NIRMAL NARENDRAKUMAR KOTECHA,MUMBAI vs. INT. TAX, WARD-3(1)(1), MUMBAI

While passing the assessment order dated 29/12/2011, the Assessing Officer had also initiated penalty proceedings against the Assessee under section 271(1)(c) of the Act in relation to disallowance of INR 2,32,69,087/- made under Section 14A of the Act and the rejection of Assessee’s claim to treat income of INR 46,91,95,766/- as capital gain [as against business income]. Subsequent to passing of the order, dated 27/3/2015, by the CIT(A) in the quantum appeal, the Assessment Officer passed Penalty Order, dated 21/03/2017, levying penalty of INR 16,19,77,790/- under Section 271(1)(c) of the Act on the Assessee.

Against the aforesaid Penalty Order, the Assessee preferred appeal before the CIT(A).

During pendency of the aforesaid Appeal before the CIT(A) arising from penalty order dated 21/03/2017, the Tribunal passed order, dated 07/06/2017, in the quantum proceedings deleting the disallowance under Section 14A of the Act and setting aside the issue relating to characterization of income as capital gain or business income back to CIT(A). Thereafter, on 17/09/2020, the CIT(A) passed order, dated 17/09/2020, in the set aside proceedings reducing quantum of addition of business income from INR52,14,98,464/- to INR 32,50,882/-.

After taking of the above orders, the CIT(A), vide Order dated 17/10/2023, decided the appeal preferred by the Assessee 3 Assessment Year: 2009-10 against the Penalty Order, dated 21/03/2017, upholding the levy of penalty to the extent of addition sustained in the quantum proceedings.

Being aggrieved by order, dated 17/10/2023, passed by the CIT(A), the Assessee has preferred the present appeal before the Tribunal seeking deletion of penalty levied under Section 271(1)(c) of the Act on the grounds reproduced in paragraph 2 above.

Learned Authorized Representative for the Assessee appearing before us, relying upon paragraph number 5.2 of the order impugned, submitted that vide order, dated 07/02/2023, passed in the Tribunal had deleted/set-aside the additions made by the Assessing Officer and therefore, penalty levied by the Assessing Officer could not be sustained. It was also submitted that the Assessee had submitted complete information/details relating to share trading and the income receiving therefrom in the return of income and during the assessment proceedings. Therefore, the question of concealment of particular of income does not arise. There was a difference of opinion between the Assessee and the Assessing Officer as regarding the characterization of the income disclosed by the Assessee. The Assessing Officer was of the view that such income was accessible in the hands of the Assessee as business income whereas the Assessee had offered the same to tax as capital gains income. The addition was made by the Assessing Officer by rejecting the aforesaid claim of the Assessee to treated income as capital gain and not business income. Learned Authorized Representative for the Assessee, challenging the validity of the penalty proceedings, submitted that the notice issued under Section 271(1)(c) of the Act was bad in law as the same had been issued without striking off the inapplicable limb of 4 Assessment Year: 2009-10 Section 271(1)(c) of the Act. In this regard, she placed reliance on the notice, dated 29/12/2011, issued under Section 271 read with Section 274 of the Act and the subsequent notice, dated 27/04/2012, issued by the Assessing Officer during pendency of the penalty proceedings. It was submitted that even in the Assessment order while initiating assessment penalty proceedings, the Assessing Officer had failed to record clearly whether the penalty proceedings had been initiated for furnishing any accurate particulars of income or for concealment of particulars of income.

Per contra, Learned Departmental Representative supported the Penalty Order passed by the Assessing Officer to the extent the same was confirmed by the CIT(A). Placing reliance upon the Judgment of the Hon’ble Bombay High Court, in the case of Ventura Textiles Ltd. Vs. Commissioner of Income Tax, Mumbai:426 ITR 478 (Bombay), Learned Departmental Representative submitted that the penalty proceedings cannot held to be bad in law merely on account of non-striking off of the inapplicable portion in printed show-cause notice. It was vehemently contended that the Tribunal had not deleted addition made by the Assessing Officer and vide order, dated 07/06/2017, had remanded the issue to the file of CIT(A) with the direction to decide the same after considering the additional evidence furnished by the Assessee. Vide order, dated 17/09/2020, the CIT(A) had sustained of INR 32,50,882/-, which was confirmed by the Tribunal vide order, dated 07/02/2023, whereby the appeal preferred by the Revenue against the order passed by the CIT(A) as well as the cross-objections of the Assessee were dismissed. After taking into consideration the aforesaid order passed by the Tribunal, the CIT(A) had restricted the penalty under section 271(1)(c) of the Act to INR 32,50,882/-. It was submitted that there was no infirmity in the order passed by the 5 Assessment Year: 2009-10 CIT(A).

We have perused the record, considered the rival submissions and examined the legal position.

The full Bench of the Hon’ble Bombay High Court in the case Mohd. Farhan A Shaikh Vs. DCIT, Central Circle-1, Belgaum: 434 ITR 1 (Bombay), as has held that a mere defect in the notice - not striking off the irrelevant matter, would vitiate the penalty proceedings. The relevant extract of the aforesaid judgment reads as under: “Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the Appellant. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the Appellant must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.” (Emphasis supplied)

A perusal of the penalty notice, dated 29/12/2011, and 27/04/2012 issued under Section 274 read with Section 271(1)(c) of the Act shows that the same are omnibus show-cause notices issued without deleting or striking off the inapplicable part. Thus, the statutory notices issued to the Appellant do not inform the Appellant about the charge against the Appellant – whether penalty under Section 271(1)(c) of the Act is sought to be levied for 6 Assessment Year: 2009-10 concealment of particulars of income or furnishing inaccurate particulars of income. Further, on perusal of penalty order, dated 21/03/2017, passed by the Assessing Officer, we note that in paragraph 5 the Assessing Officer has stated the reason for levying the penalty under Section 271(1)(c) of the Act as ‘concealment of income’ whereas in paragraph 6, the Assessment Officer has concluded that ‘inaccurate particulars of income have been furnished’. Thus, even in the penalty order there is ambiguity regarding the limb under which penalty under Section 271 (1)(c) of the Act has been levied. Thus, there is no clarity whether the penalty proceedings were initiated for concealment of particulars of income or furnishing inaccurate particulars of income.

In view of the above, we find merit in the contention advance on behalf of the Appellant that penalty levied under Section 271(1)(c) of the Act cannot be sustained as per the judgment of the Full Bench decision of the Hon'ble jurisdictional High Court in case of Mohammed Farhan A Shaikh Vs DCIT (supra). Thus, Ground No. 1 raised by the Assessee in appeal are allowed, and Ground No. 2 and 3 are dismissed as being infructuous.

In the result, in terms of paragraph 24 above, the appeal preferred by the Assessee is allowed.