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TaxTMI 
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2026 (4) TMI 959
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....come Tax (Appeals), National Faceless Appeal Centre, Delhi erred in not quashing the impugned penalty order dt. 18-06-2021 as bad-in-law, since it was based on an invalid show-cause notice issued u/s 271(1)(c) of the Act r.w. Explanation 5 of the Act dt.29-12-2017. 2. That the Learned Commissioner of Income Tax (Appeals) failed to appreciate the law that if the initiation of penalty proceedings is void-ab-initio due to the non-recording of proper satisfaction, any further proceedings would also be bad-in-law. 3. That the Learned Commissioner of Income Tax (Appeals) failed to appreciate that since the addition of Rs. 5,00,000/- towards unexplained investment u/s 68 of the Act in the appellant's hands is bad-in-law, the consequent penalty levied based on the said addition is also bad-in-law and liable to be deleted. 4. That the Learned Commissioner of Income Tax (Appeals) failed to appreciate that since the addition of Rs. 2,61,000/- towards unexplained investment u/s 69 of the Act for the AY 2010-11 is bad-in-law, the consequent penalty levied based on the said addition is also bad-in-law and liable to be deleted. 5. That the Learned Commissio....
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....f the Act is invalid because, in the case of the appellant search was conducted on 29.12.2015 and if search is conducted on or after 01.06.2007, Explanation 5A of section 271(1)(c) of the Act is applicable. The assessee had also stated that the additions made towards unexplained investment under section 68 of the Act and unexplained investment under section 69 of the Act does not come under concealment of particulars of income and therefore, penalty under section 271(1)(c) of the Act cannot be levied. 5. The A.O. after considering the submissions of the assessee, rejected the explanation of the assessee by holding that in the assessment order the A.O. has clearly stated that penalty proceedings under section 271(1)(c) of the Act are initiated separately and hence, the penalty notice issued under section 271(1)(c) of the Act covers the penalty provisions as per Explanation 5A which is applicable to the assessee. The A.O. further observed that in the assessment proceedings, additions has been made towards unexplained investment of Rs. 5,00,000/- towards advance payment to Shri Kuppu Swamy Naidu and the same has not be explained by the assessee with relevant details. Similarly, the....
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....nd it was included in the return of income. Therefore observed that, it is a clear case of concealment of income and thus, rejected the explanation of the assessee and upheld the penalty levied by the A.O under section 271(1)(c) of the Act. 8. Aggrieved, by the order of the Ld.CIT(A), the assessee is now in appeal before the Tribunal. 9. Learned Counsel for the assessee, Shri. G. Srinivasa Rao, CA, referring to the assessment order passed by the Assessing Officer and consequent notice issued under section 271(1)(c) r.w. Explanation 5 of the Act dated 29.12.2017 submitted that, in the assessment order, the A.O. initiated penalty proceedings under Explanation 5 of section 271(1)(c) of the Act coupled with issue of show cause notice under section 271(1)(c) r.w. Explanation 5 of the Act, whereas penalty has been levied under Explanation 5A to section 271(1)(c) of the Act which is evident from relevant order passed by the Assessing Officer. Learned counsel, further submitted that initiating penalty proceedings under one limb and levying penalty under different limb vitiated entire penalty proceedings because, Explanation 5 is applicable in a case where the search was conducted on ....
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....rovisions of the Act and penalty has been levied under different provisions of the Act for this reason the proceedings becomes invalid cannot be accepted. The Ld. Senior Authorised Representative, further referring to Explanation 7(1B) of the Act submitted that, where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment and the said order contains a directions of initiation of penalty proceedings under clause (c) of sub-section(1), such an order of assessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). Therefore, merely for issuing a show-cause notice with a different Explanation does not invalidate the penalty proceedings. Therefore, he submitted that the ground taken by the assessee should be rejected. 12. Ld. Senior Authorised Representative for the revenue further submitted that on merit, the appellant could not explain the additions made by the A.O. towards unexplained investments and unexplained income towards advance paid for land, though appellant claims that the said advance has been paid by the Director. Since the appella....
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....rticulars which attracts provisions of section 271(1)(c) of the Act. Unless the assessee is given an opportunity with specific charge on which he has charged for a breach of particular section, the assessee cannot defend itself by filing relevant explanation. Therefore, for this reason, it is necessary for the Assessing Officer to issue show cause notice with a specific charge under which, he proposed to levy penalty, either for concealment of particulars of income or for furnishing inaccurate particulars of income. In our considered view, issuing show cause notice for one charge and levying penalty for another charge, vitiate entire penalty proceedings because, the assessee should know the grounds which he has to meet specifically otherwise principles of natural justices is violated. 15. In the present case, going by the facts available on record there is no dispute with regard to the fact that the Assessing Officer has initiated penalty proceedings in the assessment order itself for concealment of particulars of income under Explanation 5, which is applicable to the cases where search was conducted on or before 01.06.2007, however levied penalty under section 271(1)(c) r.w. Ex....
