Facts of the Case

The present appeal arose from Assessment Year 2011–12, wherein the assessee, M/s Ansal Properties and Infrastructure Ltd, filed its return declaring income of ₹1,20,19,74,162, later revised to ₹1,19,91,36,679.

During scrutiny assessment, the Assessing Officer (AO) enhanced the assessed income to ₹1,25,87,20,383 by making two additions:

  • Addition towards Annual Letting Value (ALV) of vacant/self-occupied commercial properties (₹5,90,67,704)
  • Disallowance of amortized cost of land related to wind power projects (₹5,16,000)

Subsequently, penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 were initiated, resulting in a penalty of ₹1,71,40,000 imposed by the AO.

Issues Involved

  1. Whether penalty under Section 271(1)(c) can be sustained when the notice does not specify the exact charge (concealment of income or furnishing inaccurate particulars).
  2. Whether penalty is leviable when the underlying issue is debatable and based on a plausible view.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the CIT(A) and ITAT erred in deleting the penalty.
  • It relied upon the findings of the Assessing Officer and argued that the additions justified imposition of penalty under Section 271(1)(c).
  • The Revenue maintained that the penalty order was valid and should be restored.

Respondent’s Arguments (Assessee)

  • The assessee argued that the issue relating to ALV was debatable, especially since earlier years’ additions had been deleted and upheld by the Tribunal.
  • It was emphasized that the legal position changed only after the judgment in CIT vs Ansal Housing Finance & Leasing Co. Ltd. (2013) 354 ITR 180 (Del.).
  • The assessee further contended that the penalty notice was defective, as it did not specify whether the charge was:
    • Concealment of income, or
    • Furnishing inaccurate particulars of income.
  • Therefore, penalty proceedings were invalid in law.

Court Findings / Order

The Delhi High Court upheld the decisions of CIT(A) and ITAT and dismissed the Revenue’s appeal, holding that:

  • The penalty notice was vague and defective, as it failed to specify the exact limb of Section 271(1)(c).
  • Even if both limbs were applicable, the notice must clearly state the charge.
  • The issue involved was debatable at the relevant time, and the assessee had taken a plausible legal view.
  • Hence, no penalty could be levied.

The Court concluded that no substantial question of law arose, and therefore, the appeal was dismissed.

 

Important Clarifications

  • A penalty notice under Section 271(1)(c) must clearly specify the charge; ambiguity renders it invalid.
  • Penalty cannot be imposed where the issue is debatable and based on a bona fide interpretation of law.
  • The Court relied on precedent including:
    • Pr. Commissioner of Income Tax-3 vs Ms. Minu Bakshi (2022)

 Sections Involved

  • Section 271(1)(c), Income Tax Act, 1961 – Penalty for concealment of income or furnishing inaccurate particulars
  • Relevant provisions relating to assessment and appellate proceedings

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS24072023ITA3932023_161748.pdf

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