RNT ASSOCIATES PRIVATE LIMITED,MUMBAI V. DCIT CIRCLE 3(3)(1), MUMBAI

ITA 5221/MUM/2025

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RNT Associates Pvt. Ltd., a company engaged in management consultancy, appealed against the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 2011-12. The penalty was based on an addition of notional interest income estimated at 15.50% by the Assessing Officer. The company contested the penalty on grounds of vagueness and lack of specific charges in the penalty notice. The Tribunal, referencing the decision in ACIT v. Md. Farhan A. Shaikh, found the penalty notice to be mechanically issued without clear specification of the charge, leading to the allowance of the company's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786292 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 25-08-2025
• Other Referred Cases: ACIT v. Md. Farhan A. Shaikh
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANNAVARAN KOSURI
• Assessee Lawyers: VISHAL SHAH
• Keywords: Set aside; Transfer pricing; International transaction; Principle of natural justice; Notional interest; Audi alteram partem; Procedural lapse
• Section: 143(3); 271(1)(c); 92C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 5221/MUM/2025 Assessment Year: 2011-12 RNT Associates Pvt. Ltd., 3rd floor, Elphinstone Building 10, Veer Nariman Road, Horniman Circle, Fort, Mumbai-400 001. Vs. DCIT Circle 3(3)(1), Aayakar Bhavan, Mumbai-400020. PAN NO. AAECR 2864 C Appellant Respondent Assessee by : Mr. Vishal Shah Revenue by : Mr. Annavaran Kosuri, Sr. DR Date of Hearing : 29/10/2025 Date of pronouncement : 30/10/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 07.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, in relation to penalty levied by the Assessing Office u/s 271(1)(c) of the Income-tax 1961 (in short ‘the Act’) vide order dated 25.03.2023. Printed from counselvise.com 2. The grounds raised by the assessee are reproduced as under: 1) The learned CIT(A) erred in confirming the penalty levied by the Ld. AO u/s 271(1)(c) of Rs. 3,56,891/ in law. 2) The learned CIT(A) erred in confirming the penalty levied by the Ld. AO on the ground that inaccurate details were furnished, without appreciating the fact that the same was not specified by the Ld. AO neither in its order u/s 143(3) nor in issuing the penalty notice dated 25.03.2014. 3) The learned CIT(A) erred in Ld. AO of not specifying the limb under which the penalty u/s 271(1)(c) is to be issued, i.e. furnishing inaccurate details or concealment of income. 4) The learned CIT(A) erred in confirming the action of the Ld. AO in imposin details were furnished, without appreciating the fact that there were no inaccurate details furnished by the assessee which attract penalty proceedings u/s 271(1)(c). 5) The learned CIT(A) erred in confirming the act Ld. AO in imposing penalty of Rs. 3,56,891/ Rs. 11,54,988 without appreciating the fact that addition was on account of notional interest which by no stretch of imagination can be said as inaccurate furnishing of details by the appellant. 6) The learned CIT(A) erred in confirming action of the Ld. AO in imposing penalty even though the addition by the Ld. AO was on ad hoc basis. 7) The learned CIT(A) erred in confirming the action of Ld. AO by ignoring the judicial decision relied appellant and confirming the penalty based on two judgements which are not relevant to the facts of this 3. Briefly stated, facts of the case are that is a company engaged in the business of management consultancy. grounds raised by the assessee are reproduced as under: 1) The learned CIT(A) erred in confirming the penalty levied by the Ld. AO u/s 271(1)(c) of Rs. 3,56,891/- which is bad 2) The learned CIT(A) erred in confirming the penalty levied AO on the ground that inaccurate details were furnished, without appreciating the fact that the same was not specified by the Ld. AO neither in its order u/s 143(3) nor in issuing the penalty notice dated 25.03.2014. 3) The learned CIT(A) erred in confirming the action of the Ld. AO of not specifying the limb under which the penalty u/s 271(1)(c) is to be issued, i.e. furnishing inaccurate details or concealment of income. 4) The learned CIT(A) erred in confirming the action of the Ld. AO in imposing penalty on the ground that inaccurate details were furnished, without appreciating the fact that there were no inaccurate details furnished by the assessee which attract penalty proceedings u/s 271(1)(c). 5) The learned CIT(A) erred in confirming the act Ld. AO in imposing penalty of Rs. 3,56,891/- on addition of Rs. 11,54,988 without appreciating the fact that addition was on account of notional interest which by no stretch of imagination can be said as inaccurate furnishing of details ppellant. 6) The learned CIT(A) erred in confirming action of the Ld. AO in imposing penalty even though the addition by the Ld. AO was on ad hoc basis. 