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....dity of penalty proceedings under section 271(1)(c) of the Act on the legal issue of recording of satisfaction. 6. A perusal of the assessment order shows that penalty under section 271(1)(c) of the Act has been levied by Assessing Officer by observing as under:- "Also, the penalty proceedings u/s. 271(1)(c) of the Act are hereby initiated for filing inaccurate particulars of income by way of incorrect deduction from nonspeculative business income." At the time of passing order under section 271(1)(c) of the Act the Assessing Officer observes as under:- "The assessee is obliged to furnish the true particulars of his income and if he conceals the income, then the law prescribes levy of penalty. By furnishing the inaccurate particulars, the assessee has shown false result in the accounts. The falsity in the account thus has the element of concealment. In view of the above, I am satisfied that this is a fit case for levy of penalty under section. 271(1)(c) of the Income Tax act, 1961." A bare perusal of satisfaction recorded for initiating penalty at the time of passing assessment order and the order levying penalty shows incoherence of cha....
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....Ginning Factory (supra) and Hon'ble Supreme Court decision in the case of SSA's Emerald Meadows (supra), we are of the considered view that penalty levied by the Assessing Officer under section 271(1)(c) r.w. Explanation 5A of the Act, in consequent to show cause notice issued under section 271(1)(c) r.w. Explanation 5 of the Act, is invalid and void ab initio and liable to be quashed. Thus, we quash the order passed by the Assessing Officer under section 271(1)(c) of the Act dated 18.06.2021. 18. In the result, appeal filed by the assessee is allowed for A.Y. 2010-11. ITA No. 1802/HYD/2025 (A.Y. 2013-14) 19. The grounds raised by the assessee in this appeal are re-produced as under: - "1. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi erred in not quashing of the impugned penalty order dt.18-06-2021 as bad-in-law, since the Assessing Officer initiated the penalty proceedings under the limb "have furnished in accurate particulars of income" but completed the proceedings under the limb "concealment of income", and these legal inconsistencies render the satisfaction....
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....itiated penalty proceedings for furnishing inaccurate particulars of income, whereas levied penalty under section 271(1)(c) of the Act for concealment of particulars of income under section 271(1)(c) r.w. Explanation 5A of the Act. Therefore, he submitted that initiation of penalty proceedings under one limb and levying penalty under different limb is bad in law and liable to be quashed because, the assessee should be known under which limb the Assessing Officer is proposed to levy penalty under section 271(1)(c) of the Act, so as to meet specifically, otherwise principles of natural justices is offended. In this regard, he relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (supra) and decision of the Hon'ble Supreme Court in the case of CIT v. SSA's Emerald Meadows (supra). 21. The Ld. Counsel for the assessee, further submitted that on merit also penalty levied by the Ld. AO cannot be upheld because, although the Assessing Officer made additions towards various disallowances to the normal income computed under the Act, but finally, tax has been levied on the total income computed under section 115JB of the Act....
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....pplied for earlier assessment years also. Further, appellant has not explained the additions made by the A.O. towards various disallowances which fall under the category of furnishing inaccurate particulars of income and therefore A.O. has rightly levied penalty under section 271(1)(c) r.w. Explanation 5A of the Act which is applicable for cases where search has been conducted on or after 01.06.2007. The Ld.CIT(A) after considering the relevant facts has rightly sustained the additions made by the A.O. Therefore, he submitted that the order of the Ld.CIT(A) should be upheld. 25. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant assessment orders passed by the Assessing Officer under section 153A r.w.s. 143(3) dated 29.12.2017 and consequent show cause notice issued under section 271(1)(c) of the Act dated 31.012.2017. Admittedly, in the assessment order, the Assessing Officer stated that penalty proceedings under section 271(1)(c) of the Act are initiated separately without any clear satisfaction as to whether, penalty proceedings have been initiated fo....
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....e, for similar reasons, we quash the order passed by the Assessing Officer under section 271(1)(c) of the Act dated 18.06.2021 for A.Y.2013-14. 27. Coming back to another argument of the Ld. Counsel for the assessee in light of additions made by the Assessing Officer towards various disallowances and added back to income computed under normal provisions of the Income Tax Act, 1961 and finally determining tax payable on total income computed under section 115JB of the Act. The Ld. Counsel for the assessee submitted that once additions has been made and income is computed under normal provisions of the Act and finally tax has been levied on income computed under section 115JB of the Act, then Explanation 4 to section 271(1)(c) of the Act cannot be applied to assessment year under consideration because, Explanation 4 to section 271(1)(c) of the Act had explicitly been provided to be effective from 01.04.20216 and thus, will accordingly, apply in relation to A.Y.2016-17 and subsequent assessment years. 28. We find that, an identical issue has been considered by the coordinate bench of ITAT Mumbai Tribunal, in the case of M/s. Flemingo Travel Retail v. DCIT in ITA No. 1197/MUM/202....
