Penalty notice u/s 274 r.w.s. 271(1)(c) invalid if it fails to specify whether for concealment of income or furnishing inaccurate particulars by not striking off irrelevant limb, vitiating proceedings ab initio.

आदेश/ORDER

PER BENCH :-

The above captioned appeals have been filed by the assessee against the orders of even date passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the penalty orders passed u/s. 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2005-06 and 2006-07. Since the issues are common and interlinked, these appeals are being taken up together for adjudication vide this composite order for the sake of brevity. ITANo.6019/Mum/2025 for AY 2005-06 is taken up as the ‘Lead case’. Decision herein would apply mutatis mutandis to other appeals.

2. The grounds of appeal are as under:-

ITA No.6019/MUM/2025(AY 2005-06)

1. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the penalty without appreciating that notice issued u/s 274 r.w.s. 271(1)(c) did not mention the charge under which the said notice was issued as whether it was towards “Concealment of income” or “furnishing of inaccurate particulars and notice itself was bad in law as held by Honourable Supreme Court in case of SSA’s Emerald Meadows, 242 taxman 180.

2. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) ought to have appreciated that order passed u/s 271(1)(c) was time barred by period of limitation as mentioned under section 275(1)(a) and therefore is bad in law.

3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) erred in confirming the penalty without appreciating that the addition as made purely on estimation basis and therefore penalty could not have been imposed.

3. Brief facts of the case are that it was observed by the AO that several incriminating documents were found during a search at the residence and office premises of the assessee from which it was noted that certain sales and purchases were not recorded in its regular books for the relevant year. The appellant was asked to explain why unrecorded transactions amounting to Rs.64,69,439/- should not be treated as income. The assessee failed to provide a satisfactory explanation or valid documentary evidence to support the claims. Consequently, the amount of Rs.64,69,439/- was treated as its income and added to his total income. Additionally, Rs.42,330/- and Rs.27,330/- were added as unexplained purchases and unexplained expenditure due to the absence of any explanation regarding its source. Penalty proceedings u/s 271(1)(c) of the Act were initiated for concealment of income. The ld. CIT(A) in the subsequent quantum appeal, partly upheld the addition of Rs.64,69,439/- on account of the difference in unrecorded sales and purchases to the extent of Rs.45,39,029/-, by applying an average gross profit rate of 35% on the unrecorded sales which was also affirmed by the ITAT. Consequently, the AO imposed penalty u/s 271(1)(c) of the Act on the amount confirmed.

4. In the subsequent appeal against the penalty order before the ld.CIT(A), the assessee took one of the grounds claiming that the Assessing Officer erred in not mentioning whether the notice has been issued towards "Concealment of income" or "for furnishing of inaccurate particulars", thus, the same suffers from the provisions of section 271(1)(c) of the Act as held by