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Facts
The assessee claimed exemption for agricultural income which was disallowed and treated as business income, leading to assessment and penalty proceedings. The penalty proceedings were initiated on the grounds of furnishing inaccurate particulars, but the penalty order mentioned both concealment of income and furnishing inaccurate particulars.
Held
The Tribunal held that there was a variance in the reasons for initiating penalty proceedings (furnishing inaccurate particulars) and levying the penalty (concealment of income). This variance was considered fatal to the penalty order.
Key Issues
Whether the penalty order is vitiated due to a variance between the grounds for initiation and the grounds for imposition of penalty under Section 271(1)(c) of the Income Tax Act?
Sections Cited
143(3), 10(1), 271(1)(c), 43B, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
This appeal is preferred by the assessee against the order dated 23.03.2023 of the Ld. National Faceless Appeal Centre (NFAC) (hereinafter Order No : ITBA/NFAC/S/250/2022-23/1051172314(1) arising out of the penalty order dated 05.01.2022 passed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the AO, National Faceless Assessment Unit, Delhi for AY: 2016-17.
Heard and perused the records. The Appellant, Corteva Agriscience Seeds Private Limited (formerly known as PHI Seeds Private Limited) (the Appellant) was established in 1988 to undertake the cultivation of Hybrid seeds on agricultural lands situated in India and selling the seeds to farmers.
Since inception the Appellant has been engaged in farming activity of growing seeds by way of carrying out all basic agricultural operations like sowing, tilling etc. on agricultural lands and selling them to farmers through its distributors and it's income from this activity has been considered accepted, after detailed scrutiny by the Department under section 143 (3) of the Act in most of the years as tax exempt agricultural income in terms of section 2(1A) read with section 10 (1) of the Act. The assessee's claim for the exemption under section 10(1) of the Act on its agricultural income had been consistently accepted in all assessments and also in appellate proceedings for denied for the first time in the proceedings for A. Y 2001-02. Based on the order of A. Y 2001-02, the Assessments for A. Y 1996-97 to A.Y 2000-01 were reopened, and agricultural exemption was denied in the reassessment order for the years A. Y 1996-97 and A. Y 2000-01. All facts relating to farming activities were duly examined and only then the exemption on agricultural income was allowed in regular Assessments upto A. Y 2000-01.
For Assessment Year 2016-17:
Assessment proceedings for the year under consideration year were concluded by the Ld. Assessing officer vide its order dated December 22,2018 with the assessed income of INR 339,86,48,800/- thereby rejecting the appellant company's claim of exemption under sec. 10(1) of the Act, of agricultural income and treating the same as Business Income. Ld. CIT(A) dismissed appeal and further appeal in Tribunal was filed.
The penalty proceedings for the year under review were initiated by the assessing officer during assessment proceedings and were commenced via show cause notice dated 22.12.2018. The appellant company filed detailed penalty amounting to INR 99,77,25,95%- @ hundred percent of the tax sought to be evaded by the appellant company as alleged by AO. Aggrieved by the impugned order, the appellant company approached the CIT(A) but failed thus this appeal.
In this case, the assessee filed his return of income for the A.Y. 2016- 17 on 30.11.2016 admitting therein total income of Rs.51,57,14,370/- Subsequently its case was selected for complete scrutiny and assessment u/s 143(3) was made on 12.12.2018 at total income of Rs. 3,39,86,48,800/-.