7) The learned CIT(A) erred in confirming the action of Ld. AO by ignoring the judicial decision relied upon by the appellant and confirming the penalty based on two judgements which are not relevant to the this case. Briefly stated, facts of the case are that the assessee before us is a company engaged in the business of management consultancy. RNT Associates Pvt. Ltd. 2 ITA No. 5221/MUM/2025 grounds raised by the assessee are reproduced as under: 1) The learned CIT(A) erred in confirming the penalty levied which is bad 2) The learned CIT(A) erred in confirming the penalty levied AO on the ground that inaccurate details were furnished, without appreciating the fact that the same was not specified by the Ld. AO neither in its order u/s 143(3) nor in issuing the penalty notice dated 25.03.2014. confirming the action of the Ld. AO of not specifying the limb under which the penalty u/s 271(1)(c) is to be issued, i.e. furnishing inaccurate 4) The learned CIT(A) erred in confirming the action of the g penalty on the ground that inaccurate details were furnished, without appreciating the fact that there were no inaccurate details furnished by the assessee 5) The learned CIT(A) erred in confirming the action of the on addition of Rs. 11,54,988 without appreciating the fact that addition was on account of notional interest which by no stretch of imagination can be said as inaccurate furnishing of details 6) The learned CIT(A) erred in confirming action of the Ld. AO in imposing penalty even though the addition by the Ld. 7) The learned CIT(A) erred in confirming the action of Ld. upon by the appellant and confirming the penalty based on two judgements which are not relevant to the the assessee before us is a company engaged in the business of management consultancy. Printed from counselvise.com The assessment for the year under consideration was completed under Section 143(3) of the Income order dated 25th March, 2014, wherein the Learned Assessing Officer made an addition by estimating notional interest income at 15.50%, amounting to penalty proceedings under Section 271(1)(c) of the Act. Pursuant thereto, and after due process, penalty was levied at being one hundred percent of the tax sought to be evaded, vi order dated 7th January, 2022. 4. On appeal, the Learned Commissioner of Income sustained the penalty, rejecting the contentions advanced on behalf of the assessee. Hence, the assessee has approached this Tribunal in further appeal. 5. We have heard the learned representatives of both sides and have perused the material on record. The primary grievance raised in Ground No. 1 pertains to the validity of the penalty notice, it being contended that the Assessing Officer did not specify the precise charge—viz. concealment of income thereof. It is urged that this fundamental defect, having been raised before the Learned CIT(A) but not adjudicated, vitiates the penal ab initio. The assessment for the year under consideration was completed under Section 143(3) of the Income-tax Act, 1961 (“the Act”) vide order dated 25th March, 2014, wherein the Learned Assessing Officer made an addition by estimating notional interest income at 15.50%, amounting to ₹53.28 lakhs, and simultaneously initiated penalty proceedings under Section 271(1)(c) of the Act. Pursuant thereto, and after due process, penalty was levied at being one hundred percent of the tax sought to be evaded, vi order dated 7th January, 2022. On appeal, the Learned Commissioner of Income sustained the penalty, rejecting the contentions advanced on behalf of the assessee. Hence, the assessee has approached this Tribunal We have heard the learned representatives of both sides and have perused the material on record. The primary grievance raised pertains to the validity of the penalty notice, it being contended that the Assessing Officer did not specify the viz. whether the penalty was initiated for concealment of income or for furnishing inaccurate particulars . It is urged that this fundamental defect, having been raised before the Learned CIT(A) but not adjudicated, vitiates the penal RNT Associates Pvt. Ltd. 3 ITA No. 5221/MUM/2025 The assessment for the year under consideration was completed tax Act, 1961 (“the Act”) vide order dated 25th March, 2014, wherein the Learned Assessing Officer made an addition by estimating notional interest income at 53.28 lakhs, and simultaneously initiated penalty proceedings under Section 271(1)(c) of the Act. Pursuant thereto, and after due process, penalty was levied at ₹3,56,891/–, being one hundred percent of the tax sought to be evaded, vide On appeal, the Learned Commissioner of Income-tax (Appeals) sustained the penalty, rejecting the contentions advanced on behalf of the assessee. Hence, the assessee has approached this Tribunal We have heard the learned representatives of both sides and have perused the material on record. The primary grievance raised pertains to the validity of the penalty notice, it being contended that the Assessing Officer did not specify the