Facts of the Case

The assessee, Pramod Kumar Gupta, filed his return of income for Assessment Year 2010-11 declaring total income of ₹16,60,780. The assessment was completed under Section 143(3) on 28.03.2013 by estimating net profit at 8 percent and making an addition of ₹20,41,650, thereby assessing total income at ₹37,02,430. The estimation was based on rejection of books under Section 145(3) and reliance on appellate orders for earlier assessment years where the same net profit rate was upheld. In the assessment order, it was merely stated that penalty proceedings under Section 271(1)(c) were being initiated separately. Subsequently, the Assessing Officer passed a penalty order dated 31.03.2017 levying penalty of ₹6,50,000 under Section 271(1)(c). The CIT(A) dismissed the assessee’s appeal and confirmed the penalty. Aggrieved, the assessee filed a second appeal before the Tribunal.

Issues Involved

Whether penalty under Section 271(1)(c) is sustainable when income is assessed on estimated basis, whether the penalty notice and penalty order are invalid for failure to specify the exact charge of concealment of income or furnishing inaccurate particulars, and whether absence of recorded satisfaction vitiates the penalty proceedings.

Petitioner’s Arguments

The assessee contended that the addition was made purely on estimated net profit basis after rejection of books and therefore no penalty could be levied. It was argued that neither the assessment order nor the penalty notice specified whether the penalty was initiated for concealment of income or for furnishing inaccurate particulars of income. The notices issued under Section 271(1)(c) were vague and did not strike off the irrelevant limb. Reliance was placed on the judgment of the jurisdictional Madhya Pradesh High Court in PCIT vs Kulwant Singh Bhatia and other binding precedents holding that vague penalty notices are invalid in law. It was further submitted that in earlier assessment years where income was estimated at the same rate, no penalty had been imposed.

Respondent’s Arguments

The Revenue supported the orders of the Assessing Officer and the CIT(A) and contended that the assessee failed to comply with assessment proceedings, leading to rejection of books and estimation of income, which justified initiation and levy of penalty under Section 271(1)(c).

Court Order / Findings

The ITAT Indore observed that in both the assessment order and the penalty order there was no categorical finding or satisfaction as to whether the assessee had concealed income or furnished inaccurate particulars. The Tribunal noted that the penalty notices issued under Section 271(1)(c) were vague and did not specify the exact charge, thereby violating the mandatory requirement of law. The Tribunal relied on the binding judgment of the Madhya Pradesh High Court in PCIT vs Kulwant Singh Bhatia, which held that failure to specify the charge in penalty notices renders the entire penalty proceedings invalid. The Tribunal further held that when income is determined purely on estimated basis by applying a net profit rate, penalty under Section 271(1)(c) is not leviable. Accordingly, the penalty imposed by the Assessing Officer and confirmed by the CIT(A) was held to be unsustainable in law.

Important Clarification

The Tribunal clarified that penalty proceedings are quasi-criminal in nature and require strict compliance with statutory requirements. The Assessing Officer must clearly specify whether the penalty is proposed for concealment of income or furnishing inaccurate particulars. Vague notices and penalties based on estimated income cannot be sustained.

Final Outcome

The appeal filed by the assessee was allowed, the impugned order of the CIT(A) was set aside, and the penalty of ₹6,50,000 levied under Section 271(1)(c) of the Income-tax Act was deleted in full.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769158970_PRAMODKUMARGUPTABHOPALVS.DCITCIRCLE51BHOPALBHOPAL.pdf

 

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