BRAGANZA AND FULARI VENTURES PRIVATE LIMITED,MAPUSA vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), PANAJI

Briefly stated, the facts of the case are that the assessee filed its return declaring total income at Rs.1,01,93,260/-. The AO, while finalising the assessment u/s.143(3), made disallowance of Rs.10,97,428/- towards certain expenses claimed in the Profit and loss account on the ground that they ought to have been capitalized. He finalised the penalty order without specifically clarifying as to whether the penalty was levied for furnishing of inaccurate particulars of income or for concealment of particulars of income. This issue was raised before the ld. CIT(A) as well urging to delete the penalty because the AO neither at the time of recording of satisfaction nor in the penalty order demonstrated as to whether it was a case of furnishing of inaccurate particulars of income or concealment of particulars of income. The ld. CIT(A) held that there are three limbs of the penalty u/s.271(1)(c), namely, (i) concealment of the particulars of income; (ii) furnishing of inaccurate particulars of income; and (iii) concealment of particulars of income and furnishing of inaccurate particulars of income co- existing. He thus concluded that the case of the assessee was covered under the third limb. The assessee is before the Tribunal.

We have heard the ld. DR and gone through the relevant material on record. There is no appearance from the side of Braganza and Fulari Ventures Private Limited assessee despite notice. It is seen that there is only one addition made in the assessment order and then subjected to penalty u/s.271(1)(c) of the Act. From the nature of disallowance, which is disallowance of expenses on the ground that they should have been capitalized, it is manifestly a case of furnishing of inaccurate particulars of income. The ld. CIT(A) has opined that there are three limbs of section u/s.271(1)(c), inter alia, a combination of both the first two limbs of concealment resulting because of furnishing of inaccurate particulars of income and thus brought the case within it by holding that: `the assessee had deliberately concealed his taxable income by making inaccurate claims and that the concealment factor was also clearly established’. In our opinion, every furnishing of inaccurate particulars of income leading to addition ultimately results in enhancement of income. Similarly, every concealment of particulars of income leading to addition results in enhancement of income. Both the limbs – (i) furnishing of inaccurate particulars of income and (ii) concealment of particulars of income - are separate and distinct from each other. Whereas the concealment limb refers to additions towards items of income not shown by the assessee; and the limb of furnishing of inaccurate particulars of income would, inter alia, refer to Braganza and Fulari Ventures Private Limited disallowance of expenses claimed by the assessee as deductible. Additions made under both the limbs eventually give a foundation for imposition of penalty u/s.271(1)(c), subject to the fulfilment of requisite conditions of the section. One cannot say that disallowance of expenses has resulted into `concealment of income for furnishing of inaccurate particulars of income’. The third category created by the ld. CIT(A) does not find its presence in any part of the provision. Qua one addition, it can either be a case of concealment of particulars of income or furnishing of inaccurate particulars of income. The action of the AO in initiating and passing the order on both the limbs together, can be justified if there are two or more additions made by him - some of them falling in realm of the first limb and others in the second. Howbeit, if there is only one item of addition, that can be either a case of concealment of particulars of income or furnishing of inaccurate particulars of income and cannot be a combination of the two.

We are confronted with a situation in which only one addition was made by the AO, which is towards disallowance of expenses. This strictly falls within the ambit of furnishing of inaccurate particulars of income. In that view of the matter, the penalty ought to have been levied only with reference to furnishing of inaccurate Braganza and Fulari Ventures Private Limited particulars of income without having any reference to the second limb of concealment of particulars of income.

It goes without saying that the foundation for any penalty is the charge on which the penalty is levied. It is this charge, as set out in the penalty notice, which the assessee has to meet with culminating into imposition or otherwise of the penalty. The Full bench of Hon’ble jurisdictional High Court in Mohd. Farhan A. Shaikh & Anr. vs. ACIT (2021) 434 ITR 1 (Bom)(FB) has held that if the charge in the notice u/s 274 is vague i.e. irrelevant charge has not been struck off, the penalty order u/s 271(1)(c) gets vitiated. Similar view has been taken by the Hon’ble Bombay High Court in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxmann.com 248 (Bom). The SLP of Department against this judgment has since been dismissed in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 437 ITR (9) (ST) (SC). It is unambiguous from the above enunciation of law that the issuance of a lawful notice u/s 274, clearly setting out the charge for which the penalty is proposed to be levied, is sine qua non, for passing a valid penalty order. Where notice u/s 274 is vague, penalty order gets vitiated.

Adverting to the facts of the instant case, we find that the assessee ought to have been visited with the penalty on the charge of furnishing of inaccurate particulars of income. As against that, the penalty order was passed with reference to both, namely, furnishing of inaccurate particulars of income and concealment as well. Under these circumstances, we are satisfied that the order passed by the ld. CIT(A) cannot be sustained. The same is, therefore, overturned and the penalty is directed to be deleted.

In the result, the appeal is allowed. Order pronounced in the Open Court on 06th October, 2023.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; ददन ांक Dated : 06th October, 2023 सतीश आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: