Facts of the Case

The respondent assessee, Jamnalal Bajaj Foundation, registered under Section 12A, filed its return declaring nil income. During scrutiny proceedings, it filed a revised return declaring income of ₹18.87 lakh and paid due taxes.

The revision was made because:

  • The assessee had accumulated ₹20 crore under Section 11(2).
  • The amount was later utilized for donations to other charitable trusts, attracting provisions of Section 11(3)(c).

The assessment was completed under Section 143(3), determining income at ₹19.02 crore. Subsequently, penalty proceedings under Section 271(1)(c) were initiated, resulting in a penalty of ₹5.39 crore.

The CIT(A) upheld the penalty, but the ITAT deleted it.

Issues Involved

  1. Whether penalty under Section 271(1)(c) can be imposed when income is voluntarily disclosed in a revised return before detection.
  2. Whether a penalty notice is valid if it does not specify the exact limb (concealment vs inaccurate particulars) under Section 271(1)(c).

Petitioner’s Arguments (Revenue)

  • The assessee had failed to disclose correct income initially, justifying penalty.
  • The revised return was filed after scrutiny selection, indicating detection by the department.
  • CIT(A)’s order sustaining penalty was valid and should be restored.

Respondent’s Arguments (Assessee)

  • There was no concealment or furnishing of inaccurate particulars.
  • The revised return was filed voluntarily before any detection by the AO.
  • Full disclosure of utilization of accumulated funds was made.
  • The penalty notice was defective, as it did not specify the exact charge under Section 271(1)(c).

Court Findings / Order

The Delhi High Court upheld the ITAT’s order and dismissed the Revenue’s appeal, holding that:

1. No Concealment of Income

  • The assessee had voluntarily disclosed income in the revised return before detection.
  • Hence, penalty under Section 271(1)(c) was not justified.

2. Defective Penalty Notice

  • The notice failed to specify:
    • Whether the charge was concealment of income, or
    • Furnishing inaccurate particulars
  • Such ambiguity renders penalty proceedings invalid.

3. No Substantial Question of Law

  • The Court held that no substantial question of law arises, and therefore, the appeal was dismissed.

Important Clarifications

  • Voluntary disclosure in revised return (before detection) protects the assessee from penalty.
  • Penalty notice must clearly specify the charge under Section 271(1)(c).
  • Ambiguous notices violate principles of natural justice and cannot sustain penalty.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60831072023ITA4162023_093251.pdf

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