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Facts
A search and seizure operation was conducted on the assessee's premises, leading to the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. The Assessing Officer imposed a penalty of Rs. 1,07,63,157. The CIT(A) deleted this penalty, holding that the returned income was accepted as no additions were made to it. The Revenue appealed this deletion.
Held
The Tribunal observed that the penalty notice issued under Section 274 r.w.s. 271(1)(c) was defective as it did not specifically mention the grounds for penalty, failing to strike off inapplicable portions. Following previous judgments, the Tribunal held that such a defective notice vitiates the penalty.
Key Issues
Whether the penalty imposed under Section 271(1)(c) is bad in law due to a defective show cause notice issued under Section 274.
Sections Cited
271(1)(c), 153A, 274, 139, 143(3)
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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: SHRI GEORGE MATHAN & SHRI RATNESH NANDAN SAHAY
Assessee represented by Shri Devesh Poddar, A.R. Department represented by Shri Uday Bhaskar Jakke, CIT-DR Date of hearing 20/03/2025 Date of pronouncement 28/03/2025 O R D E R PER: BENCH 1. The appeal by the Revenue and Cross Objection (CO) therein by the assessee are directed against the order of learned Commissioner of Income tax (Appeals), Patna-3, Patna [‘ld. CIT(A)’ for short] dated 26/03/2021 for the Assessment Year (AY) 2014-15. The Revenue in its appeal has raised the following grounds of appeal:-
1. That on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty imposed by the AO u/s 271(1)(c) in CO 20/Ran/2021 ACIT Vs Kamal Bhusan spite of the fact that each and every ingredient of Explanation 5A to section 271(1)(c) stood satisfied.
2. That under the facts and circumstances of the case and in law the Ld.CIT(A) has failed to appreciate the fact that the action of the assessee in showing additional income in the return filed in response to notice u/s 153A in respect of undisclosed income was not a voluntary one. Had the search not taken place at the residential /business premises of the assessee and had the proceedings u/s 153A not been initiated against the assessee. The undisclosed income would have gone undetected by the Department as the same were not declared voluntarily by the assessee in the return of income filed u/s 139.
3. The order of the Ld.CIT(A) is in contrary to the decision of the Hon'ble SUPREME COURT OF INDIA [2016] 70 taxmann.com 175(SC) in the case of Prasanna Dugar Vs Commissioner of Income tax on the identical issue.
4. That under the facts and circumstances of the case and in law the Ld. XCIT(A) has erred in deleting the penalty imposed by the AO u/s 271 (1)(c) of Rs.1,07,63,160/- as an assessee is not absolved of penalty, if he offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide.
5. That the applicant craves leave to add, alter, delete, modify the grounds of appeal
before the Hon'ble Court."
2. On service of memorandum of appeal of revenue, the assessee filed his CO raising following ground of appeal:
1. For that the search in case of the assessee was conducted on 08/05/2014 and as such, the due date for filing of the original return for the year under consideration had not expired and as such, the provisions of Explanation 5A to section 271(1)(c) is not applicable to the case of assessee. LdAO has failedto ignore this vital point while imposing the penalty. As such, the penalty imposed by AO was illegal and rightly deleted by Ld CIT(A).
2. For that the notice issued U/s 274 rws 271(1)(c) was defective since the same did not specifically mention the reason for initiation of penalty proceedings. Moreover even in the order of assessment, AO towards the end, in a summary manner has stated "Penalty proceedings U/s 271(1)(c) r.w Expl 5A are being separately initiated for concealment of income and furnishing inaccurate particulars of income." No specific reason was mentioned by AO against the addition made nor was there any discussion made by AO regarding penalty proceedings upon the disclosure made. As such, the order imposing penalty is non-est and fit to be quashed.
3. For that facts in case of assessee are different than the facts in case of Prasanna Dugar Vs CIT 70 taxmann.com (SC) which has been relied upon by the revenue in CO 20/Ran/2021 ACIT Vs Kamal Bhusan its ground of appeal
. As stated above in case of assessee no return for this year was filed before the date of search and as such, the finding of the above cited case is not applicable.
4. For that other grounds for cross-objection in detail will be argued at the time of hearing.
3. Facts of the case, in brief, are that a search and seizure operation was conducted in the residential and business premises of the assessee on 08/05/2014 and accordingly, notice under Section 153A of the Income tax Act, 1961 (in short, the Act)dated 06/02/2015 was issued and duly served on the assessee. In response to the aforesaid notice, the assessee filed return of income on 02/03/2016 disclosing total income at Rs. 1,82,56,780/-. Subsequently, the assessee filed revised return of income declaring a total income of Rs. 4,99,22,440/-. Assessment under Section 153A r.w.s. 143(3) of the Act was passed in this case on 30/12/2016 on a total income of Rs. 7,02,84,030/-. While completing the assessment for the A.Y. 2014-15, penalty proceedings under Section 271(1)(c) of the Act was also initiated and notice under Section 271(1)(c) r.w.s. 274 of the Act was issued on 30/12/2016. Hearing of penalty proceeding was kept in abeyance as the additions made in the quantum order was challenged by the assessee before the ld. CIT(A). The ld. CIT(A) partly allowed the assessee's appeal.
4. During the course of penalty proceedings, the Assessing Officer imposed penalty of Rs. 1,07,63,157/- under Section 271(1)(c) of the Act @ 100% on the concealed income of Rs. 3,16,65,661/- on the ground that the assessee has failed to explain the source of undisclosed income found during the course of search and seizure action conducted in the assessee's premises and where various documents in the form of loose sheets were found and seized. Before CO 20/Ran/2021 ACIT Vs Kamal Bhusan the Assessing Officer, the assessee did not make any compliance to explain his case.
