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Facts
The assessment for AY 2012-13 was completed under section 143(3) and later set aside by ITAT with partial relief to the assessee. Subsequently, the AO levied a penalty of Rs. 59,08,492/- under section 271(1)(c) which was confirmed by the CIT(A). The assessee filed an appeal before the ITAT challenging the penalty.
Held
The Tribunal, relying on jurisdictional High Court judgments, held that a penalty notice under sections 274 read with 271(1)(c) must specifically indicate the ground for penalty (concealment of income or furnishing inaccurate particulars). Since the AO's notice did not specify the limb and was an omnibus notice, it was deemed invalid, making the penalty proceedings unsustainable on legal grounds.
Key Issues
Whether the penalty levied under section 271(1)(c) is sustainable when the notice issued under section 274 is defective by not specifying the precise charge (concealment of income or furnishing inaccurate particulars).
Sections Cited
143(3), 250, 271(1)(c), 274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI GAGAN GOYAL
Instant appeal of the Assessee is preferred against the order of theLd. National Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2012-13, date of order 13.03.2024.The impugned order was emanated from the order of the Ld.Income-tax Officer, Ward 32(1)(2), Mumbai (in short, ‘the A.O.’) passed under section271(1)(c) of the Act, date of order12/03/2018.
Chandraiah Balanna Kalal 2. The assesseehas taken the following grounds of appeal:-
“Ground -1. On the facts and the circumstances of the case, the Ld. A.O. erred in issuing the notice u/s 274 r.w.s. 271(l)(c) since the same does not mentions the satisfaction of the reasons for initiation of the penalty proceeding and hence the same needs to be quashed.
Ground -2. On the facts and the circumstances of the case, the learned AO erred in not mentioning whether the notice has been issued towards "Concealment of income" or "for furnishing of inaccurate particulars", thus, the above notice itself is invalid and bad in law further in assessment order also the initiation has been made for both the limbs.
Ground -3. On the facts and circumstances of the case, the Id. CIT(A) NFAC erred in confirming the penalty order passed by Id assessing officer without appreciating that the Id. Assessing officer vide order giving effect to the IT AT order allowed the disallowances and deleted the additions.
Ground -4. On the facts and circumstances of the case, the Id. CIT(A) NFAC erred in imposing penalty without appreciating that the addition has been made on assumption basis which itself will not attract penalty u/s. 271(l)(c).
Ground -5. The appellant craves leaves to add, to delete, or amend any of the above grounds of appeal at the time of the hearing.”
Brief facts of the case are that the assessment was completed under section 143(3). Finally, the assessment order was set aside by the ITAT, Mumbai Bench and with a part relief for the assessee. The Ld.AO passed a rectification order and calculated the tax sought to be evaded amount to Rs.59,08,492/- @100%. So, the Ld.AO levied penalty amount of Rs.59,08,492/-. Being aggrieved, the assessee filed an appeal before the Ld.CIT(A). Ld.CIT(A) dismissed the appeal petition of the assessee. Being aggrieved, assessee filed an appeal before us.
Chandraiah Balanna Kalal 4. We heard the rival submission and considered the documents available in the record. The Ld.AR first agitated the legal issue related to ground No.1 about the issuance of defective notice by the Ld.AO during the proceedings under section 274 read with section 271(1)(c) of the Act. The relevant notice dated 13/03/2015 is reproduced as below:-
Chandraiah Balanna Kalal 5. The Ld.DR argued and fully relied on the order of the Revenueauthorities.
We heard the rival submissions and considered the documents available in the record. The issue is squarely covered by the judgement of Hon’ble Jurisdictional High Court in the case of Mohammed Farhan A. Shaikh Vs. PCIT (125 taxamnn.com 253) vide order dt. 11.3.2021. The relevant paragraphs are reproduced as below: - “179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty. 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice—and that prevention takes just a tick mark. Prudence demands prevention is better than cure. 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 assessee. 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 assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.”
Chandraiah Balanna Kalal 6.1. The issue is squarely covered by the jurisdictional High Court which is legally binding on us. Ld. AO did not mention the nature of concealment in the notice issued u/s 274/271(1)(c). The counsel laid down that in the absence of such specific notice, the notice would be invalid. As held in various judicial pronouncements including the decision of Hon’ble Karnataka High Court in CIT V/s SAS’s Emerald Meadows (73 Taxmann.com 241) against which Special Leave Petition (SLP) filed by the department stood dismissed by Hon’ble Supreme Court which is reported as 73 Taxmann.com 248. The notice u/s 274/271(1)(c) of the Act is not carrying the specific limb. Therefore, this is a case where both the parts of the offences i.e., concealment of income as well as furnishing of inaccurate particulars of income were involved.
Finally, respectfully following the binding judicial precedents as cited aforesaid, we are of the considered opinion that the impugned penalty is not sustainable on legal grounds. The ld. DR is unable to submit any contrary judgment before the bench. Hence, penalty U/s 271(1)(c) amount of Rs.59,08,492/- is quashed. The appeal of the assessee is succeeded.