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M/s Singh Consultancy Pvt. Ltd. Vs. Income Tax Officer - (Income Tax Appellate Tribunal) (09 Apr 2021)

When the notice issued by AO is ambiguous, penalty proceedings are not sustainable


Direct Taxation

The assessee is private limited company, engaged in the business of share, commodity trading and investment activities. It filed its return of income declaring loss of Rs.2,20,67431. The Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act, 1961 (IT Act) determining total income of the assessee at Rs.26,39,389, wherein, he made addition of Rs.2,47,06,820 treating unsecured loan of Rs.2,47,06,820 as bogus and ingenuine.

The addition so made was confirmed by the learned Commissioner of Income Tax [CIT(A)]. Thereafter, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act. Rejecting the various explanations given by the assessee and observing that, the assessee has concealed its income to the extent of Rs.2,47,06,820 willfully and knowingly by furnishing inaccurate particulars of income, he levied penalty of Rs.74,12,046 being 100% of the tax sought to be evaded. In appeal, the learned CIT(A) sustained the addition. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal.

The Assessing Officer in the instant case levied penalty of Rs.74,12,046 being 100% of tax sought to be evaded on the ground that, the assessee has concealed its income to the tune of Rs. 2,47,06,820 willingly and knowingly by furnishing inaccurate particulars of income. The learned CIT(A) upheld the penalty so levied by the Assessing Officer, reasons of which have already been reproduced in the preceding paragraphs.

A perusal of the assessment order shows that, penalty has been initiated in general terms and the assessment order is not clear as to under which limb of the penalty i.e. for concealment of income or for furnishing inaccurate particulars of income has been mentioned. Similarly, in the case of penalty order, where it is mentioned that assessee has concealed its income to the tune of Rs.2,47,06,820 willingly and knowingly by furnishing inaccurate particulars of income. In order to initiate penalty proceedings, the Assessing Officer has to specify in the show-cause notice under Section 271(1(c) read with Section 274 of the Act, if the assessee has concealed the particulars of income or has furnished inaccurate particulars of income which is in instant case, the Assessing Officer has failed to do.

In the cases of CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA's Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd., the Co-ordinate Benches of the Tribunal are taking the consistent view that, when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of Section 271(1)(c) of the IT Act, the penalty notice has been issued, the penalty proceedings initiated under Section 271(1)(c) of Act are not sustainable.

In view of decisions cited, present Tribunal held that since, the particular limb under which the penalty has been levied is not coming out from the notice as well as the assessment order and penalty order, therefore, such levy of penalty under these facts and circumstances is not justified. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the penalty so levied. Appeal filed by the assessee is allowed.


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