is bad in law – Assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.”
9. Hon’ble jurisdictional High Court in ITA 475/2019 & Or s. Vide order dated 02.08.2019 has also taken the same view. Hon ’ble jurisdictional High Court concluded as under “21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016.
On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises. ”
Respectfully following the precedent as above, we note that due to defect in the penalty notice, penalty is not sustainable, hence the same is quashed. Since we have quashed the penalty on defective notice, merits are not being discussed as they are only academic in interest. ”
In the background of the aforesaid discussions and respectfully following the aforesaid binding precedents and in the interest of justice, the orders of the authorities below are set aside and the penalty in dispute sustained by the ld. CIT(A) is hereby deleted.
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced on 18/11/2024.