HC Upholds Deletion of Penalty as Notice Lacks Precision on Section 271(1)(c) Limb

CIT (Exemptions) Vs Jamnalal Bajaj Foundation (Delhi High Court)

CIT (Exemptions) vs. Jamnalal Bajaj Foundation: Delhi High Court Upholds Deletion of Penalty due to Ambiguous Notice

Introduction: In a recent case between the Commissioner of Income Tax (Exemptions) and Jamnalal Bajaj Foundation, the Delhi High Court addressed an appeal related to the Assessment Year 2009-10. The appellant sought to challenge the order dated September 3, 2021, passed by the Income Tax Appellate Tribunal (ITAT). The case revolved around a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, with the central contention being the lack of specificity in the notice regarding the precise limb of the section under which the penalty was imposed.

Background: The respondent, Jamnalal Bajaj Foundation, had initially filed a return declaring “nil” income for the relevant year. During the scrutiny assessment, the foundation filed a revised return declaring an income of Rs. 18,87,107/-. This revision was prompted by the utilization of accumulated surplus of Rs. 20 crore for charitable purposes. The assessment was completed under Section 143(3) of the Act, resulting in a penalty under Section 271(1)(c).

Penalty Proceedings and Notice Deficiency: Penalty proceedings were initiated against the foundation, and a show-cause notice under Section 271(1)(c) was issued, dated December 19, 2011. The notice, however, did not specify whether the penalty was being imposed for concealment of income or furnishing inaccurate particulars. In response, the foundation contended that it had not concealed any facts or furnished inaccurate particulars, thus objecting to the imposition of the penalty.

CIT(A) and ITAT Decisions: Despite the foundation’s objections, the penalty order was passed, leading to an appeal to the CIT(A). The CIT(A) upheld the penalty, resulting in further appeal to the ITAT. The ITAT, in its order, considered two crucial aspects. Firstly, it found no concealment of income as the foundation had disclosed the utilization of accumulated funds in its revised return before it was highlighted by the Assessing Officer. Secondly, the ITAT observed that the penalty notice did not specify the grounds under Section 271(1)(c), making it ambiguous.

Court’s Analysis and Decision: The Delhi High Court concurred with the ITAT’s findings on both counts. It agreed that there was no concealment of income, and the foundation had appropriately disclosed the utilization of funds. Moreover, the court emphasized that the penalty notice lacked specificity regarding the limb of Section 271(1)(c) under which the penalty was imposed. Citing precedent, the court referred to the importance of a precise notice, as established in Commissioner of Income Tax-3 vs. Minu Bakshi.

Legal Precedents and Coordination with Other High Courts: The court referred to earlier judgments, including those by the Karnataka High Court, to support its stance. The decisions emphasized that penalty notices must explicitly indicate the specific limb of Section 271(1)(c) under which the penalty is levied. The court, aligning itself with these precedents, declined to interfere with the order.

Conclusion: In conclusion, the Delhi High Court dismissed the appeal, stating that no substantial question of law arose for consideration. The court upheld the ITAT’s decision, emphasizing that not only was there no concealment of income, but the penalty notice’s lack of specificity rendered the penalty unsustainable. This judgment underscores the importance of clear and precise notices in penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. This appeal concerns Assessment Year (AY) 2009-10.

2. Via, this appeal, the appellant/revenue seeks to assail the order dated 03 .09 .2021 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

3. Record shows that the respondent/assesee had preferred an appeal with the Tribunal against the order dated 01.02.2017 passed by the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”].

4. The respondent/assessee’s appeal was rejected by the CIT(A), which resulted in the penalty order, passed against it being sustained. Via, the penalty order the respondent/assessee has been mulct with penalty amounting to Rs. 5,39,56,443/-.

5. The record also discloses that the respondent/assessee which is registered under Section 12A of the Income Tax Act, 1961 [in short, “The Act”] had filed its return on 30.09.2009 declaring “nil” income.

6. The respondent/assessee’s case was selected for scrutiny assessment. During the pendency of the scrutiny assessment, the respondent/assessee filed a revised return on 24.03.2011 and declared an income amounting to 18,87,107/-.

6.1 The taxes on the income declared in the revised return were paid by the respondent/assessee.

7. It appears that the respondent/assessee had filed a revised return as the accumulated surplus amounting to Rs. 20 crore, in line with the provisions of Section 11(2) of the Act was utilized for granting donations to other charitable trusts.

