Notice issued by the AO would be bad in law if it did not specify under which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income.

This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-1, Gurgaon, Dated 07.10.2015, for the A.Y. 2011-2012, challenging the levy of penalty under section 271(1)(c) of the I.T. Act, 1961.

2. Earlier, this appeal of assessee were dismissed for default vide Order Dated 27.11.2017 which Order was recalled by allowing M.A. of the assessee and appeal was re- fixed for hearing on merits.

3. We have heard the Learned Representatives of both the parties through video conferencing and perused the Orders of the authorities below.

4. Briefly the facts of the case are that A.O. in the penalty Order noted that assessment in this case was framed under section 143(3) making an addition of Rs.1426/- on account of loss of sale of fixed assets of Rs.1426/- which was not added back in the computation of income, Rs.5678/- for prior period expenses which were not added back in the computation of income, Rs.1,90,952/- for claiming deductible expenses by treating these expenses as amortisable under section 35D, however, these expenses were to be treated as capital expenses, as they did not come out under the definition of “amortisable expenses” as given in Section 35D(2) of the I.T. Act, 1961 and disallowance of Rs.55,13,558/- in respect of “Eco module expenses”.

4.1. The A.O. issued show cause notice to the assessee under section 271(1)(c) of the I.T. Act, Dated 28.02.2014 and after giving an opportunity of being heard to the assessee, levied the penalty under section 271(1)(c) of the I.T. Act, 1961, which is confirmed by the Ld. CIT(A) by dismissing the appeal of assessee.

5. Learned Counsel for the Assessee referred to the assessment order submitted that all the additions were made by A.O. in the assessment order which is basis for levy of the penalty and the A.O. in the assessment order against each of the addition has mentioned that assessee has furnished inaccurate particulars of income. Accordingly, penalty proceedings under section 271(1)(c) of the I.T. Act have been initiated. He has submitted that the A.O, however, in the penalty order has levied the penalty on account of concealment of particulars of income. He has submitted that A.O. in the show cause notice dated 28.02.2014 has mentioned as under, copy of which is placed on record.

“Have concealed the particulars of your income or furnished inaccurate particulars of such income.”

5.1. Learned Counsel for the Assessee, therefore, submitted that since both the limbs of Section 271(1)(c) of the I.T. Act i.e., concealing of particulars of income or furnishing inaccurate particulars of income are different, therefore, levy of the penalty is vague and illegal and as such the penalty is liable to be cancelled.

6. On the other hand, Ld. D.R. relied upon the impugned Orders and submitted that A.O. has correctly levied the penalty under section 271(1)(c) of the I.T. Act, 1961.

7. We have considered the rival submissions. The A.O. has issued show cause notice to the assessee dated 28.02.2014 before levy of the penalty in which the A.O. has mentioned both the limbs of Section 271(1)(c) of the Act that assessee has concealed the particulars of income or furnished inaccurate particulars of such income (supra).

The A.O. in the assessment order has mentioned while making the above additions that assessee has furnished inaccurate particulars of income. However, in the penalty order, the A.O. has levied the penalty for concealment of particulars of income. It was, therefore, making it clear that show cause notice Dated 28.02.2014 to be bad in Law as it did not specify under which limb of Section 271(1)(c) of the I.T. Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. The A.O. in the assessment order initiated the penalty proceedings for furnishing inaccurate particulars of income, but, in the penalty order, levied the penalty for concealment of particulars of income. The Hon’ble Karnataka High Court in the case of CIT vs. M/s. SSAs Emerald Meadows 73 taxmann.com 241, dismissed the Departmental Appeal in which the Tribunal has cancelled the penalty. The view of the Hon’ble High Court have been confirmed by the Hon’ble Supreme Court reported in 73 taxmann.com 248. Further, the Hon’ble Delhi High court recently vide Order dated 02.08.2019 in the case of Pr. CIT vs. M/s. Sahara India Life Insurance Company Ltd., 2019(8) TMI 409 (Del.), considering the above Judgment of Hon’ble Karnataka High Court have also dismissed the Departmental Appeal. The relevant observations of the Hon’ble Delhi High Court in paras 21 and 22 of the Order are as under :

“21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No.11485 of 2016 by order dated 5th August, 2016.

22. On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises.”

7.1. Considering the above discussion in the light of above decisions, we are of the view that since notice issued before levy of the penalty is bad in Law, therefore, the entire penalty proceedings are vitiated and as such, penalty is liable to be cancelled. In view of the above, we set aside the Orders of the authorities below and cancel the penalty.

9. In the result, appeal of the Assessee allowed.

Order pronounced in the open Court.

Sd/- Sd/-

(O.P. KANT) (BHAVNESH SAINI)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Delhi, Dated 21st September, 2020