S. 274 notice must specify if its for concealment or for incorrect particulars

Facts of the Case

The assessee, a company engaged in the business of trading and brokerage in commodity futures market with MCX, filed its return of income for A.Y. 2007-08 on 29.10.2007 declaring income of `,14,32,310/-. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 30.12.2009 wherein the income of the assessee was determined at `59,32,310/-, in view of an addition of `45,00,000/- to the returned income in view of a disclosure made by the assessee vide letter dated 28.04.2008. While completing the assessment, the Assessing Officer (‘AO’) simultaneously initiated penalty proceedings for concealment of particulars of income by issue of notice under section 274 r.w.s. 271(1)(c) of the Act. Subsequently the AO, vide order dated 28.06.2010, proceeded to levy penalty of `16,00,000/- on the assessee under section 271(1)(c) of the Act for concealment of particulars of income on the aforesaid amount of `45,00,000/-

Contentions of the Assessee

In the course of hearing on 16.12.2015, the learned A.R. for the assessee brought to the notice of the Bench that the assessee, vide letter dated 09.12.2015, had filed additional grounds of appeal. The additional ground raised reads as under: –

“The order of penalty passed under section 271(1)(c) of the Act is bad in law as the notice issued under section 274 read with section 271 of the Act is not discernable as to whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and in the circumstances of the appellant’s case and therefore, the impugned order passed deserves to be cancelled.”

The additional ground of appeal (supra) is raised challenging the validity of the notice issued under section 274 r.w.s. 271(1)(c) of the Act dated 30.12.2009, which is without any mention of the default of the assessee for which penalty proceedings are initiated (copy of the notice dated 30.12.209 is placed in assessee’s paper book-2). The learned A.R. for the assessee also placed before us a copy of the decision of the Bangalore Bench of the Tribunal in the case of Roadlinks India Pvt. Ltd. vs. ACIT in ITA No. 1485/Bang/2013 dated 27.02.2015, wherein the Bench in similar circumstances has admitted the additional ground and disposed off the assessee’s appeal on the legal grounds so raised.

Held by Hon’ble ITAT

It may be mentioned that in this regard, no contrary decision of the Hon’ble Apex Court or the Hon’ble Bombay High Court has been brought to our notice or placed before us for consideration.

Therefore, respectfully following the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory reported in (2013) 359 ITR 565 (Kar), we hold that the notice issued under section 274 r.w.s. 271 of the Act dated 30.12.2009 for A.Y. 2007-08 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings are also invalid.

The Following conclusion were drawn by their Lordships  in the case of Manjunatha Cotton & Ginning Factory reported in (2013) 359 ITR 565 (Kar)

1. Notice under section 274 of the Act should specifically state the ground mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income.
2. Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
3. The assessee should know the grounds which he has to meet Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
4. Taking up of penalty proceedings on the limb and finding the assessee guilty of another limb is bad in law.

In this view of the matter, the additional ground raised by the assessee is allowed since the very basis for the levy of penalty under section 271(1)(c) of the Act has been held to be invalid, we are of the view that the other grounds of appeal at S.Nos. 1.1 to 2.1 (supra) raised by the assessee against the merits of the levy of penalty under section 271(1)(c) of the Act require no adjudication at this stage.