8. It is in this backdrop that the respondent/assessee’s assessment was completed under Section 143(3) of the Act and its assessed income was pegged at Rs. 19,02,18,230/-.

9. Evidently, penalty proceedings were initiated against the respondent/assessee under Section 271(1)(c) of the Act in the course of the assessment proceedings.

10. A show-cause notice (SCN) under Section 271(1)(c) dated 19. 12.2011 of the Act was served on the assessee. The service it appears was effected on 03.2014.

10.1 In response to the said notice, a communication dated 12.03.2014 was filed on behalf of the respondent/assesssee. Inter alia, the respondent/assessee asserted that it had not concealed any facts or furnished inaccurate particulars concerning its income, therefore, penalty under Section 271(1)(c) of the Act ought not to be imposed.

11. Respondent/assessee’s reply cut no ice and hence, penalty order was passed which, as indicated above, was taken in appeal to the CIT(A).

12. The CIT(A), as noticed hereinabove, dismissed the appeal. This led the assessee filing an appeal with the Tribunal.

13. What is emerged from the record is that in the earlier AY, the respondent/assessee had opted for accumulation of its corpus donations. The accumulation led to the respondent/assessee having a corpus donation of Rs. 25,16,00,000/-. The details, as provided in the order of the Tribunal, are extracted hereafter:

14. There appears to be no dispute that out of the aforementioned amount e., Rs. 25,16,00,000/-, Rs. 20 crores was utilized by way of donations to other charitable institutions.

15. Consequently, since the provisions of Section 1 1(3)(c) of the Act were attracted, the respondent/assessee filed a revised return to bring to the fore this aspect.

16. It is also not in dispute that the respondent/assessee did pay tax amounting to Rs. 7,75,69,270/-, as per the computation of its total income set forth in the revised return.

17. The Tribunal, having regard to the aforesaid facts, reversed the order of the CIT(A) on two grounds:

(i) First, there was no concealment of income. The Tribunal was of the view that the respondent/assessee had disclosed the utilisation of the corpus donation accumulated in earlier AYs in its revised return, before it was flagged by the Assessing Officer (AO).

(ii) Second, the penalty notice issued to the respondent/assessee did not specify which limb of Section 271(1)(c) of the Act was triggered against the respondent/assessee i.e., whether the charge levelled concerned concealment of income or furnishing inaccurate particulars.

18. We have heard Mr Abhishek Maratha, learned senior standing counsel, who appears on behalf of appellant/revenue. Mr Maratha has sought to place reliance on the order of the CIT(A) to sustain the appeal.

19. We are of the view that the Tribunal is correct, both with regard to the fact there had been no concealment, as also concerning the view taken by it that the penalty proceedings did not indicate the limb under which the penalty was sought to be levied on the respondent/assessee.

20. In the instant matter, the Tribunal had taken into account the earlier judgments of this Court, as well as the judgments of the Karnataka High Court.

21. In Pr Commissioner of Income Tax-3 v Ms Minu Bakshi 2022:DHC:2814-DB, a coordinate bench of this court, [of which one of us i.e., Rajiv Shakdher, J. was a member], the issue concerning the penalty notice not indicating the precise limb of Section 271(1)(c) under which the assessee was proceeded came up for consideration. The relevant observations made therein are extracted hereafter:

“7. In our opinion, the conclusion reached by the Tribunal in the instant case that the notice for imposition of penalty under Section 271(1) (c) of the Act, did not specify which limb of the said provision the penalty was sought to be levied, is covered by the following decisions, which includes a decision rendered by a coordinate bench of this Court.

(i) CIT and v M/s SSA’s Emerald Meadows, passed in ITA No. 380/2015, dated 23.11.2015.

(ii) Commissioner of Income Tax v Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.)

(iii) PCIT vs M/s Sahara India Life Insurance Company , passed in ITA No.475/2019, dated 02.08.2019.

7.1. To be noted, the Special Leave Petition filed against the judgement in SSA’s Emerald (mentioned above) was dismissed via order dated 05.08.2016.

7.2. We are in agreement with the view taken by the Karnataka High Court in the above-mentioned judgements (in SSA’s Emerald and Manjunatha Cotton) and, in any event, are bound by the view taken by the coordinate bench of this court in the Sahara India case”.

22. Thus, for the foregoing reasons, we are not inclined to interfere with the impugned order as, according to us, no substantial question of law arises for our consideration.

23. The appeal is accordingly closed.

24. Consequently, the pending applications shall also stand closed.