Penalty Cannot be Levied on a Ground Different from Initiation: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi, has recently ruled that the grounds raised for levying the penalty must be the same as for initiating the penalty. The Tribunal deleted the penalty due to the difference in the grounds for initiating the penalty and imposition of the penalty.

The assessee, Corteva Agriscience Seeds Pvt. Ld has been engaged in the cultivation and sale of hybrid seeds in India since 1988. For many years, its income from the seed production was accepted by the tax department as exempt agricultural income under section 10(1) of the Income Tax Act. For AY 2016-17, the AO rejected the claim of rejection and treated it the same as the Business Income. Several other disallowances were also made, including CSR expenses, provisions for doubtful debts, delayed statutory payments under section 43B, and payments to contractors without TDS. Based on these additions, the AO initiated penalty proceedings under section 271(1)(c), imposing a penalty of Rs 99,77,25,95.

Before the ITAT, the assessee company argued that the penalty was based on an ambiguous notice, which made the penalty invalid. The penalty notice accused the company of furnishing inaccurate particulars, but the final penalty order was imposed on the ground of concealment of income.

The ITAT agreed with the assessee’s contention and cited Supreme Court and Karnataka High Court rulings that held that the concealment of income and furnishing inaccurate particulars are two different connotations, and once the penalty proceedings are initiated on one ground, the penalty must also be imposed on the same ground.

Based on this, the penalty was quashed by the Tribunal.