Penalty Proceedings are to be Confined only to Grounds Mentioned in Penalty Notice: Karnataka HC

Case Details: Kshema Geo Holdings (P.) Ltd. v. ITO - [2023] 151 taxmann.com 293 (Karnataka)

Judiciary and Counsel Details

• • P.S. Dinesh Kumar & C.M. Poonacha, JJ.
  • K.K. Chythanya, Sr. Adv. & Tata Krishna, Adv. for the Appellant.
  • E.I. Sanmathi, Standing Counsel for the Respondent.

Facts of the Case

Assessee, a private limited company, issued equity shares at premium. The Assessing Officer (AO) observed that aggregate consideration received for such shares exceeded the Fair Market Value (FMV) of shares. Thus, he added said differential amount as ‘income from other source’ under section 56(2)(viib).

Consequently, a notice under section 274 read with section 271(1)(c) was also issued to initiate penalty proceedings upon the assessee. On appeal, the Commissioner (Appeals) confirmed the Assessing Officer’s order. On further appeal, the ITAT remanded the matter for fresh consideration in accordance with the law.

Assessee filed the instant appeal against said remand order. Assessee contended that the impugned penalty order passed upon the assessee was unsustainable.

High Court Held

The High Court held that a careful perusal of the same shows that AO was of the view that assessee had concealed true and correct particulars of its income, whereas the ground on which the notice was issued is ‘have furnished inaccurate particulars of income’. Notably, five words ‘have concealed particulars of income’ have been struck off in the notice.

Under section 271(1)(c), the satisfaction of the existence of ground was sine qua non for initiating proceedings, and penalty proceedings should be confined only to those grounds specifically stated in notice. AO had issued notice only with regard to furnishing inaccurate particulars. Whereas the satisfaction recorded is with regard to the concealment of income particulars, and the very ground had been struck off. The notice has been issued on the specific premise that assessee had furnished inaccurate particulars of income.

Since the very ground for initiation of penalty in notice had been struck off in order, the impugned penalty order was not sustainable in law.

List of Cases Reviewed

• • Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218/291 ITR 519 (SC)
  • CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 (Kar.) (para 12) followed.
  • ITA No. 896/Bang/2019, dated 19-2-2020 (para 13) revesed.

List of Cases Referred to

• • Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218/291 ITR 519 (SC) (para 4)
  • CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 (Kar.) (para 4).