Penalty Quashed as Notice Specifying Concealment Contradicted Assessment Order Satisfaction for Furnishing Inaccurate Particulars

ORDER

Nikhil Choudhary, Accountant Member. – This an appeal filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-2, Lucknow [hereinafter referred to as the “learned CIT(A)”] dated 20.11.2019, wherein the learned CIT(A) has dismissed the appeal of the assessee under section 271(1)(c) of the Income Tax Act, 1961 (the Act), for the Assessment Year (AY) 2015-16 on 22.06.2018. The grounds of appeal are as under:

“1. The Ld. CIT(Appeals)-2 erred on facts and in law in imposing a penalty of Rs. 14,50,000/- u/s 271(1)(c) of the Income Tax Act, 1961.

2. The Ld. A.O. vide his notice no. ITO 4(3)/Lko/271(1)(C)/2017-18 dt. 14.12.2017 had strike off the line “furnished inaccurate particulars of such income” and believed that there is a deliberate concealment of income. But the Ld. CIT(Appeals)-2 vide his appeal no. CIT(A)-II/LKO/18-19 has not discussed whether imposition of penalty is due to concealment of income or furnishing of inaccurate particulars of income.

3. The Ld. CIT(Appeals)-2 erred on facts and in law that the penalty is against natural justice and fair play particularly when asseesee appellant agreed for the addition to buy peace with the department and paid full amount of taxes within 30 days of the demand notice.

4. The Ld. CIT(Appeals)-2 on the given facts and circumstances ignored the intention of the law to minimize the litigation.”

2. The facts of the case are that the return of income filed by the assessee for the AY in question was taken up for scrutiny. Additions were made to the tune of Rs. 46,51,341/- on account of Long Term Capital Gains (LTCG) claimed by the assessee as exempt income under section 10(38) of the Act, but not found genuine by the learned AO and also addition of Rs. 25,091/- on account of “Income from House Property”, not correctly shown in her return of income. While passing the order, penalty proceedings under section 271(1)(c) of the Act were also initiated. The learned AO observed that by claiming exemption on LTCG on account of suspicious sale transaction in penny stocks, the assessee had filed inaccurate particulars of income. The notice under section 274 r.w.s. 271(1)(c) of the Act that was issued, however, asked the assessee to show cause as to why a penalty could not be imposed for having concealed the particulars of income. In its reply to the said show-cause notice, the assessee submitted that the assessee had been purchasing/selling shares in the market whenever the market condition was favourable. The shares had been held as investment and the sole purpose was to derive income by way of dividend or market rate appreciation. The assessee came to note about the listed company (Alps Motors Finance Limited) having come up with preferential litigation through a person in the office of the broker, who was discussing about the good prospects and heavy returns on this share. On the basis of their conversation, the assessee has chosen this scrip. The referential share was purchased through account payee cheque dated 27.03.2013. Consequently these shares were dematerialized and sold out through Demat Account of the assessee. It was also submitted to the assessee had earlier made in disclosure under IDS-2016 pertaining to different AYs and an amount of Rs. 6,00,000/- had been disclosed by her for the AY under consideration. She further submitted that she was not interested in litigation and therefore she agreed to the amount being added back to her income with the understanding that no penalty proceedings would be initiated and income declared under the IDS-2016, for the AY 2014-15 and AY 2015-16, may be adjusted. However the learned AO did not agree with the assessee. Even though he adjusted the disclosure amount of Rs. 6,00,000/- against the LTCGs that had been claimed before making addition under section 68 of the Act and only made an addition of Rs. 46,51,341/-, he held that the assessee had furnished inaccurate particulars of income and the penalty proceedings were initiated on that account. Before the learned AO, during the penalty proceedings, the assessee submitted that she had agreed with the addition amounting to Rs. 46,51,341/- in order to buy peace with the Department and avoid litigation. She had paid all the taxes due within time on the additions made by the learned AO; there was no concealment of income on the part of the assessee; nor were any inaccurate particulars furnished by her. The entire surrender was done in good faith and to buy peace. She drew reference to the judgment of the Hon’ble Supreme Court in Commissioner of Income-tax v. Suresh Chandra Mittal [2001] 170 CTR 182/251 ITR 9/119   (SC), wherein the Hon’ble Supreme Court had, while upholding the judgment of the Madhya Pradesh High Court, observed portions of the judgment of Madhya Pradesh High Court, as reported in Commissioner of Income-tax v. Suresh Chandra Mittal [2000] 158 CTR 26/241 ITR 124  (Madhya Pradesh), where the Madhya Pradesh High Court had held that once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns to buy peace with the Department, could be treated as bona fide in the facts and circumstances of the case and in such circumstances, the Tribunal was justified in cancelling the penalty levied by the learned AO. However, the learned AO was not satisfied with this explanation furnished by the assessee. He pointed out that the case of the assessee was distinguishable on facts as in this case as no revised return had been filed and the surrender had only been made because the assessee could not offer an explanation to the queries raised by the learned AO. He further held that the declaration under IDS-2016 was not enough to cover the extent of additions and therefore, invoking explanation-(4) to section 271(1)(c) of the Act, he proceeded to levy a penalty of Rs. 14,50,000/- under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income.

