TaxTMI 
TaxTMI 
2026 (8) TMI 1359
X X X X Extracts X X X X
X X X X Extracts X X X X
....passed on 19.08.2025 in Appeal No.1565/Delhi/2025 which was filed by the respondent-assessee herein, in relation to penalty that was imposed upon it under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act of 1961') for Assessment Year 2008-09 by way of an order dated 28.06.2011. 7. The short issue which is involved in the present case is, as to whether the Assessing Officer's (AO) action of imposing penalty against the respondent-assessee was valid in the eyes of law, when his notice that preceded the order of penalty did not specifically mention or refer to the clause qua which the penalty was proposed. 8. The facts germane for the present purposes are that the respondent-assessee filed a return of income declaring a loss of Rs. 11,07,23,687/- and its assessment was taken up for scrutiny under Section 143(3) of the Act of 1961, during which the AO found that the assessee had wrongly claimed revenue loss in relation to a sale of a parcel of land. During the course of proceedings, the assessee filed a revised return and pleaded that it was shown as revenue loss due to inadvertence and showed such loss to be a loss of capital in nature. Such rev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t satisfied, the penalty was liable to be set aside. Judgments of High Courts, including the judgment of Karnataka High Court and Delhi High Court in the cases of CIT v. Manjunatha Cotton and Ginning Factory, reported in [2013] 359 ITR 565 (Karnataka) and PCIT v. Sahara India Life Insurance Co. Ltd., reported in (2021) 432 ITR 84 (Delhi) and PCIT v. Gragarious Projects Pvt. Ltd., reported in [2024] SCC Online Del 8142 decided by Delhi High Court] were relied upon by the assessee. 14. The Commissioner of Income Tax (Appeals), however, rejected the assessee's appeal, for which, the assessee took up the matter before the Tribunal by way of preferring a second appeal which was registered as Appeal No. 1565/Del/2025 and came to be allowed by the Tribunal vide order impugned. 15. Mr. Agarwal, learned Senior Standing Counsel for the appellant argued that the Tribunal has seriously erred in quashing the assessment order and setting aside the penalty imposed by the AO by holding that the AO has failed to record satisfaction about the existence of jurisdictional fact. He painstakingly took the Court through the assessment order, more particularly its footnote and highlighted that the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her than quashing the penalty in its entirety. 19. He argued that the respondent-assessee cannot satisfy this Court that what prejudice has been caused to it, by not indicating which limb of Section 271(1)(c) is alleged to have been breached by it. Relying upon judgment in case of K.P. Madhusudan (supra), learned senior standing counsel argued that para 10 of this judgment clearly postulates that mere mentioning of Section 271(1)(c) is enough. He argued that when Hon'ble the Supreme Court has held that non-mentioning of explanation does not render the notice to be invalid, then, simply because the AO has not mentioned which limb of Section 271(1)(c) he is relying upon, the notice cannot be held to be illegal and fatal to the penalty proceedings. 20. Mr. Arvind Kumar, learned counsel appearing for the respondent-assessee on the other hand, submitted that maybe while passing the assessment order, the AO had observed that penalty proceedings needs to be initiated against the assessee, but he argued at the same time that such observation, if read carefully, cannot be construed to be a satisfaction about the exact provision, or breach qua which the AO sought the assessee to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t recorded a satisfaction about initiation of penalty and it is in that factual backdrop, Hon'ble the Supreme Court held that the High Court had erred in coming to this conclusion and in last four lines of para 10, Hon'ble the Supreme Court had observed that there is an endorsement at the foot of the assessment order by the Income Tax Officer that action under Section 28 had been taken for concealment of income. 27. It is, therefore, clear that in the case of S.V. Angidi Chettiar (supra), the issue was as to whether before initiation of penalty proceeding, the recording of satisfaction is necessary while passing the assessment order itself or it is to be recorded during the assessment proceedings or separately while initiating the penalty proceedings. Whereas in the instant case, it is not a bone of contention - the AO has admittedly recorded a satisfaction that penalty proceedings are required to be initiated. It is a different matter that while recording such satisfaction, the AO was not clear as to which limb of clause (c) of Section 271(1) is attracted or for what breach would he penalize the assessee. 28. Moving on to the judgment in the case of K.P. Madhusudan (supra), ....