The penalty notice under Section 274 of the Revised Code is void if it does not indicate the limb for which the penalty process is being brought

Fact and issue of the case

This appeal has been preferred by the Assessee against the order dated 21.01.2019, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-24, New Delhi (in short “Ld. Commissioner”), u/s. 250 of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 20 11-12.

As per assessment order, the AO on noticing that the Assessee received the share capital of Rs.35,00,000/- from Ankay Associates Pvt., a company found to be controlled and managed by one Shri Anil Agarwal who had admitted in his statement that the company M/s. Ankay Associates Pvt. Ltd. does not undertake any business activity except providing the accommodation entries , made the addition of Rs.35,00,000/- on account of bogus share capital by passing assessment order dated 30.03.2015 u/s. 153A/143(3) of the Act. On the basis of said addition Rs.35,00,000/-, the Assessing Officer recorded his satisfaction for initiation of penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income. Accordingly, after relying upon various decisions, the Assessing Officer imposed a penalty of Rs.10,81,500/- @ 100% of the tax sought to be evaded vide penalty order dated 20.03.2018 for furnishing inaccurate particulars of income.

The Assessee, being aggrieved, preferred first appeal before the Commissioner, who vide impugned order affirmed the penalty order on the premise that the Assessee had not been able to prove the genuineness of share capital of Rs.35,00,000/- either during the assessment proceedings or appellate proceedings and even in the course of penalty proceedings. Being aggrieved by the impugned order, the Assessee is in appeal before us.

Heard the parties and perused the material available on record. The ld. Counsel, Ms. Sanjana Sachdev, Ld. Advocate at the outset claimed that in the assessment order, the satisfaction was recorded for initiation of penalty proceedings for furnishing of inaccurate particulars of income. However, the Assessing Officer in the penalty proceedings, issued the notice u/s. 274/271(1)(c) of the Act, for concealment of particulars of income/for furnishing inaccurate particulars of income. In fact, the Assessing Officer in the notice u/s. 274 of the Act without specifying particular limb of penalty, has used slash (/) between both the limbs of penalty and in the penalty proceedings ultimately levied the penalty for furnishing of inaccurate particulars of income.

On the contrary, Mr. Mohd. Gayasuddin Ansari, Ld. CIT/DR, by inviting para No. 5 of the penalty order emphasised that the Assessee by filing its reply to the notice u/s. 274/271(1)(c) of the Act has acknowledged the initiation of penalty proceedings for furnishing of inaccurate particulars of income, therefore, the penalty levied by the Assessing Officer and affirmed by the ld. Commissioner does not require any interference on this score.

Observation of the court

We have given thoughtful consideration to the peculiar facts and circumstances of the case. The Assessee in the instant case has challenged the imposition of penalty mainly on the basis of notice itself, therefore we deem it appropriate first to decide the legal issue, which relates to validity of Notice issued u/s 274 of the Act, without specifying particular limb of penalty leviable u/s 271(1)(c)of the Act.

We clarify, as Ms. Sanjana Sachdev, Ld. Advocate fairly submitted that quantum appeal against the addition on the basis of which the penalty under consideration has been levied, is still pending for adjudication, this order shall not be taken as embargo to initiate the penalty proceedings afresh in accordance with law, if necessitates, in case the addition is to be made afresh as per facts and circumstances, which may arise in future.

As by adjudicating the legal issue, we have deleted the penalty and therefore are not inclined to adjudicate other issue which pertains to merit of the case, as adjudication of the same would prove futile exercise.

In the result, the appeal filed by the Assessee stands allowed.

Order pronounced in the open court on 23/02/2023.