3. Aggrieved with the said levy of penalty, the assessee filed an appeal before the learned CIT(A). Before the learned CIT(A), it was agitated that the learned AO had failed to establish whether it was a case of concealment of income or furnishing of inaccurate particulars of income. Furthermore, the learned AO had ignored the intention of the law in minimize the litigation and omitted to consider that penalty was against the principle of natural justice and fair play, when the assessee had agreed with the addition only buy peace with the Department and paid the full amount of taxes within 30 days of the notice. The assessee placed reliance on the following cases:

4. The learned CIT(A) after considering the arguments of the assessee referred to the decision of the ITAT, Chandigarh Bench in the case of Pranjal Jain v. Income-tax Officer [ITA No. 1019 (Chd) of 2018, dated 1-8-2018] and Navita Jain v. ITO [ITA No. 1020 (Chd) of 2018, 1-8-2018] and quoted from the relevant judgment to show that in a case where the learned AO was in possession of a report from the Investigation Wing relating to bogus share transactions in penny stock company of Kolkata and the assessee surrendered the amount of capital gains and additional income and paid the due taxes, the ITAT had held, by relying upon the decision of the Hon’ble Supreme Court in MAK Data (P.) Ltd. v. Commissioner of Income-tax – II 263 CTR 1/358 ITR 593 (SC) that the voluntary disclosure did not release the assessee from the mischief of penalty proceedings and in this case the surrender was not voluntary but made when learned AO confronted the assessee with the bogus share transactions that had been claimed as exempt under section 10(38) of the Act. Accordingly, holding that the judgment of the assessee was based on identical facts, the learned CIT(A) dismissed the appeal of the assessee.

