Facts of the Case

The assessee, Ashalata Kulshrestha, filed her return of income for Assessment Year 2016-17 on 19.07.2016 declaring total income of ₹18,54,950, which was processed under Section 143(1). The case was selected for limited scrutiny to verify correctness of deduction claimed from capital gains.

The assessee had sold an immovable property for ₹2,31,00,000 and claimed exemption under Section 54, resulting in nil long-term capital gain. The assessment was completed under Section 143(3) on 14.12.2018 determining total income at ₹2,45,39,650 by treating the capital gain as short-term. The assessee’s appeal on quantum was partly allowed by the Tribunal vide order dated 28.06.2023.

Meanwhile, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) and issued a show cause notice dated 29.04.2019. Thereafter, penalty of ₹78,97,358 was levied. The CIT(A) partly confirmed the penalty. Aggrieved, the assessee filed an appeal before the Tribunal with a delay of 12 days, which was condoned.

Issues Involved

Whether penalty under Section 271(1)(c) was valid when the show cause notice and penalty order did not specify the exact limb under which penalty was initiated, whether mere change in head of income from long-term to short-term capital gain constitutes concealment or furnishing of inaccurate particulars, and whether penalty could survive when the quantum addition itself was partly deleted by the Tribunal.

Petitioner’s Arguments

The assessee contended that the penalty proceedings were vitiated as the show cause notice did not specify whether penalty was initiated for concealment of income or for furnishing inaccurate particulars. It was further argued that the penalty order itself was vague and inconsistent. The assessee also submitted that the capital gain was duly disclosed in the return and only the head of income was disputed, which cannot attract penalty. Reliance was placed on the fact that the Tribunal had partly allowed the quantum appeal.

Respondent’s Arguments

The Revenue relied on the orders of the Assessing Officer and the CIT(A) and argued that the assessee had claimed incorrect exemption leading to furnishing of inaccurate particulars.

Court Order / Findings

The ITAT Ahmedabad observed that the show cause notice issued under Section 271(1)(c) did not specify the exact charge against the assessee. The Tribunal noted that even in the penalty order, the Assessing Officer failed to clearly state whether the penalty was for concealment of income or furnishing inaccurate particulars. Such ambiguity was held to be fatal to penalty proceedings.

The Tribunal further observed that the dispute pertained to classification of capital gains as long-term or short-term and that the assessee had disclosed all relevant facts in the return of income. Mere change in head of income, especially when the quantum addition was partly deleted by the Tribunal, could not justify levy of penalty.

Accordingly, the Tribunal held that the penalty under Section 271(1)(c) was unsustainable in law.

Important Clarification

The Tribunal clarified that penalty proceedings require strict compliance with statutory requirements. Failure to specify the exact limb of Section 271(1)(c) in the notice and penalty order vitiates the proceedings. It was also clarified that mere reclassification of income does not amount to concealment or furnishing inaccurate particulars.

Final Outcome

The appeal filed by the assessee was allowed. The penalty of ₹78,97,358 levied under Section 271(1)(c) was deleted in full.

 

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