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Facts
The assessee, Shring Construction Company Pvt. Ltd., engaged in Hydro Power Projects, filed its ITR for AY 2011-12. The Assessing Officer completed assessment under Section 143(3), making additions related to long-term capital gain, unverified share application money, unverifiable expenses, and non-deposit of employee PF contributions. Subsequently, a penalty of Rs. 2,01,39,072/- was imposed under Section 271(1)(c) for these additions, which was later confirmed by the CIT(A).
Held
The Income Tax Appellate Tribunal held that the penalty imposed under Section 271(1)(c) was not sustainable. This was because the show cause notice issued under Section 274 read with Section 271(1)(c) was ambiguous, failing to specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal also noted that no satisfaction was recorded by the Assessing Officer in the show cause notice, rendering the entire penalty proceedings vitiated and bad in law, relying on Supreme Court and High Court precedents.
Key Issues
Whether a penalty imposed under Section 271(1)(c) is valid when the show cause notice issued under Section 274 is ambiguous, does not specify the exact charge (concealment of particulars or furnishing inaccurate particulars), and lacks recorded satisfaction by the Assessing Officer.
Sections Cited
271(1)(c), 274, 143(3)
AI-generated summary — verify with the full judgment below
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI BRAJESH KUMAR SINGH, HON’BLE
per provisions of section 271(1)(c) of the Act.
Further, AO issued show cause notice dated 04.08.2016 wherein no satisfaction was recorded by the AO, the contents therein are reproduced as under:-
1. “Subject: Show cause notice for the penalty u/s. 271(1)© for the AY 2011-12 – Regarding. Please refer to this office notice issued in connection with the penalty proceedings noted under titled subject. You are hereby required to submit your reply or attend before the undersigned personally of through authorized representative on or before 11/08/2016 at Aayakar Bhawan, Meerut Road, Muzaffarnagar. In case of failure on your part, necessary order will be passed on merit and on the basis of material available on record.” 7.1 Upon perusing the aforesaid show cause notice dated 4.8.2016, it is observed that no satisfaction was recorded by the AO.
Further, we note that AO imposed the penalty of Rs. 2,01,39,072/- vide order dated 15.1.2018 by holding as under:-
1. “I have carefully considered the explanation furnished by the assessee. It is stated that the assessee has not submit anything regarding the concealment of income and furnishing inaccurate particulars of its income and merely requested to keep the penalty of proceedings in abeyance. Therefore, it appears that assessee has nothing to say regarding the concealment of particulars of his income and furnishing inaccurate particulars of income in respect of abovementioned additions made to its income. From the facts and circumstances of the case, it is clear that the assessee is liable for penalty u/s. 271(1)© of the I.T. Act, 1961.” 8.1 Further the AO vide his assessment order dated 31.3.2014 has held that “issue penalty notice u/s. 271(1)© for furnishing inaccurate particulars and concealment of income”, which is not in accordance with law.
In view of the aforesaid factual matrix, it is established that the notices issued u/s. 274 of the Act r.w.s. 271(1)(c) of the Act is on account of non-application of mind in as much as it is proforma notice where the Assessing Officer has not mentioned whether the fault is for concealment of particulars of income or furnishing of inaccurate particulars of income or furnishing of inaccurate particulars of income and also no satisfaction is recorded. On this account, the penalty imposed u/s. 271(1)(c) of the Act is not sustainable in the eyes of law hence, the same is deleted as such. Our aforesaid view is fortified by the following decisions:-
i) “CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015
(11) TMI 1620 – Karnataka High Court has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton and Ginning
Factory (2013) (7) TMI 620- Karanataka High Court.
Thus 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 – decided in favour of assessee.” ii) CIT & Anr. Vs. M/s SSA’s Emerald Meadows –
Hon’ble Supreme Court of India – reported in 2016
(8) TMI 1145 – Supreme Court. The Apex Court held that High Court order confirmed (2015) (11) TMI
1620 (Supra) – Karnataka High Court. Notice issued by AO under section 274 read with section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income – Decided in favour of assessee.”
In the result, the appeal filed by the Assessee stands allowed. Order pronounced in the Open Court on 19/12/2025.