While finalizing the assessment, the following four additions were made in respect of which penalty proceedings u/s 270A were initiated:- i. The assessee grew high breed seeds for business purposes but the income of Rs.2,45,89,28,379/- was claimed by the assessee as exempt agricultural income u/s 10(1) of the Act. The assessee failed to justify the above claim therefore, the same was disallowed. ii. The assessee claimed expenses of Rs. 3,63,00,000/- incurred on corporate social responsibility, provisions of Rs.31,62,00,000/- for assets written off of Rs. 24,25,752/- and loss of Rs. 1,08,66,281/- on sale of fixed assets. In the course of assessment proceedings, the assessee failed to justify its above detailed claims therefore an amount of Rs. 36,63,92,033/- was disallowed by making an addition of the said amount. iii. The assessee had claimed payments of Rs.4,27,86,380/- on account of gratuity, bonus and compensated absence but those payments were found to have been made after the due date. Therefore, an addition of Rs.4,27,86,380/-was made to its total income u/s 43B of the Act. iv. The assessee was found to have made payment of Rs.4,94,25,575/- to some contractors without deducting tax thereon. Therefore, 30% of the said amount, it being Rs. 1,48,27,672/- was disallowed.
Assessee has submitted his reply to penalty notice but Ld. AO did not find same reasonable or sufficient cause which could salvage the assessee from the levy of penalty. Ld. AO held that;
“Provisions of section 271(1)(c) of Income-tax Act, 1961 are applicable in assessee's case as both concealment of income and filling Corteva Agriscience Seeds Pvt. Ltd.(AY:2016-17) of inaccurate particulars of income are present in the assessee's case. The tax payable on Rs. 2,88,29,34,464/- comes to Rs.9,97,72,595/- and 300% of the same comes to Rs.2,99,31,77,874/-. But considering the facts of the assssee's case, penalty of Rs.997725958/- (it being 100% of tax on the total concealed amount of Rs.2,88,29,34,464/-) is hereby imposed on the assessee u/s 271(1)(c) of the Act for the reasons mentioned and discussed above.”
At the outset Ld. Counsel for the appellant has submitted that the penalty has been levied on the basis of ambiguous notice and the impugned penalty order is vitiated for the same reason. It is however, contended by the ld. DR that notice itself is sufficient and mere ambiguity in specifying the particular limb is not of much consequence in present facts and circumstances.
On perusal of the assessment order it comes up that while making disallowances and additions the ld. AO initiated the penalty proceeding under Section 271(1)(c) of the Act for the reason that assessee had furnished ‘inaccurate particulars’ of income. The impugned penalty order mentions that a show cause on 23.02.2021 was issued followed by reminders calling response. Show cause notice, copy of which is available at page No. 159-161 for having ‘furnished inaccurate particular’ of income.
However, the impugned penalty order shows that going beyond the notice calling upon assessee to show cause for filing response to allegation of furnishing ‘inaccurate particulars’, the ld. AO mentions that Section 271(1)(c) of the Act is applicable as ‘both concealment of income and filing of inaccurate particulars of income’ are present in the assessee’s case and then with regard to alleged ‘concealment of income’ on the basis of disallowance and additions of Rs.2,88,29,34,464/- calculated the tax payable as Rs.99,77,25,958/- and 300% of the same was calculated followed by imposition of penalty of Rs.99,77,25,958/- for being 100% of the tax on the total concealed amount.
Thus, it is established that there is complete variance in the reasons for assumption of jurisdiction to levy penalty u/s 271(1)(c) of the Act on the basis of allegation on assessee furnishing inaccurate particulars but levying penalty on allegation of concealment of income. Hon’ble Supreme Court in Ashok Pai v. CIT, 292 ITR 11 (SC) has emphasized that “'Concealment of Corteva Agriscience Seeds Pvt. Ltd.(AY:2016-17) particulars of income' and 'Furnishing of inaccurate particulars of income' denote two different connotations. The Hon‟ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Manjunatha Cotton and Ginning Factory reported as 359 ITR 565 has held :
“60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the Corteva Agriscience Seeds Pvt. Ltd.(AY:2016-17) final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.”
Given the nature of additions the variation and incoherence in show cause and the penalty levy percentage applied is fatal and therefore, the grounds raised deserves to be sustained. As a consequence, the appeal of the assessee is allowed. The impugned penalty is quashed.
Order pronounced in the open court on 12.12.2025