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Tax Publishers Ventura Textiles Ltd. v. CIT [Income Tax Appeal No. 958 of 2017, dt. 12-6-2020] : 2020 TaxPub(DT) 2582 (Bom-HC) Concealment Penalty under section 271(1)(c) -- assessment order mentioning reason for penalty but notice under section 271(1)(c) not clearly mentioning it -- quashing of penalty levy thereof on grounds of incorrect notice issuance. *Facts* Assessee was slapped with a penalty under section 271(1)(c) for claiming an expenditure which was disallowed by lower tax authorities. Penalty notice did not mention whether it was a case of concealment or furnishing inaccurate particulars of income. The assessment order of same date as penalty notice did state that penalty notice was being issued and levied separately for furnishing inaccurate particulars of income alleging assessee had claimed a disallowable expenditure. This penalty stood upheld at lower levels and thus reached the Mumbai HC. Held by the HC in favour of the assessee by quashing the penalty - applying CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) : 2010 TaxPub(DT) 1683 (SC) which had held that mere claim of a disallowable expenditure does not warrant penalty under section 271(1)(c). The topic is no longer res integra, i.e., not mentioning for which purpose penalty notice is being issued under section 271(1)(c) deserves outright quashing of the penalty notice as held in CIT v. SSA's Emerald Meadows, (2016) 73 Taxmann.com 248 (SC) : 2016 TaxPub(DT) 4242 (SC), CIT v. SSA's Emerald Meadows, (2016) 73 Taxmann.com 241 (Karnataka-HC) : 2018 TaxPub(DT) 0953 (Karn-HC) and CIT v. Manjunath Cotton and Ginning Factory, (2014) 359 ITR 565 (Karn-HC) : 2014 TaxPub(DT) 0202 (Karn-HC). But fine print worth noting in this decision is -- Because the assessment order also dated as same of the penalty notice did mention levy of penalty for furnishing inaccurate particulars of income is being done separately; though the same not being further clearly put on the section 271(1)(c) notice it was only seen as a technical breach curable as Assessee did know as to what for penalty was being levied as per the clear assessment order. The HC did go over elaborately decisions on this topic before commenting this finer aspect and it was the case of Reliance Petroproducts SC decision which came to their saving grace that too not on the aspect of irregularity of the section 271(1)(c). "26. Reverting back to the facts of the present case, if the assessment order and the show cause notice, both issued on the same date i.e., on 28-2-2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the assessing officer sought to impose penalty. It was quite clear that for breach of the second limb of section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated. The purpose of a notice is to make the noticee aware of the ground(s) of notice. In the present case, it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under section 271(1)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income. Therefore, this contention urged by the appellant/assessee does not appeal to us and on this ground we are not inclined to interfere with the imposition of penalty". *Editorial Note:* How this decision will be used by the department in coming days to their favour in this domain will be worth watching. A res integra issue dealt differently makes it a flash worthy decision.

Tax Publishers

Ventura Textiles Ltd. v. CIT [Income Tax Appeal No. 958 of 2017, dt. 12-6-2020] : 2020 TaxPub(DT) 2582 (Bom-HC)

Concealment Penalty under section 271(1)(c) -- assessment order mentioning reason for penalty but notice under section 271(1)(c) not clearly mentioning it -- quashing of penalty levy thereof on grounds of incorrect notice issuance.

Facts

Assessee was slapped with a penalty under section 271(1)(c) for claiming an expenditure which was disallowed by lower tax authorities. Penalty notice did not mention whether it was a case of concealment or furnishing inaccurate particulars of income. The assessment order of same date as penalty notice did state that penalty notice was being issued and levied separately for furnishing inaccurate particulars of income alleging assessee had claimed a disallowable expenditure. This penalty stood upheld at lower levels and thus reached the Mumbai HC.

Held by the HC in favour of the assessee by quashing the penalty - applying CIT v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) : 2010 TaxPub(DT) 1683 (SC) which had held that mere claim of a disallowable expenditure does not warrant penalty under section 271(1)(c).

The topic is no longer res integra, i.e., not mentioning for which purpose penalty notice is being issued under section 271(1)(c) deserves outright quashing of the penalty notice as held in CIT v. SSA's Emerald Meadows, (2016) 73 Taxmann.com 248 (SC) : 2016 TaxPub(DT) 4242 (SC), CIT v. SSA's Emerald Meadows, (2016) 73 Taxmann.com 241 (Karnataka-HC) : 2018 TaxPub(DT) 0953 (Karn-HC) and CIT v. Manjunath Cotton and Ginning Factory, (2014) 359 ITR 565 (Karn-HC) : 2014 TaxPub(DT) 0202 (Karn-HC).

But fine print worth noting in this decision is --

Because the assessment order also dated as same of the penalty notice did mention levy of penalty for furnishing inaccurate particulars of income is being done separately; though the same not being further clearly put on the section 271(1)(c) notice it was only seen as a technical breach curable as Assessee did know as to what for penalty was being levied as per the clear assessment order. The HC did go over elaborately decisions on this topic before commenting this finer aspect and it was the case of Reliance Petroproducts SC decision which came to their saving grace that too not on the aspect of irregularity of the section 271(1)(c).

"26. Reverting back to the facts of the present case, if the assessment order and the show cause notice, both issued on the same date i.e., on 28-2-2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the assessing officer sought to impose penalty. It was quite clear that for breach of the second limb of section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated. The purpose of a notice is to make the noticee aware of the ground(s) of notice. In the present case, it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under section 271(1)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income. Therefore, this contention urged by the appellant/assessee does not appeal to us and on this ground we are not inclined to interfere with the imposition of penalty".

Editorial Note: How this decision will be used by the department in coming days to their favour in this domain will be worth watching. A res integra issue dealt differently makes it a flash worthy decision.