M/s NRA Iron and Steel Private Limited vs Deputy Commissioner of Income Tax, Central Circle-25

“5.

I have considered the submissions and the material on record, including the Penalty Order and the contentions raised by the appellant and reply submitted by the appellant during appellant proceedings. The appellant has raised three (3) grounds for adjudication.

6.

Ground 1: The assessee states that all details of the share capital and premium received were properly disclosed in its tax return. It filed confirmations, PANs, bank statements, and ITRs of the investor companies. It claims penalty isn’t justified because the Supreme Court upheld the addition only later. It also submits that the company opted for the Vivad se Vishwas scheme and paid the disputed tax, showing genuine intention.

6.1

As per penalty order the AO noted that the assessee failed to prove the genuineness and financial capacity of the investor companies. Despite submitting documents, the investors were either non-responsive, lacked income, or shared dubious addresses. The Supreme Court confirmed the AO’s view, holding the transactions as non-genuine and based on improbable facts.

6.2

The assessee replied during appellant proceedings that the assessee argued that since it opted for tax settlement through the Vivad se Vishwas scheme, and paid the amount as per High Court direction, the penalty should not apply. It claimed that its disclosures reflected good faith and transparency.

6.3

I find that merely submitting documents is not enough if those documents do not prove the transaction is genuine. The Supreme Court clearly ruled that the investor details lacked credibility. As held in Mak Data Ltd. [(2013) 358 ITR 593 (SC)], disclosures do not protect a taxpayer from penalty if found to be incorrect or misleading. Further to this, the assessee’s submission that penalty u/s 271(1)(c) should be deleted merely because the quantum addition was resolved under the Vivad se Vishwas Scheme, 2020 is not tenable. As clarified in CBDT Circular No. 7/2020, penalty can be waived only if specifically included in the VSV declaration and accepted by the Designated Authority. Where penalty proceedings are initiated separately or not declared under the scheme, they continue independently. Judicial decisions such as Iyergopal Ashokkumar v. ITO (ITAT Chennai, order dated 12.04.2023) and Asha Didwania v. NFAC (ITAT Delhi, order dated 20.05.2024) have held that settlement of quantum does not automatically discharge liability arising under penal provisions unless conditions for abatement are met. In the present case, the penalty proceedings were not part of the VSV declaration, and no immunity under the Act or Scheme was granted. Hence, the penalty under Section 271(1)(c) remains legally sustainable. Accordingly, the Ground No. 1 is dismissed.

7.

Ground 2 & 3: In these grounds the assessee contends that the AO initially recorded satisfaction under the limb “furnishing of inaccurate particulars,” but ultimately imposed penalty for “concealment of income,” creating an internal contradiction. Additionally, the penalty notice did not clearly state which limb of Section 271(1)(c) was being invoked—concealment or inaccurate particulars—making the proceedings legally defective.

7.1

As per Penalty Order the AO uses the term “inaccurate particulars,” while the final penalty order cites “concealment” as the operative limb. Though the notice initiating penalty did not specify the charge, the final order contains detailed reasoning and refers to documentary gaps, unreliable investor identities, and judicial precedents to justify concealment.

7.2

As per the submission during appellate proceedings the assessee submitted that this inconsistency between satisfaction and final charge, along with the vague initiation notice, caused confusion and undermined its ability to respond effectively. It relied on judicial precedents requiring clarity and consistency in penalty initiation and levy.

7.3

After reviewing the record, I find that while precise identification of the charge and limb under Section 271(1)(c) is important, courts have held that penalty is not invalid merely because of such procedural lapses provided the assessee was aware of the nature of default and was given full opportunity to defend. In PCIT v. Sundaram Finance Ltd. [(2023) 149 taxmann.com 343 (Mad)], the High Court ruled that differences in wording between satisfaction and levy do not invalidate penalty where facts justify it. Further, in PCIT v. Sahara India Life Insurance Co. Ltd. [(2019) 268 Taxman 404 (Del)] and CIT v. Suresh Chandra Mittal [(2001) 251 ITR 9 (SC)], it was held that technical defects in notices are not fatal if the final order explains the charge and no prejudice is caused. In this case, the assessee was fully aware of the allegations, participated in the proceedings, and responded to the findings. The final order clarified the limb and factual basis for the penalty, and thus, no miscarriage of justice occurred. Accordingly, these Grounds are dismissed.

8.

In the result, the appeal of the appellant is dismissed.”