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....-For the purposes of cl. (iii) of this sub-section, the expression 'the amount of tax sought to be evaded'- (a) In any case where the amount of income in respect of particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) In any case to which Expln. 3 applies, means the tax on the total income assessed as reduced by the amount of advance tax, TDS, tax collected at source and self-assessment tax paid before the issue of notice under s. 148; (c) In any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished................" On a perusal of the aforesaid, we find that penalty u/s 271(1)(c) to be imposed for eit....
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....pra) the Supreme Court explained the legal position as under : "Reference to the Department Circular No. 204, dt. 24th July, 1976 reported in 1978 CTR (Jourl) 1 : (1977) 110 ITR 21 (St) has also substantial relevance. Same reads as follows :" New Expln. 4 defined 'the amount of tax sought to be evaded'. According to the definition, this expression will ordinarily mean the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed. In a case, however, where on setting off the concealed income, against any loss incurred by the assessee under other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure, 'the tax sought to be evaded' will mean the tax chargeable on the concealed income as if it were the total income. Another exception to the general definition of the expression 'tax sought to be evaded' given earlier is a case to which Expln. 3 applies. Here, the tax sought to be evaded will be the tax chargeable on the ent....
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.... case, the income computed as per the normal procedure was less than the income determined by legal fiction namely 'book profits' under s. 115JB of the Act. On the basis of normal provision, the income was assessed in the negative i.e. at a loss of Rs. 36,95,21,018. On the other hand, assessment under s. 115JB of the Act resulted in calculation of profits at Rs. 4,01,63,180. 23. In view thereof, in conclusion, the assessment order records as follows : "Assessed at Rs. 4,01,63,180 under s. 115JB, being higher of two. Interest under ss. 234B and 234C has been charged as per the provisions of IT Act, 1961. Penalty proceedings under s. 271(1)(c) of the IT Act, 1961 have been initiated. Issue necessary forms." 24. The income of the assessee was thus assessed under s. 115JB and not under the normal provisions. It is in this context that we have to see and examine the application of Expln. 4. 25. Judgment in the case of Gold Coin (supra), obviously, does not deal with such a situation. What is held by the Supreme Court in that case is that even if in the IT return filed by the assessee losses are shown, penalty can still be imposed in a case where on se....
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.... Court in CIT Vs. Nalwa Sons Investment Ltd. [SLP (Civil) No(s). 18564/2011; dated 04.05.2012] 11. At this stage, we may herein observe, that the legislature in all its wisdom after considering the aforesaid shortcoming in the "Explanation 4" to Sec. 271(1)(c), had therein came forth with an amendment vide the Finance Act, 2015, w.e.f 01.04.2016, which therein reads as under: "Explanation 4.- For the purposes of clause (iii) of this sub-section,- (a) the amount of tax sought to be evaded shall be determined in accordance with the following formula- (A - B) + (C - D) where, A = amount of tax on the total income assessed as per the provisions other than the provisions contained in section 115JB or section 115JC (herein called general provisions); B = amount of tax that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished; C = amount of tax on the total income assessed as per the provisions contained in section 115JB or section 115JC; D = amount of tax that....
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.... "55. Amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271 55.1 The provisions contained in clause (c) of sub-section (1) of section 271 of the Act, before amendment by the Act, provided that penalty for concealment of income or furnishing inaccurate particulars of income is to be levied on the "amount of tax sought to be evaded", which has been defined, inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income. 55.2 Problems have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the computation of income under provisions of section 115JB or 115JC of the Income tax Act and also under the provisions other than the provisions of section 115JB or 115JC of the Income-tax Act (hereafter referred as general provisions). Further, courts have held that penalty under clause (c) of sub-section (1) of section 271 of the Income tax Act cannot be levied in....
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....or set off in future years. Accordingly, it was observed that, where concealment of income as computed under the general provisions has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Income-tax Act. But then, we find that the said amendment to "Explanation 4" to Sec. 271(1)(c) had explicitly been provided to be effective from 1st April, 2016 and thus will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years. As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended "Explanation 4" to Sec. 271(1)(c) would not be applicable in its case. As the issue involved in the present case is squarely covered by the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Nalwa Sons Investments Ltd. (2010) 327 ITR 543 (Del), we thus respectfully follow the same. As such, now when the assessee company had been assessed to tax under the deeming provisions of Sec. 115JB of the Act, therefore, on the basis of our aforesaid observations no penalty u/s 271(1)....