AI Structured Summary
Not yet generated for this judgment
Judgment
PER MANISH AGARWAL, AM:
This appeal is filed by the Assessee against the order of ld. Addl./Joint Commissioner of Income Tax (Appeals)-1, Vadodara [‘Ld. CIT(A)’ in short], in Appeal No. CIT(A), Delhi-10/10005/2017-18 dated 19.09.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ in short) against the order passed u/s 271(1)(c) dated 29.03.2017 for Assessment Year 2011-12.
Brief facts of the case are that assessee filed return of income on 16.08.2011 declaring total income of Rs.9,29,17,880/-. The case was selected for scrutiny and the assessment was completed at an income of Rs. 9,73,61,297/- vide order dated 19.03.2014 passed u/s 143(3) of the Act. Against the said order, assessee filed an appeal before the Ld. CIT(A) who vide its order dated 21.09.2015 in Appeal No. 253/2014-15 partly allowed the appeal filed by assessee, and confirmed the additions to the extent of Rs. 34,62,090/-. Thereafter, the Assessing Officer proceeded with the pending penalty proceedings initiated u/s 271(1)(c) of the Act and held that the assessee has concealed the particulars of income and filed inaccurate particulars of income for the additions sustained at Rs.34,62,090/- and levied the penalty u/s 271(1)(c) of the Act of Rs.10,75,083/- being 100% of the tax sought to be evaded on the additions of Rs.34,62,090/-. Against the said order, the assessee preferred appeal before the Ld. CIT(A) who had dismissed the same for non-prosecution.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:
“1.That the order dated 19.09.2025 passed u/s 250 of the Income-tax Act, 1961 by the Additional/Joint Commissioner of Income Tax (Appeals) 1, Vadodara is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assistant Commissioner of Income Tax, Circle -28(1), New Delhi in levying a penalty of Rs. 10,75,083/- u/s 271(1)(c) of the Act, 1961 in respect of: (i) addition of Rs.9,59,524/- on account of disallowance u/s 14A of the Act in respect of expenses earned for earning exempt income; (ii) addition of Rs.24,88,876/-on account of disallowance, on estimated basis, of 25% of the amount of advance received from customers after giving benefit of 10% of expense incurred towards commission to sub-agents; (iii) addition of Rs. 13,690/- on account of Short Term Capital Gain; for alleged concealment of income OR furnishing inaccurate particulars of income, without considering the facts and circumstances of the case and the legal position.
2.That the order dated 19.09.2025 levying penalty u/s 271(1)(c) of the Income-tax Act, 1961 passed by the Additional/ Joint Commissioner of Income Tax (Appeals) 1, Vadodara is against law and facts on the file in, as much as, he was not justified to uphold the action of the Ld. Assistant Commissioner of Income Tax, Circle-28(1), New Delhi in imposing a penalty of Rs. 10,75,083/- for alleged concealment/furnishing inaccurate particulars of income, without specifying the limb of S. 271(1)(c) of the Act under which penalty proceedings had been initiated and penalty levied.
3.That the Appellant craves to add, amend, alter, modify OR 3 DLEETE any OR all of the grounds of appeal before OR at the time of hearing.”
Grounds of appeal No. 1 & 2 are with respect to the initiation of penalty proceedings without specifying the limb under which the penalty proceedings were initiated u/s 271(1)(c) of the Act.
Heard both the parties and perused the materials available on record. The notice issued for initiation of penalty proceedings u/s 271(1)(c) dated 19.03.2014 is reproduced as under:
As per Section 271(1)(c) of the Act, the AO should record his satisfaction that the assessee has either concealed the income or furnished inaccurate particulars of his income. From the perusal of the notice issued u/s.274(1) r.w.s.271(1)(c) of the Act as reproduced above, it was not specifically pointed out as to whether the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. Therefore, the penalty proceedings initiated without recording the satisfaction is liable to be quashed. The Hon’ble Apex Court vide judgment in case of M/s. SSA's Emerald Meadows reported in (2016) 73 taxmann.com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka whereby identical issue was decided in favour of the assessee. Operative part of the judgment in case of M/s. SSA's Emerald Meadows (supra) decided by Hon'ble High Court of Karnataka is reproduced below:-
"2.This appeal has been filed raising the following substantial questions of law:
(1)Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?
(2 ) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is had in law and. invalid in spite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?
(3)Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?
3.The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e, whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the derision of the Division Bench of this Court rendered in the case of COMMISSIONER or INCOME TAX -VS-MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
4.In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly dismissed."
Bare perusal of the notice issued u/s 271(1)(c) of the Act apparently goes to prove that the Assessing Officer initiated the penalty proceedings by issuing the notice u/s 274/271(1)(c) of the Act without specifying whether the assessee has concealed ''particulars of income" or furnished "inaccurate particulars of income", so as to provide adequate opportunity to the assessee to explain the show cause notice. Rather notices in this case have been issued in a stereotyped manner without applying any mind which is bad in law, hence is not a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act.
The penalty provisions of section 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer.
The Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from nonapplication of mind. In the background of the aforesaid legal position and having regard to the manner in which the Assessing Officer has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words, as reproduced above, the penalty proceedings shows the non-application of mind by the Assessing Officer and is, thus, unsustainable.
In view of the facts and circumstances of the case, particularly looking to the fact that the AO has failed to record the satisfaction about any limb at the time of initiation of penalty proceedings u/s.271(1)(c) of the Act, therefore, the penalty levied u/s.271(1)(c) of the Act is hereby deleted. The Grounds of appeal No. 1 & 2 are thus allowed.
In the result, the appeal filed by the assessee is allowed.