5. The assessee is aggrieved with the dismissal of her appeal and has accordingly come before us.

6. Shri P.K. Kapoor, CA [hereinafter referred to as “the learned AR”] pointed out that a legal ground arose for consideration in this matter. In this case, the learned AO had initiated the penalty for concealment of income, but consequently levied the penalty for inaccurate particulars of income. He drew our reference to the decision of the Hon’ble Karnataka High Court in the case of Commissioner of Income-tax v. Manjunatha Cotton & Ginning Factory 263 CTR 153/359 ITR 565  (Karnataka), the decision of the Hon’ble Karnataka High Court in the case of Commissioner of Income-tax, Bangalore v. SSA’S Emerald Meadows  (Karnataka) and the judgment of Hon’ble Supreme Court in the case of Commissioner of Income-tax v. SSA’S Emerald Meadows [2016] 73   (SC), to submit that the Courts held that where the notice did not specify the limb under which section 271(1)(c) of the Act penalty proceedings had been initiated, the said notice was bad-in-law. The learned AR submitted that in this case, the assessee was even on stronger footings because in this case, the notice issued by the Department mentioned an incorrect charge against the assessee and consequently proceeded to levying the penalty on another charge. The Ld. AR submitted that the Hon’ble Karnataka High Court in the case of Kshema Geo Holdings (P.) Ltd. v. Income-tax Officer [2023] 151  [2024] 460 ITR 203 (Karnataka) had held, that where the very ground for initiation of penalty in the notice had been struck off in the year, the penalty order was not sustainable in law. The Ld. AR drew our attention to paragraph 12 of the said order and pointed out that in that case, there was a contradiction between the grounds for initiation of penalty in the assessment order and the grounds for initiation of penalty as recorded in the show cause notice. Accordingly the Hon’ble High Court had held, after considering the judgment of the Hon’ble Supreme Court in the case of Dilip N. Shroff v. Joint Commissioner of Income-tax, Special Range, Mumbai [2007] 210 CTR 228/291 ITR 519/161  (SC) and Manjunatha Cotton & Ginning Factory (supra), that the penalty order issued by the ld. AO on the basis of such a defective notice was not sustainable in law. He further drew our attention to the decision of the Guuhati High Court in the case of Padma Ram Bharali v. Commissioner of Income-tax [1977] 110 ITR 54 (Gauhati) where the Hon’ble High Court held that where the basis of initiation of penalty proceedings was different from the ground on which penalty was imposed, The tribunal was not justified in upholding the penalty. He also drew our attention to the decision of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax v. Samson Perinchery  392 ITR 4 (Bombay)/ITA No. 1154 of 2024 wherein the High Court had referred to the decision of the Hon’ble Supreme Court in T. Ashok Pai. v. Commissioner of Income-tax , Bangalore [2007] 210 CTR 259/292 ITR 11  (SC), which held that concealment of income and furnishing of inaccurate particulars of income in section 271(1)(c) of the act carried different meanings/ connotations. Therefore, the satisfaction of the Ld. AO with regard to only one of the two breaches mentioned under section 271(1)(c) of the act, for initiation of penalty proceedings, will not warrant/permit penalty being imposed for the other breaches as the assessee could only respond on the ground on which penalty had been initiated/notice issued. Therefore it held that an order imposing penalty has to be made only on the ground of which the penalty proceedings have been initiated and cannot be on a fresh ground for which the assessee was not served with notice. The Ld. AR further invited our attention to the decision of the Hon’ble Supreme Court in Commissioner of Income-tax, Ahmedabad v. Reliance Petroproducts (P.) Ltd. [2010] 230 CTR 320/322 ITR 158 (SC) and submitted that the Hon’ble Supreme Court had pointed out that making a wrong claim in law, was in itself not enough to attract the provisions of section 271(1)(c) of the act. He submitted in the present case, no details in the return of the assessee were found to be incorrect nor could be viewed as concealment of income on her part. Simply because the assessee had claimed an exemption, which she had consequently surrendered, would not give the Ld. AO the right to levy a penalty upon the same. He also referred to the decision of the Hon’ble Allahabad High Court in the case of Pr. CIT v. Hariom Steels (P.) Ltd. (2017) AHC:-88295 – DB, which had passed a similar judgment in the matter. He also relied upon the judgment of the ITAT, Chandigarh Bench in ISGEC Heavy Engineering Ltd. v. Income-tax Officer 103 ITR(T) 152 (Chandigarh – Trib.) to argue that the Id AO could not levy penalty only on the basis of confirmation of additions in quantum proceeding by the Tribunal, where there was no independent and specified finding recorded by the Id AO as to why he was of the belief regarding the charge of furnishing inaccurate particulars of income. Finally, the Id AR drew our attention to the decision of the ITAT, Amritsar Bench in the case of Income-tax Officer v. Manjit Singh Baldev Singh Commission Agents [1999] 69 ITD 197/65 TTJ 400 (Amritsar), wherein the Tribunal had held that where the assessee had surrendered peak credit only to avoid any further litigation and harassment and such surrender was made subject to not initiating penalty proceedings, the Id AO having accepted such surrender could not then levy penalty under section 271(1)(c) of the Act. He also drew our attention to the decision of the Hon’bl P&H High Court in the case of Commissioner of Income-tax-II, Ludhiana v. Rajnish Nath Aggarwal [2008] 219 CTR 590  (Punjab & Haryana), where the High Court had held that the Department had to prove mens rea before levying penalty under section 271(1)(c) of the Act and it could not be made out that the assessee had concealed income or furnished inaccurate particulars merely because he had surrendered certain amounts to avoid litigation and buy peace of mind. Finally he referred to the decision of the ITAT, Lucknow Bench in Smt. Brij Bala Chaudhary (supra), wherein the Tribunal had held that, because concealment of income or furnishing of inaccurate particulars of income was not found to be established from the material on record, the penalty could not be levied upon the mere surrender of the income by the assessee during the assessment proceedings. In the light of the aforesaid judgments cited by the learned AR, it was submitted that the penalty levied on the assessee was not sustainable in law, firstly because it was initiated by way of a defective notice, secondly because the penalty was levied for a breach that was not indicated in the show-cause notice and thirdly because there was no finding of concealment or inaccurate particulars was made by the learned AO in the course of assessment proceedings. The assessee, had merely surrendered the capital gains so claimed as she did not wish to enter into a litigation with the Department and in the absence of any finding that she had concealed any income or furnished inaccurate particulars of income, no penalty could be levied. Accordingly, it was prayed that the penalty may kindly be quashed.