whether the penalty was initiated for furnishing inaccurate particulars . It is urged that this fundamental defect, having been raised before the Learned CIT(A) but not adjudicated, vitiates the penalty Printed from counselvise.com 5.1 The learned counsel for the assessee placed before us a Paper Book comprising pages 1 to 56, containing, inter alia, copies of the assessment order dated 25th March, 2014 and the penalty notices issued under Section 274 read with Section scrutiny thereof, it is manifest that in none of these communications—the assessment order, the notice under Section 274 dated 25th March, 2014, or the subsequent show dated 6th August, 2021 specify the distinct charge. The notices are in standard printed form, and the inapplicable portion has not been struck off. 5.2 This aspect is no longer Court in ACIT v. Md. Farhan A. Shaikh authoritatively held that where a notice under Section 274 is issued in a mechanical manner, without striking out the inapplicable portion and without indicating clearly whether the charge is for “concealment of income” or for “furnishing of ina particulars,” such a notice betrays non violates the principles of of natural justice. The Hon’ble Court further observed that the two limbs under Section 271(1)(c) are distinct and m and that a vague or omnibus notice is incurably defective. Hon’ble Bombay High Court issued on a pre-printed form without striking out the inapplicable charge is invalid. The Hon’ble Court The learned counsel for the assessee placed before us a Paper Book comprising pages 1 to 56, containing, inter alia, copies of the assessment order dated 25th March, 2014 and the penalty notices issued under Section 274 read with Section 271 of the Act. On scrutiny thereof, it is manifest that in none of these the assessment order, the notice under Section 274 dated 25th March, 2014, or the subsequent show dated 6th August, 2021—the Assessing Officer applied his specify the distinct charge. The notices are in standard printed form, and the inapplicable portion has not been struck off. This aspect is no longer res integra. The Hon’ble Bombay High ACIT v. Md. Farhan A. Shaikh [(2021) 434 ITR 1 authoritatively held that where a notice under Section 274 is issued in a mechanical manner, without striking out the inapplicable portion and without indicating clearly whether the charge is for “concealment of income” or for “furnishing of ina particulars,” such a notice betrays non-application of mind and violates the principles of audi alteram partem—the very cornerstone of natural justice. The Hon’ble Court further observed that the two limbs under Section 271(1)(c) are distinct and mutually exclusive, and that a vague or omnibus notice is incurably defective. Hon’ble Bombay High Court (supra) held that a penalty notice printed form without striking out the inapplicable The Hon’ble Court found that such an ambiguous RNT Associates Pvt. Ltd. 4 ITA No. 5221/MUM/2025 The learned counsel for the assessee placed before us a Paper Book comprising pages 1 to 56, containing, inter alia, copies of the assessment order dated 25th March, 2014 and the penalty notices 271 of the Act. On scrutiny thereof, it is manifest that in none of these the assessment order, the notice under Section 274 dated 25th March, 2014, or the subsequent show-cause notice the Assessing Officer applied his mind to specify the distinct charge. The notices are in standard printed form, and the inapplicable portion has not been struck off. . The Hon’ble Bombay High [(2021) 434 ITR 1 (Bom)] has authoritatively held that where a notice under Section 274 is issued in a mechanical manner, without striking out the inapplicable portion and without indicating clearly whether the charge is for “concealment of income” or for “furnishing of inaccurate application of mind and the very cornerstone of natural justice. The Hon’ble Court further observed that the two utually exclusive, and that a vague or omnibus notice is incurably defective. The a penalty notice printed form without striking out the inapplicable such an ambiguous Printed from counselvise.com notice indicates a non (AO) and violates the principles of natural justice, as the assessee must be clearly informed of the specific charge emphasized that the two and an omnibus notice is defective ground are accordingly liable to be dismissed. 5.3 In the present case, available on PB- 40, initiated “for furnishing inaccurate particulars of income /concealment of income” the mind of the Assessing Officer. assessment order is reproduced as unde “5.16 In view of the above discussions, total income of the assessee having regard LO the Arm's Length Price is determined at Rs.53,28,069/ transaction of advancing loan to its AE as per provisions of section 92C of the IT Act (1) (c) of the IT Act is also initiated for furnishing inaccurate particulars of income(concealment of income.” 