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Judgment
Per Renu Jauhri, Accountant Member:
The above captioned appeal is preferred by the assessee against the order dated 29.08.2025, passed by CIT(A)-3, Noida u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for A.Y. 2002-03.
The assessee has raised following grounds of appeal:
"1 That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the Assessing Officer in imposing a penalty of Rs.1,97,09,246/- u/s 271(1)(c) of the I.T. Act without there being proper satisfaction recorded in terms of provisions of section 271(1)(c) read with section 274 of the Income-tax Act, during initiation of proceedings.
2.That on the facts and circumstances of the case, the learned CIT(A) has erred in not appreciating that the impugned penalty order is invalid and void ab initio, since the proceedings initiated during quantum assessment do not reflect specific satisfaction or levying of specific charge as to the concealment of particulars of income or furnishing of inaccurate particulars of income in the assessment order as well as in the notice issued u/s 274 of the Act.
3.That on the facts and circumstances of the case, the learned CIT(A) erred in upholding the action of the Assessing Officer in applying Explanation- 1 to section 271(1)(c) for imposing penalty for furnishing of inaccurate particulars of income. Explanation-1 is applicable only in the case of income in respect of which particulars have been concealed.
4.That on the facts and circumstances of the case, the learned CIT(A) erred in not appreciating the fact that penalty u/s 271(1)(c) is not leviable merely because the assessee claimed certain expenditure which was not accepted or not acceptable to the revenue. The learned CIT(A) failed to appreciate various case laws cited by the appellant.
5.That each ground of appeal is without prejudice to one another."
Brief facts of the case are that the assessee filed its return for A.Y. 2002-03 on 31.10.2002 declaring business loss of Rs.53,21,28,126/- and income from capital gains of Rs.5,48,47,495/-. The case was selected for scrutiny and assessment was finalized u/s 143(3) vide order dated 31.03.2005 had assessed income of Rs.46,62,60,278/- after making several additions. Aggrieved, the assessee preferred an appeal before Id. CIT(A) who allowed partial relief to the assessee in respect of some of the additions made. Thereafter, Id. AO issued show-cause notice for imposition of penalty u/s 271(1)(c) of the Act. The assessee submitted that since further appeal has been filed before the ITAT penalty proceedings should be kept in abeyance. However, vide order dated 27.09.2019, the AO imposed penalty of Rs.1,97,09,246/- computed @100% of the tax on concealed income which was determined at Rs.5,52,07,972/-. Aggrieved, the assessee preferred an appeal before Id. CIT(A). However, vide order dated 29.08.2025, Id. CIT(A) partly allowed the appeal with directions to the AO to dispose off the pending rectification application filed by the assessee with regard to the charging of tax at a higher rate and re-compute the quantum of penalty accordingly.
Further aggrieved, the assessee is in appeal before the Tribunal. Although several legal and factual grounds have been raised by the assessee, we first take up the legal issue regarding the validity of the notice issued u/s 274/271(1)(c) of the Act.
Before us, Id. AR has made elaborate arguments and also furnished written submissions on all the grounds. With regard to the validity of the notice, written submissions have been made which are reproduced below:
"Grounds 1 to 3 (Recording of satisfaction and validity of the Notice issued u/s 274/271(1)(c) of the Act)
1.Penalty u/s 271(1)(c) envisages twin conditions vis (1) Satisfaction and (2) issue of notice u/s 274 rws 271(1)(c), which is valid as per law.
2.Recording of satisfaction has to be discernible from the Assessment Order and it precedes the issue of the statutory notice u/s 274/271(1)(c) and not post thereof.
3.The satisfaction must relate to the facts of the case and the reasoning of the AO must prima facie be precise and clear as to the limb of Section 271(1)(c) attracted, i.e. whether concealment of particular of income or furnishing of inaccurate particulars. There is no scope for any confusion or casual approach on the part of the AO.
4.The notice for penalty u/s 274 rws 271(1)(c) should indicate the limb of Section 271(1)(c) under which the assessee is put on notice and any defect therein nullifies all subsequent proceedings.
5.Section 271(IB) introduced with retrospective effect from 01.04.1989 deems a direction in an assessment order for initiation of penalty proceedings to constitute satisfaction, but such direction should be valid as per law and conform to the provisions of Section 274 and 271(1)(c) of the Act.
Reverting to the facts of the present case Submissions
1.The Assessment Order dated 31.03.2005 does not indicate specifically, any malafides on the part of the Appellant vis-à-vis the various disallowances. In other words the overall sense gathered from the order does not point to any lapse or wrong doing on the part of the assessee which should attract the provisions in question (Pages 27 to 42 of the Paper Book).
2.To the above is coupled the fact that the printed notice u/s 274/271 dated 31.03.2005 is vague and ambiguous, whereby the appropriate limb under which the penalty is proposed has not been spelt out. In other words even if one were to refer to Section 271 (IB) without prejudice to every other argument, the requirement embedded there in is not met in the present case (Page 108 of the Paper Book).
3.The issue by the AO of a communication dated 20.08.2019 spelling out for the first time the limb under which the assessee is proposed to be penalised viz furnishing of inaccurate particulars and seeking a reply there of does not satisfy the twin conditions of satisfaction and issue of a valid statutory notice u/s 274/271 (Pages 113 to 118 of the Paper Book).
4.That prior to the issue of the communication dated 20.08.2019, the AO had addressed two communications dated 26.05.2006 and 07.03.2007 to the assessee and in response to the latter the assessee filed a reply dated 16.03.2007 both on the legal issue of satisfaction and on merits (Pages 109 to 112 of the Paper Book).
5.That having issued communication dated 20.08.2019 specifying "furnishing of inaccurate particulars" as the ground for the penal action, the AO in the penalty order invoked Explanation 1 to Section 271(1) (c), which cannot be applied where the charge against the assessee is furnishing of inaccurate particulars of income since it provides a deeming fiction qua concealment of particulars of income only and consequently cannot be extended to a case where the charge is furnishing of inaccurate particulars of income. This submission is without prejudice to the argument that the entire proceedings are vitiated in the absence of a proper satisfaction coupled with a valid notice u/s 274/271.
Judgements Relied upon 1 to 7
1.Madhushree Gupta & British Airways vs Union of India 317 ITR 143 (Delhi)
2.Pr. CIT vs. Goa Coastal Resorts and Recreation (P) Ltd. (2020) 113 taxmann.com 574 (Bom).
3.CIT vs Genpact Services LLC (2025) 175 taxmann.com 847 (Delhi)
4.Pr. CIT vs Unitech Reliable Projects Pvt. Ltd.
(2024) 462 ITR 307 (Delhi).
5.Nilima Agrawal vs ITO (2025) 174 taxmann.com 59 (Raipur Trib.)
6.Tristar Intech (P) Ltd. vs ACIT(2017) 88 taxmann.com 392 (Delhi Trib.)
7.Chandra Prakash Bubna vs ITO (2015) 64 taxmann.com 155 (Kolkata Trib.
In summing up, your honours may be pleased to cancel, the penalty levied u/s 271(1)(c) on the legal grounds espoused aforesaid."
On the other hand, Id. DR has argued that the penalty has been imposed for furnishing inaccurate particulars and the same has been mentioned in the last notice dated 20.08.2019 issued by the Assessing Officer before levying the penalty in response to which the assessee had filed submissions dated 21.08.2019. Penalty was imposed after taking into account the assessee's submissions as well as relevant facts recorded in the assessment order.
We have heard the rival submissions and perused the material placed on record. We note that in the assessment order, Id. AO has recorded the initiation of penalty as under:
"Penalty proceeding u/s 271(1)(c) of the Act is initiated for furnishing inaccurate/concealing particulars of income as discussed above."
Thereafter notices dated 31.03.2005, 26.05.2006 and 07.03.2007 were issued, copies of which have been placed on record. It is noticed that in none of these notices, any specific limb of section 271(1)(c) i.e. furnishing of inaccurate particulars or concealment of particulars of income has been invoked. It is only in the show-cause notice issued on 20.08.2019 after a lapse of 14 years, the Id. AO has mentioned that penalty is sought to be levied for furnishing inaccurate particulars of income.
We further take note the decisions of various Hon'ble High Courts including the jurisdictional High Court relied upon by the assessee. The jurisdictional High Court in the case of Ms. Madhushree Gupta Vs Union of India and Anrs. In WP(C) No. 5059 of 2008 vide order dated 24.07.2009, has been held that the Assessing Officer, at the time of initiation of penalty proceedings has to specify whether the penalty is sought to be initiated for concealment of income or for furnishing inaccurate particulars of income.
In view of the settled position of law on this issue, we are of the considered view that the penalty initiated vide notice dated 31.03.2005 was bad in law due to non-specification of the relevant limb of section 271(1)(c) of the Act. Hence, the penalty levied subsequently vide order dated 27.09.2019 is liable to be quashed.
In the result, appeal of the assessee allowed.