7. Responding to the arguments of the learned AR, Smt. Pratibha Singh, Addl. CIT-DR submitted that the jurisdiction to initiate penalty proceedings stems from the assessment order. In the assessment order, the learned AO had recorded detailed satisfaction for initiating penalty for “furnishing inaccurate particulars of income” regarding the bogus LTCG claimed under section 10(38). This recorded discussion constitutes full, valid and conclusive satisfaction. The final penalty order was subsequently passed on the exact same charge “furnishing inaccurate particulars of income”. It was submitted that the notice under section 274 r.w.s. 271(1)(c) of the Act was not served in isolation. It was served along with the assessment order. The assessment order clearly detailed the facts, quantum additions and specified charge. Reading the notice in conjunction with the assessment order left no room for ambiguity. She submitted that the assessee fully understood the charge and submitted a comprehensive reply on merits & addressed the issue of “inaccurate particulars”. She participated in the proceedings without raising any objection before the learned AO. Thus, no prejudice or violation of natural justice was suffered. The learned DR further pointed out that in her reply to the penalty notice, the assessee subsequently addressed both limbs of the penalty when she submitted, “there was no concealment of any income on the part of the assessee/appellant, nor were any incorrect particulars furnished”. The learned DR drew our attention to the decision of Hon’ble Bombay High Court in the case of Veena Estate (P.) Ltd. v. Commissioner of Income-tax 461 ITR 483 (Bombay), wherein the Hon’ble Bombay High Court had held that an alleged defect in the notice issued to the assessee under section 271(1)(c) r.w.s. 274 of the Act, in regard to which the assessee had never raised an objection from the very inception, could not be permitted to be raised in appeal before the Hon’ble High Court, in the absence of any prejudice being caused. She also invited our attention to the decision of the Hon’ble Madras High Court in the case of Sundaram Finance Ltd. v. Assistant Commissioner of Income-tax, Co. Circle VI(4), Chennai  403 ITR 407 (Madras), where the Hon’ble High Court had rejected an identical challenge regarding the defective notice holding that the issue could never be a question of law in the assessee’s case. The assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by the statutory authority. If the case of the assessee is that they were put to prejudice and principle of natural justice were violated on account of not been able to submit an effective reply, it would be a different matter. Thus, the Court had concluded that even assuming there was a defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice under section 274 r.w.s. 271(1)(c) of the Act. The learned DR submitted that the reference to “concealment” in section 274 notice was more in the nature of clerical / administrative violation resulting from standard pre- printed form or software template defect and under section 292B, such a procedural defect does not invalidate the proceedings when the substance and effect of the case are clear and aligned between the assessment order and the penalty order Arguing on the merits of the case, she submitted that the assessee had claimed tax exemption LTCG of Rs. 46,51,341/- in her original return. That claim was completely bogus and unsustainable. Making an incorrect, false or unsubstantiated claim of exemption in the return of income directly constituted furnishing of inaccurate particulars of income. She referred to Explanation (1) to section 271(1)(c) of the Act and held that when the assessee failed to prove that all the facts relating to the same and material to the computation total income has been disclosed, the amount added shall be deemed to represent concealed / incorrect particulars of income. The learned DR submitted that non-disclosure of true facts in the return of income automatically trigger the statutory presumptions, which the assessee had completely failed to rebut. Referring to the arguments relating to conditional surrender of income, the learned DR pointed out that the surrender of LTCG of Rs. 46,51,341/- was made only after the learned AO initiated scrutiny assessment, issued notices and confronted the assessee with correct evidence of the bogus transaction, the surrender was made under the threat of impending detection as an Act of compulsion and was not a voluntary disclosure. She submitted that the law did not permit any, “conditional surrender”, she referred to the decision of the Hon’ble Calcutta High Court in Commissioner of Income-tax v. Prasanna Dugar [2015] 59  279 CTR 86/371 ITR 19 (Calcutta) that where undisclosed income or an unsustainable claim was surrendered and offered to tax during the assessment proceedings, penalty under section 271(1)(c) of the Act was fully justified because the income/claim or omitted or incorrectly reported in original return of income, she also referred to the decision of Hon’ble Supreme Court in the case of MAK Data (P.) Ltd. (supra) wherein the Hon’ble Supreme Court had held that the learned AO was not bound by the assessee surrender made under pretext, “buy peace of mind” surrender after detection did not observe the assessee from penalty under section 271(1)(c) of the Act. Accordingly, it was submitted that because the case laws relied by the assessee were not on the facts of the case and a valid satisfaction was recorded for initiating penalty proceedings, the technical violation in section 274 notice was fully protected under section 292B of the Act. The non-disclosure of true facts in the original return, triggered the deeming fiction under the Explanation (1) to section 271(1)(c) of the Act and surrender of bogus LTCG post detection to buy peace of mind did not grant immunity from the levy of penalty. She prayed that the order of the learned CIT(A) confirming the levy of penalty of Rs. 14,50,000/- under section 271(1)(c) of the Act be sustained in full and the appeal filed by the assessee be dismissed.