5. Aggrieved by the order of Assessing Officer, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) vide impugned order dated 26/03/2021, deleted the entire penalty by holding as under: "returned income to be Rs. 4,99,22,440/- (wherein Rs. 1,82,56,780/- was the original business income and Rs. 31,16,65,661/- was the disclosure made). The Assessing Officer has rightly accepted the disclosure made so as to treat the return of income as that filed under Section 139. Further as on date there stands no addition to the returned income since my predecessor vide his order dated 24/10/2018 has already deleted the said additions, which implies that the returned income of the assessee is accepted. I utterly adopt the above decisions to the case of the assessee to hold that the penalty imposed of Rs. 1,07,63,160/- upon the disclosure made should be deleted."
6. Aggrieved by the order of ld. CIT(A), the revenue has filed this appeal and the cross objection by the assessee. During the course of hearing before us, the assessee has raised that the notice issued under Section 271(1)(c) r.w.s. 274 of the Act was defective since the same did not specifically mention the reasons for initiation of penalty proceedings, moreover, even in the order of assessment, the Assessing Officer towards the end, in a summary manner, has stated "penalty proceedings under Section 271(1)(c) r.w.s. Explanation 5A are being separately initiated for concealment of income and furnishing inaccurate particulars of income." No specific reason was mentioned by the Assessing CO 20/Ran/2021 ACIT Vs Kamal Bhusan Officer against the addition made nor was there any discussion made by the Assessing Officer regarding penalty proceedings initiated on the disclosure made, as such, the penalty imposed under Section 271(1)(c) of the Act is non-est and fit to be quashed. The ld. AR of the assessee also pointed out that this bench has already deleted penalty orders in several cases on this very grounds.
The ld. CIT-DR for the revenue, on the other hand, justified the imposition of penalty by the Assessing Officer.
We have considered the rival submissions of both the parties. It may be stated here that similar issue has already been dealt with by this Bench in its recent decision in the case of Raj Kumar Agrawal vs CIT for Assessment Years 2012-13 to 2016-17 in 258/Ran/2023 dated 26th August 2024. In this case also, the assessee contested penalty order u/s 271(1) (c) on alleged defective notice issued u/s 274 of the Act. The Bench after taking note of the facts of the case and proposition of law as emerging from cited decisions cancelled all the penalty orders. The operative part of the appeal is reproduced as below for ready reference:-
"4. We observe from the notices above that the limb on which the penalty has been imposed is not specified. The inappropriate portion of the notice has not been struck off. It is discernible that the AO had not striked off either of the two limbs i.e. concealment of the particulars of income; and furnishing of inaccurate particulars. The Full bench of the Hon'ble Bombay High Court in Mohd. Farhan A. Shaik vs. Dy. CIT (2021) 125 taxmann.com 253 (Bom.) considered this very issue. Answering the question in affirmative, the full bench held that a defect in notice of not striking the inappropriate words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in his order u/s143 (3) of the Act. In another judgment, the Hon'ble Bombay CO 20/Ran/2021 ACIT Vs Kamal Bhusan High Court in Pr. CIT vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann .com 248 (Bom.) also took similar view that where the portions which are inapplicable in the penalty notice were not struck off, the penalty was vitiated. SLP of the Department against this judgment has been dismissed by the Hon'ble Supreme Court in Pr. CIT vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (S.C).
The Hon'ble Karnataka High Court in SSA Emeralds Meadows vs. CIT 242 taxmann 180 also echoed the view that if the charge of penalty is not specific in the notice issued to the assessee u/s 274 r.w.s.271 (1) (c) of the Act, meaning thereby if such notice is ambiguous as to whether penalty is levied for concealment of income or for providing of inaccurate particulars of income, then such notice is void ab initio and bad in law. This view of the Hon'ble Karnataka High Court was upheld by the Hon'ble Apex Court whereby the SLP filed by the Department was dismissed in CIT vs. SSA Emeralds Meadows (2016 )242 taxmann 180 (S.C).
We must reiterate and we feel appropriate in this context of adjudication also to revisit the classic decision of Hon'ble Karnataka High Court in CIT & Anr. vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar.) wherein the court had enshrined that levy of penalty is altogether different from assessment procedures. The penalty cannot be levied in a routine manner. The principles of natural justice must be followed wherein the notice served on the assessee must clearly and unambiguously specify the charge on which the Department proposes to levy the penalty so that the assessee can be ready with his defence and prepare his case and submissions accordingly.
7. In view thereof, even without going into the merits of the extant cases only on the very legal premise that in the penalty notice issued u/s 274 r.e.s.271(1)(c) of the Act, the inapplicable words were not struck off, the levy of penalty therefore is vitiated and is held bad in law. We therefore, set aside the orders of the ld. CIT(A) and direct the AO to delete the penalty from the hands of the assessee for the years hereinabove enumerated in the cause title."
Since the issue in hand hinges on the alleged defective show cause notice issued in terms of section 274 of the Act is similar, following this Bench’s decision in the case of Raj Kumar Agrawal (supra), we, set aside the penalty order and direct the AO to delete the penalty imposed on the assessee.
CO 20/Ran/2021 ACIT Vs Kamal Bhusan 10.Since, we have deleted the penalty levied by the Assessing Officer by following the earlier order of this Tribunal, therefore, there is no need to adjudicate the CO of the assessee separately. 11.In the result, appeal filed by the revenue is dismissed and the cross objection of the assessee is allowed. Order announced in open court on 28th March, 2025.