Delhi HC upholds ITAT order Invalidating Penalty Imposed u/s 271 citing Absence of Valid Notice [Read Order]

In a recent case, the Delhi High Court upheld the Income Tax Appellate Tribunal ( ITAT ) order invalidating the penalty imposed under Section 271 of the Income Tax Act, 1961, citing the absence of a valid notice. The Court observed that “the notice, which does not specifically indicate the particular limb of Section 271(1)(c) that is sought to be invoked, would be invalid as being vague.”

As these four appeals involve identical issues relatable to the same assessee/respondent, Corteva Agriscience Pvt. Ltd., for the Assessment Years (AYs) 2002-03, 2003-04, 2005-06, and 2010-11, they are being decided by a common order. The issue for consideration is whether the ITAT was justified in allowing the appeal filed by the respondent/assessee challenging the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 (the Act).

The ITAT relied upon the judgment of the Court in PrincipalCommissioner of Income Tax v. Sahara India Life Insurance Co. Ltd. while deciding the appeal filed by the respondent/assessee. The respondent, known as M/s PHI Seeds Private Limited, is engaged in the business of agricultural activities, i.e., multiplication, production, and sale of seed crops, etc.

On 31.10.2002, the assessee filed its return declaring a total income of Rs. 38,53,720/- for AY 2002-03. On 22.03.2005, the return was processed under Section 143(3) of the Act and the Assessing Officer (AO) passed an Assessment Order assessing the income at Rs. 3,27,75,246/-. Penalty proceedings under Section 271(1)(c) of the Act were initiated separately.

The assessee challenged the Assessment Order before the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal and upheld the Assessment Order. Aggrieved, the assessee filed an appeal before the ITAT being ITA No. 1988/DEL/2006. The ITAT, vide order dated 18.12.2017, dismissed the appeal and upheld the Assessment Order.

Thereafter, on 08.12.2018, a Show Cause Notice under Section 271(1)(c) of the Act was issued to the respondent/assessee, calling upon it to explain why a penalty may not be imposed, as it appeared from the Assessment Proceedings that the assessee had concealed particulars of income and furnished inaccurate particulars of such income.

On 31.07.2008, the AO passed the Penalty Order under Section 271(1)(c) of the Act, whereby a penalty of Rs. 2,49,97,905/- was imposed on the assessee for furnishing inaccurate particulars. This Penalty Order became the subject matter before the CIT(A). The CIT(A) dismissed the appeals filed by the respondent/assessee.

The issue before the ITAT was whether the notice issued by the AO, in printed form without specifically mentioning whether the proceedings were initiated for concealment of income or furnishing inaccurate particulars of income, was invalid and bad in law.

Mr. Singh, counsel for the appellant, fairly conceded that following Sahara India Life Insurance Co. Ltd. (supra), the Court had rendered the following judgments holding that a notice issued in this manner under Section 271(1)(c) is invalid: Pr. Commissioner of Income Tax, Delhi v. M/s Blackrock Securities Pvt. Ltd. and Pr. Commissioner of Income Tax, Delhi v. Unitech Reliable Projects Pvt. Ltd.

The Court stated: “If that be so, for parity of reasons, we follow the judgment rendered by this Court in Commissioner of Income Tax (International Taxation)-1, New Delhi v. Genpact Services LLC, wherein the Court held that the ITAT did not express any opinion on the CIT(A)’s view; it rejected the Revenue’s appeal solely on the ground that the notice issued by the AO under Section 274 of the Act, read with Section 271 of the Act, did not specifically state under which limb of Section 271(1)(c) the penalty proceedings were intended to proceed. Section 271(1)(c) of the Act has two limbs: the first being concealment of income; the second, furnishing inaccurate particulars of income.”

The Court had, in a number of decisions, held that a notice which does not specifically indicate the particular limb of Section 271(1)(c) sought to be invoked would be invalid as being vague.

Mr. Rai, counsel for the Revenue, also did not dispute that the issue involved is covered by several decisions of this Court, including Principal Commissioner of Income Tax v. Gregarious Projects Pvt. Ltd., Pr. Commissioner of Income Tax, Delhi v. M/s Blackrock Securities Pvt. Ltd., and Pr. Commissioner of Income Tax, Delhi v. Unitech Reliable Projects Pvt. Ltd.

In view of the above, no substantial question of law arose for consideration in the present appeal.

In the absence of a substantial question of law arising for consideration, the Division Bench comprising Justice V. Kameswar Rao and Justice Anish Dayal disposed of the appeal in favour of the respondent/assessee and against the appellant/Revenue.

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