8. We have duly considered the facts and circumstances of the case and the arguments advanced by both the parties. The assessee has essentially raised two main issues namely that the penalty is bad-in-law due to the fact that while the learned AO issued it a notice under section 274 r.w.s. 271(1)(c) of the Act on the issue of, “concealment of income”, he levied the penalty on account of, “furnishing of inaccurate particulars of income” thereby making the penalty unsustainable. The second issue that said to be raised is that since the assessee had only agreed for the addition to buy peace of mind, without any findings being on facts being recorded in the assessment order regarding concealment or furnishing of inaccurate particulars of income, she was not liable to be subjected to penalty. Learned DR has sought to counter these arguments by furnishing a Paper Book containing some case laws, by which she has sought to demonstrate that the penalty levied is valid in law. The facts of the case are quite clear. The learned AO served notice upon the assessee under section 142(1) of the Act in which he asked several questions with regard to the details of shares sold/purchased by the assessee in respect of each company during the year in question. In response to the said notice, the assessee filed the reply in which she initially submitted, the details as available with her but thereafter, vide her subsequent letters placed on pages 45 and 46 of the Paper Book, agreed that the said amount would be added back to her income with the understanding that no penalty under section 271(1)(c) of the Act would be levied. The learned AO recorded the fact that the assessee could not substantiate her claim for exemption under section 10(38) of the Act and he accordingly added back an amount of Rs. 46,51,341/- as undisclosed income and recorded his satisfaction that penalty proceedings were being initiated separately for furnishing of inaccurate particulars of income. Subsequently, however, when the notice under section 274 r.w.s. 271(1)(c) of the Act was issued, the learned AO struck out the portion relating to furnishing of inaccurate particulars of income and issued the notice for concealment of the particulars of income. In response the assessee replied stating that she had furnished all the documents with respect to her acquisition and sale of shares and when the learned AO pointed out that the share in question was penny stock, she had suo-motu offered the same for addition with the understanding that no penalty under section 271(1)(c) of the Act would be levied. Thus there was no concealment or furnishing of inaccurate particulars of income by the assessee. Subsequently, the learned AO issued another notice on 28.05.2018, where it was reiterated that the additions made by him tantamount to detection of concealment of income and asking why the penalty order for concealment of income should not be passed under section 271(1)(c) of the Act. Once again the assessee replied that neither was there any concealment of income, nor were any inaccurate particulars furnished, because she had offered the additional income to tax only to buy peace with the Department and avoid litigation.