5.4 The same ambiguity pervades the notice under Section 274, a copy of which (Paper Book page 24) has been exa ready reference said notice is reproduced as under: notice indicates a non-application of mind by the Assessing Officer (AO) and violates the principles of natural justice, as the assessee must be clearly informed of the specific charge. The Hon’ble Court the two charges under Section 271(1)(c) are distinct and an omnibus notice is defective and penalty order based on such ground are accordingly liable to be dismissed. In the present case, the assessment order dated 25.03.2014 40, itself records that penalty proceedings were initiated “for furnishing inaccurate particulars of income /concealment of income”—an expression reflecting uncertainty in the mind of the Assessing Officer. The relevant part of the assessment order is reproduced as under: “5.16 In view of the above discussions, total income of the assessee having regard LO the Arm's Length Price is determined at Rs.53,28,069/- regarding international transaction of advancing loan to its AE as per provisions of section 92C of the IT Act 1961. Penalty proceeding u/s 271 (1) (c) of the IT Act is also initiated for furnishing inaccurate particulars of income(concealment of income.” The same ambiguity pervades the notice under Section 274, a copy of which (Paper Book page 24) has been examined by us ready reference said notice is reproduced as under: RNT Associates Pvt. Ltd. 5 ITA No. 5221/MUM/2025 application of mind by the Assessing Officer (AO) and violates the principles of natural justice, as the assessee The Hon’ble Court charges under Section 271(1)(c) are distinct penalty order based on such the assessment order dated 25.03.2014 ords that penalty proceedings were initiated “for furnishing inaccurate particulars of income an expression reflecting uncertainty in The relevant part of the “5.16 In view of the above discussions, total income of the assessee having regard LO the Arm's Length Price is regarding international transaction of advancing loan to its AE as per provisions of 1961. Penalty proceeding u/s 271 (1) (c) of the IT Act is also initiated for furnishing inaccurate The same ambiguity pervades the notice under Section 274, a mined by us. For Printed from counselvise.com 5.5 Further, in show cause notice dated 06.08.2021 also the Assessing Officer has not referred to specific charge for levy of the penalty. Further, in show cause notice dated 06.08.2021 also the Assessing Officer has not referred to specific charge for levy of the RNT Associates Pvt. Ltd. 6 ITA No. 5221/MUM/2025 Further, in show cause notice dated 06.08.2021 also the Assessing Officer has not referred to specific charge for levy of the Printed from counselvise.com 5.6 The omission to strike out the inapplicab technicality; it goes to the root of jurisdiction. remedium—where there is a wrong, the law must afford a remedy and the assessee cannot be made to suffer for the procedural lapses of the Revenue. 5.7 In background of the above facts decision of the Hon’ble Bombay High Court in the case of Md. Farhan A. Shaik (supra) Assessing Office and uphe CIT(A) on the issue in dispute is accordingly set aside. The ground No. 2 and 3 of the appeal of the assessee are allowed. The other grounds are only rendered academic. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open Cou Sd/ (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 30/10/2025 Rahul Sharma, Sr. P.S. The omission to strike out the inapplicable limb is not a mere technicality; it goes to the root of jurisdiction. where there is a wrong, the law must afford a remedy and the assessee cannot be made to suffer for the procedural lapses In background of the above facts of the case , decision of the Hon’ble Bombay High Court in the case of Md. Farhan A. Shaik (supra), we cancel the penalty levied Assessing Office and upheld by the Ld. CIT(A). The order of the Ld. A) on the issue in dispute is accordingly set aside. The ground No. 2 and 3 of the appeal of the assessee are allowed. The other grounds are only rendered academic. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 30/10/2025. Sd/- Sd/ (RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER RNT Associates Pvt. Ltd. 7 ITA No. 5221/MUM/2025 le limb is not a mere technicality; it goes to the root of jurisdiction. Ubi jus ibi where there is a wrong, the law must afford a remedy— and the assessee cannot be made to suffer for the procedural lapses of the case , relying on the decision of the Hon’ble Bombay High Court in the case of Md. cancel the penalty levied by the ld by the Ld. CIT(A). The order of the Ld. A) on the issue in dispute is accordingly set aside. The ground No. 2 and 3 of the appeal of the assessee are allowed. The other In the result, the appeal of the assessee is allowed. /10/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER Printed from counselvise.com Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai RNT Associates Pvt. Ltd. 8 ITA No. 5221/MUM/2025 BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "