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Judgment
PER SHRI ANUBHAV SHARMA, JUDICIAL MEMBER:
This appeal is preferred by the assessee against the order dated 20.01.2026 of the Ld. National Faceless Appeal Centre, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/NFAC/S/250/2025-26/1084965211(1) arising out of the order dated 21.12.2017 u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ITO, Circle 25(2), New Delhi for AY: 2006-07.
Heard and perused the records. The present appeal has been filed with a background that the return of income for AY; 2006-07 was filed by M/s HCL Infinet Ltd. (HCLIL) on 23.11.2006 thereafter vide order dated 20.03.2007 of Hon’ble Delhi High Court in terms of Scheme of Arrangement, HCL Infinet Ltd. stood merged/amalgamated with HCL Infosystems Ltd. w.e.f 01.04.2006 and thereupon HCL Infinet Ltd. stood dissolved. As for AY: 2007-08 the annual accounts and tax audit report and return of income was filed by merged entity M/s HCL Infosystems Ltd. On 27.04.2007 name of Microcomp Limited, was changed to HCL Infinet Ltd. and on 11.01.2011 HCL Infinet Ltd. was sold and transferred to Tikona Digital Network Pvt. Ltd. and on 11.01.2011 HCL Infosystems sold its entire equity stake in HCL Infinet Ltd. to Tikona Digital Network Pvt. Ltd. and on 12.12.2011 name of HCL Infinet Ltd. earlier known as Microcomp Ltd. stood changed to Tikona Infinet Ltd.
However, assessment Order for AY: 2006-07 u/s 143(3) of the Act was passed in the name of M/s HCL Infinet Ltd. making disallowance of depreciation of computers and peripherals, disallowance u/s 14A, disallowance of license fee u/s 35ABBand addition on account of unreconciled creditors balance.
Ld. CIT(A) vide order dated 01.08.2013 had partly allowed the appeal of assesse for which both sides approached this Tribunal and by order dated 26.05.2027 disallowance of depreciation of computers and peripherals was deleted, addition on account of unreconciled creditors balance was remanded to AO for verification and disallowance of license fee was partly allowed whereby it was held that license fee is revenue expenditure but the Tribunal directed to allow license fee to the extent of 6% of turnover as against 8% claimed by the assesse.
Penalty proceedings were initiated u/s 271(1)(c) on 30.12.2008 and the penalty order was passed in the name of non-existing entity M/s HCL Infinet Ltd. and its PAN No. Mean time in the second round in the set aside proceedings AO passed an assessment order in the name of HCL Infinet Ltd. and PAN of non-existing entity confirming addition qua creditors balance and allowed license fee and @ 6% turnover which has been confirmed by ld. CIT(A) but by order dated 09.04.2026 ITA No. 8055/Del/2019 the Coordinate Bench had quashed the assessment order passed in second round on the basis that the same was made on non-existing, amalgamated entity. The penalty order was however, confirmed vide impugned order dated 20.01.2026 by ld. CIT(A) with direction to re-compute and restrict the amount of penalty only to the extent of 2% of license fee.
Now, on hearing both sides and after perusal of records we find that at page No. 337 assessee had provided copy of notice u/s 274 r.w.s 271 of the Act issued in the name of M/s HCL Infinet Ltd. and this notice is dated 30.12.2008 and the notice is ambiguous, as to if, assesse was called upon to explain and show cause with regard to default of concealment of the particulars of income or for furnishing of inaccurate particulars of such income. At page 339 copy of notice dated 07.12.2018 issued u/s 274 r.w.s 271 of the Act is made available which is issued in the name of M/s HCL Infinet Ltd. (presently known as Tikona Infinet Ltd.) in this notice also the particulars of limb for which assesse was charged are ambiguous.
Thus on this ground alone, as the notice is ambiguous the assessee’s appeal deserves to be allowed as in the absence of specified limb of violation, being mentioned, the penalty proceedings become vitiated and cannot be sustained in law. Reliance in this regard can be placed on the decision in the case of Unitech Reliable Projects (P) Ltd. (2023) 153 taxmann.com 495 in which the SLP of the department stand dismissed.
Then, the penalty order dated 21.12.2017 is framed on the PAN of erstwhile HCL Infinet Ltd. which is thus passed in the name of non-existing entity which stood amalgamated with HCL Infosystems Ltd. w.e.f 01.04.2006. The fact of amalgamation was quite disclosed to the AO and in fact in the second round of proceedings the Coordinate Bench itself has vide order dated 09.04.2026 (supra) quashed the assessment order being passed against non-existing entity.
At the same time, the original assessment order dated 30.12.2008 which forms basis of instant penalty was passed in the case of non-existing entity.
Further, we find substance in the contention of ld. Counsel that the assesse had succeeded before this Tribunal in first round of litigation wherein this Tribunal has held that license fee is revenue expenditure as against the same being held to be capital expenditure by ld. AO and only the percentage of turnover entitled to be claimed as expenses was changed and thus, the facts and circumstances point neither a case of non-disclosure of material fact or claim of wrong facts.
In the light of aforesaid discussion the ground as raised deserve to be sustained. The appeal is allowed and the impugned penalty order is quashed.