Certain additions were made in the quantum assessment proceedings and for the purpose of initiating penalty proceedings the AO had recorded his satisfaction as ‘concealment of income/furnishing of inaccurate particulars of income’. Penalty was levied only for ‘furnishing inaccurate particulars of income’. CIT(A) upheld the said penalty and also directed the Assessee to enhance the penalty on certain income which was not taken into account by the AO for the purpose of levying penalty.

Regarding, the original penalty levied by the AO, the Hon’ble Tribunal relying on the decision of Jurisdictional High Court  in the case of Mohd. Farhan A. Shaikh v. Dy.CIT (2021) 125 taxmann.com 253 (Bom)(HC)  and certain other decisions; held that since the specific limb for which penalty proceedings were initiated was not clearly specified in the notice issued under section or the irrelevant limb was not striked off; the levy of the said penalty was bad in law.

Regarding the directions of the CIT(A) to enhance the penalty; the Hon’ble Tribunal held that powers conferred upon CIT(A) under section 251(1)(b) inter-alia covers power to enhance the penalty; such enhancement was valid even when there was no enhancement of income made by the CIT(A).

However, it was held that since the original penalty proceedings were quashed for non-striking of irrelevant limbs of section 271(1)(c); the notice issued under section 274 stood vitiated. Consequent to this, there was no valid initiation of penalty proceedings; accordingly, even direction for enhancement of penalty by CIT(A) would not survive. (AY.2006-07)