9. The aforesaid facts need to be seen in the light of the submissions made by both the parties. The learned DR has submitted that the penalty was initiated for furnishing of inaccurate particulars of income and was levied for furnishing of inaccurate particulars of income, as was evidenced by the noting in the assessment order and the penalty order and the reference to concealment in the notice under section 274 was a mere clerical / administrative defect resulting from a standard pre-printed form and software template defect. Under section 292B such a procedural defect does not invalidate the proceedings when the substance and effect of the case are clear and aligned between the assessment and the penalty order. She has further placed reliance on the decision of the Hon’ble Bombay High Court in the case of Veena Estate (P.) Ltd. (supra) and the decision of Hon’ble Madras High Court in the case of M/s Sundaram Finance Ltd. (supra). On going through both the judgments, we find that the facts in those cases were somewhat different from that of the assessee’s case. In both those cases, the assessee was charged with both concealing the particulars of income and furnishing the inaccurate particulars of income. It understood the charges that were levied against it and furnished a reply with such understanding. Considering the same, the Hon’ble High Courts held that the said notices could not be challenged before it since they had not been challenged earlier. It was further held that the defect in the notices (by not striking out any of the limbs) would not result in nullifying the orders passed by the statutory authorities, unless the assessee could show that they had been put to prejudice and that the principles of natural justice were violated on account of not being able to submit an effective reply. Thus, the Courts had concluded, that since the defects in the notice had caused no prejudice to the assessee and the assessee had clearly understood what was the purport and import of the notice issued under section 274, it would not result in nullifying the subsequent penalty order. Furthermore, where the defect had not been objected to earlier from the very inception, the assessee should not be permitted to raise the same in an appeal before the Hon’ble Court in absence of any prejudice being caused to the assessee. However, in the case of the assessee, the notice under section 274 r.w.s. 271(1)(c) of the Act was specifically issued leveling the charge of concealment of income. It was not a technical mistake as has been pointed out by the learned DR, because this charge was reiterated in the subsequent notice issued by the learned AO on 28.05.2018. Thus, it was quite clear that the learned AO was repeatedly asking the assessee to show- cause why a penalty under section 271(1)(c) of the Act should not be imposed upon her for concealing her income. The fact that he may have recorded the satisfaction for furnishing of inaccurate particulars of income in the assessment order, would not in itself, rescue the subsequent penalty order. This is because, the assessment order only recorded the satisfaction of the learned AO for the initiation of penalty proceedings. It did not, in effect, initiate the penalty proceedings. The penalty proceedings were initiated vide issue of notice under section 274 r.w.s. 271(1)(c) of the Act dated 14.12.2017, for the concealment of income. This was subsequently followed up with another notice seeking reply as to why the assessee should not be penalised for concealment of income. Thus, when the penalty was initiated specifically for the concealment of income, a generic reply filed by the assessee that she had neither concealed her income nor furnished inaccurate particulars of income, would not give a license to the learned AO to levy upon her, a penalty for furnishing of inaccurate particulars of income, since at no point of time during the penalty proceedings had he asked her to show cause why a penalty should not be levied upon her for furnishing of inaccurate particulars of income. The Hon’ble Karnataka High Court in the matter of Kshema Geo Holdings (P.) Ltd. (supra) has observed that where a penalty notice under section 274 r.w.s. 271(1)(c) of the Act was issued on the ground that the assessee had “furnished inaccurate particulars of income” and the satisfaction had been recorded that the assessee had concealed the particulars of income, in said situation, the penalty proceedings only be confined to those grounds that were specifically stated in the notice and could not be levied in respect of the other limb. Th Hon’ble High Court held,

“60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such eases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. “It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.”

10. It is further observed that the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) had held, “it is not open to the authorities, at the time of imposing penalty to impose penalty on the ground other than what assessee was called upon.”

11. There is another aspect of the issue. The Courts have consistently held that the satisfaction of the learned AO for the initiation of any penalty proceeding has to be arrived at during the course of ‘any proceeding under the act’ as has been stated in section 271(1). In the case of penalty under section 271(1)(c) the said proceeding has been held to be the assessment proceeding. The Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) has held that

“60. It is furthermore interesting to note that this Court in D.M. Manasvi (supra) categorically opined that it would be the satisfaction of the Income- tax Officer in the course of the assessment proceedings regarding the concealment of income which would constitute the basis of foundation of the proceedings for levy of penalty.”

12. Thus, since the satisfaction for initiation of the penalty had been recorded by the learned AO in the assessment order dated 14.12.2017 for “furnishing of inaccurate particulars of income”, the penalty proceedings could not have been initiated for, “concealment of the particulars of income” and the issue of a notice under section 274 r.w.s.271(1)(c) of the Act for such purpose, was in itself bad-in-law that would render all subsequent proceedings arising out of the same to be void ab-initio.

13. In the circumstances, after considering the aforesaid judicial precedents and facts of the case, we hold that the penalty of Rs. 14,50,000/- under section 271(1)(c) of the Act that was levied upon the assessee for furnishing of inaccurate particulars of income, after she had been asked to show cause as to why it should not be levied for concealment of income, is not valid in the eyes of law and therefore we quash it as such.

14. Ground No. 1 & 2 of the appeal are accordingly allowed as above. Ground No. 3 & 4 are accordingly held to be infructuous and dismissed as such.