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Facts
The assessee company filed a return declaring nil income. The assessment u/s 143(3) resulted in a disallowance of expenses and initiation of penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income. A penalty of Rs.19,08,767/- was levied. The CIT(A) confirmed the penalty. The assessee appealed to the ITAT.
Held
The ITAT noted that while the AO mentioned inaccurate particulars of income in the assessment order, the show cause notice for penalty was vague as it did not strike off the irrelevant clause (concealment of income or furnishing inaccurate particulars). Relying on the decision of the Hon'ble Jurisdictional High Court in Mohd. Farhan A. Shaikh, the Tribunal held that an omnibus notice suffers from vagueness and penal provisions must be construed strictly.
Key Issues
Whether the penalty levied u/s 271(1)(c) is sustainable when the show cause notice issued by the AO was vague for not striking off the irrelevant clause.
Sections Cited
271(1)(c), 274, 143(3)
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Income Tax Appellate Tribunal, Mumbai “E” Bench, Mumbai.
IN THE INCOME TAX APPELLATE TRIBUNAL Mumbai “E” Bench, Mumbai. Before Shri Pavan Kumar Gadale (JM) & Smt Renu Jauhri (AM) (A.Y. 2014-15) Ebrahim Essa Vs. ITO-9(2)(4) Developers Pvt. Ltd. Aayakar Bhawan, 115 Dathawala Wstate, Mumbai-400020. SV Road, Jogeshwari (W), Mumbai-400102. PAN : AACCE4720E (Appellant) (Respondent) Assessee by Shri Mani Jain Department by Shri P. D. Chougule (Sr. DR) Date of Hearing 27.06.2024 Date of Pronouncement 24.07.2024 O R D E R PER RENU JAUHRI (AM) :-
The assessee has filed this appeal challenging the order dated 23-01-2024 passed by Ld CIT(A), NFAC, Delhi and it relates the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”) for AY 2014-15.
The assessee has raised the following grounds: -
1. On the facts and circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in issuing notice u/s 274 r.w.s. 271(1)(c) by the Ld. Assessing Officer in a mechanical manner without recording any satisfaction is bad in law and the consequential penalty order passed under section 271(1)(c) of the Act is not sustainable in the eyes of law.
2. On the facts and circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in levying penalty of Rs.19,08,767/- u/s 271(1)(c) of the Act, for the reasons mentioned in the impugned order or otherwise.
The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new grounds or grounds of appeal on or before the hearing.”
3. The brief facts of the case are that the assessee company filed its return declaring nil income from the business of real- estate during the year. The case was selected for scrutiny and assessment u/s 143(3) of the Act was made at nil income after disallowance claim of various allowances/expenses to the extent of Rs.61,76,840/-. Penalty proceedings u/s 271(1)(c) of the Act were also initiated on the ground that the assessee had inflated its expenses and hence furnished inaccurate particulars of income. Vide order dated 29.06.2017, penalty of Rs.19,08,767/- was levied u/s 271(1)(c) of the Act. The Ld. CIT(A) vide his order dated 23.01.2024 has dismissed the appeal of the assessee after holding that he had furnished inaccurate particulars of expenses under various heads, and therefore, the penalty had been rightly imposed by the Ld. AO.
4. Before us, the Ld. AR vehemently argued that there was no application of mind while issuing notice the notice for penalty proceedings, the AO did not strike off one of the two limbs stating “whether the assessee had concealed particulars of income” or “furnished inaccurate particulars of income”. In support of his claim, a copy of the show cause notice u/s 274 read with section 271 of the Act dated 16.12.2016 has been filed before us.
We have heard the rival submissions. Even though, the Assessing Officer (“AO”) had clearly mentioned in the assessment order that the assessee had furnished inaccurate particulars of income but at the time of issuing he did not strike off the irrelevant clause. As such, the notice issued by the Ld. AO was vague. There are various decisions on this issue on the decision of the Full bench of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh Vs. DCIT 125 taxmann.com 253 (Bom) is applicable as the facts are similar. The relevant portion of the order is reproduced below: -
“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 assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of the 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 assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
More particularly, penal provision, even with civil consequence, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee’s favour.”
Respectfully following the decision of the Hon’ble jurisdiction High Court in the case of Mohd. Farhan A. Shaikh (supra), we direct the deletion of the penalty levied in this case.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24/07/2024