Penalty under section 271(1)(c) is not sustainable where notice issued by A.O. does not specify the limb under which penalty under section 271(1)(c) of the Act had been initiated i.e. whether for concealment of particulars of income or furnishing inaccurate particulars of income.

Case Details:-

Facts of the case:-

• After issuance of notice u/s 148 of the Act, the A.O. initiated reassessment proceedings u/s 147 of the Act. While completing the assessment u/s 147/143(3) of the Act, the A.O. initiated penalty proceedings u/s 271(1)(c) and notice u/s 274 dated 05.12.2016 was issued in response to which the assessee filed a detailed reply. The A.O. however was dissatisfied and held that the assessee has concealed his particulars of income and imposed penalty of Rs. 3,71,743 u/s 271(1)(c) of the Act. 
• The CIT(A) also confirmed the ordeer of the A.O. and therefore the assessee filed further appeal before the ITAT.

Submission of the assessee:-

• It was argued by the ld AR that the entire income of Rs. 14,10,347 was interest income only and it was TDS suffered income. Admittedly, the same amount was shown in the return of income filed in response to section 148 of the Act. It is not the case of the A.O. that even after issuance of notice u/s 148 of the Act, the assessee did not disclose the true and correct income fully in as much as admittedly there is no variation in the returned income and assessed income.
• Also it is not the case of the A.O. that the assessee did file the return of income initially u/s 139(1) of the Act, wherein the interest income was not disclosed fully/partly and therefore there was a concealment when assessed with the assessee's income. Thus, it is clear that there is no difference between the returned and assessed income.
• Further, it is not clear as to for what precise charge, the assessee was asked to show cause viz. whether the charge is that the assessee has furnished inaccurate particulars of income or it was for concealing particulars of such income in an much as a bare perusal of the said show cause notice clearly reveal that the inappropriate words/unwanted charge has not been struck off. The A.O. neither ticked which particular part of alleged offence, he was relying in as much as the words been used between the two offences in the SCN.
• The extract from SCN is reproduced hereunder:- 

"it appears that you have concealed the particulars of your income or furnished inaccurate particulars of income."

• In fact, this confusion with the A.O. even continued while passing the impugned penalty order in as much as at the end of the order, while concluding and computing the penalty, the A.O. has stated as under "--- concealed income/inaccurate particulars of income--- Rs. 14,10,350." Thus, even while imposing the penalty he was not sure, on which limb he imposed the penalty.

Submission of the department:-

The ld D/R has relied on the orders of the authorities and contended that the A.O. was correct in imposing penalty with respect to interest income not shown by the assessee.

Judgements referred to:-

• CIT vs. Manjunatha Cotton and Ginning Factory 359 ITR 565 (Karn)
• New Sorathia Engineering Co. vs. CIT (2006) 282 ITR 0642 (Guj)
• Ramesh Chand Bansal vs. DCIT (ITAT Jaipur) in ITA No. 398,399,400,401/JP/2015
• Ashok Pai (2007) 292 ITR 11 (SC)
• Manu Engineering Works [1980] 122 ITR 306 (Guj-HC)
• CIT v. Virgo Marketing P. Ltd. [2008] 171 Taxman 156
• CIT v. SSA's Emerald Meadows (ITA No. 380 of 2015)
• CIT v. Shri Samson Perinchery (ITA No. 1154 of 2014)
• Dilip N. Shroff vs. JCIT [2007] 291 ITR 519 (SC)
• CIT vs. Smt. Kaushalya & Others [1995] 216 ITR 660 (Bom. HC)

Decision of the ITAT:-

• I had perused the notice u/s 274 read with section 271(1)(c) of the Act dated 05-12-2016 as placed on the record. It is clear from the notice so issued that the A.O. had levied charge of concealed the particulars of income or furnished inaccurate particulars of income. In view of the judicial pronouncements discussed, the notice issued under section 274, read with section 271(1)(c) of the Act should specify under 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. In the absence of which no penalty should be levied on the assessee as determination of such limb is sine qua non for imposition of penalty u/s 271(1)(c) of the Act.
• In the result, appeal of the assessee is allowed.

ITAT Order

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