No penalty if it was not mentioned in notice that assessee had concealed income or furnished inaccurate details

Facts of the Case:

• Assessee, a partnership firm did not commence any business since its inception till the end of 31-3-1999. The only activity carried on by the assessee during the year was commencement of a construction of a shopping centre towards which advances to the tune of Rs. 75,50,000/- were received by the assessee from various persons.
• The assessee for the AY 1999-2000 declared his income as ‘NIL’.
• Assessing Officer (AO) determined the income of the assessee at Rs. 75,50,000/-under section 143(3) read with Section 147 of the Act. The appeal made to CIT(Appeals) and ITAT and SLP made to Supreme Court were quashed.
• AO passed orders u/s orders under section 271(1)(c) of the Income Tax Act, 1961 (the Act) for initiation of penalty proceedings.
• Assessee being aggrieved, by the aforesaid penalty order filed an appeal before CIT (Appeals), which was dismissed and thereafter upheld by the Tribunal.

Contention of the Assessee:

• Notice u/s 274 read with Section 271(1)(c) was issued for the AY 2002-03 and not for impugned AY 1999-2000 and therefore, the notice was per se bad in law and the order of penalty passed on the basis of the aforesaid notice is without jurisdiction.
• There is no mention in the notice that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income and therefore, the notice is bad in law.
• Penalty proceedings and assessment proceedings are distinct and since, the assessee had not commenced the business, the assessee could not have earned any income, which had not been accounted for.
• Amounts taken as advance were refunded and consequently, the question of treating the same as concealed income for the purposes of levy of penalty is illegal.

Contention of the Revenue Authorities:

• Revenue supported the order passed by AO and agreed with the penalty proceedings initiated.

Decision by the Hon’ble Karnataka High Court:

• It was held that the assessee since its inception till the end of 31-3-1999 did not commence any business.
• The notice under section 274 read with Section 271(1)(c) was issued for AY 2002-03 and not for the AY in question that is 1999-2000.
• It is noteworthy that there was no mention in the notice that the assessee has concealed the income or furnished inaccurate particulars of income.
• The authorities have failed to appreciate that the penalty proceedings and the assessment proceeding are distinct and since, the assessee had not commenced the business, therefore, it could not have earned income, which had not been accounted for.
• In favour of the assessee.

Conclusion:

Notice issued by the revenue authorities much pertain to the correct year and must include that assessee concealed income or furnished inaccurate particulars of income.

Source:  Kaveri Associates v. Assistant Commissioner of Income-Tax, Circle 5(1), Bengaluru [2020] 119 taxmann.com 310 (Karnataka)