2019 (10) TMI 511 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - HELD THAT - As decided in SHRI H. LAKSHMINARAYANA 2015 (7) TMI 601 - ITAT BANGALORE show cause notice was defective as it did not spell out specifically the ground on which the penalty was sought to be imposed. The ITAT Bangalore Bench further held that such defect was not curable u/s 292BB. In view of these facts, the penalty in the case of the assessee also deserves to be deleted. Thus considering the judgement as cited by the assessee (supra), we are of the view that notices issued by the Revenue authorities were not legally and lawfully perfect. The levy of penalty on the basis of such notices is unlawful, illegal and unjustified. Taking into consideration all these facts, circumstances of the case and the case laws relied upon (supra), we allow these grounds of the assessee and delete the penalty levied by the AO and upheld by the ld. CIT(A). Thus Ground No. 1 and 2 of the assessee are allowed. Addition u/s 68 - HELD THAT - Since in the present case the AO in the penalty proceedings had not examined the entire issue afresh and even otherwise the identity of the creditor and genuineness of the transaction has not been found fault with, therefore, we are of the view that the explanations and the documents relied upon by the assessee to prove the creditworthiness were only found to be inadequate and not found to be false. Under the set of facts, we are of the view that the Explanation to Section 271(1)(c) of the Act would come to help of the assessee. Hence on conspectus of the matter, we are of the view that the addition of cash credit confirmed by the ITAT in the facts and circumstances of the instant case, would not necessitate levy of penalty u/s 271(1)(c) of the Act, as the same in our view cannot be considered to be concealment of income. Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the AO to delete the penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty proceedings initiated under Section 271(1)(c) of the I.T. Act, 1961.
2. Legality of the penalty confirmed by CIT(A) amounting to ?2,40,000 under Section 271(1)(c) of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the penalty proceedings initiated under Section 271(1)(c) of the I.T. Act, 1961:

The assessee challenged the validity of the penalty proceedings initiated by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The primary contention was that the show cause notices dated 25-03-2015 and 11-08-2015 were issued in a routine manner without striking off the irrelevant portion, thereby failing to specify whether the penalty was for "concealed particulars of income" or "furnished inaccurate particulars of income." The Tribunal observed that the notices were issued without application of mind and did not indicate the specific grounds for the levy of penalty, making the initiation of penalty proceedings invalid. The Tribunal relied on the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Manjunath Cotton and Ginning Factory 359 ITR 565, which held that the notice under Section 274 should specifically state whether the penalty is for concealment of income or furnishing inaccurate particulars of income. The Tribunal concluded that the penalty proceedings were vitiated due to the defective notices and allowed the assessee's grounds, thereby deleting the penalty levied by the AO and upheld by the CIT(A).

2. Legality of the penalty confirmed by CIT(A) amounting to ?2,40,000 under Section 271(1)(c) of the I.T. Act, 1961:

The assessee also challenged the penalty of ?2,40,000 confirmed by the CIT(A) under Section 271(1)(c). The penalty was related to an addition of ?8,00,000 sustained by the ITAT in respect of share application money. The assessee argued that all necessary documents, including confirmations, addresses, and bank statements of the share applicants, were submitted during the assessment proceedings. However, the AO and appellate authorities did not consider the evidence sufficient to establish the creditworthiness of the share applicant, Mr. Amit Kumar Sharma. The Tribunal noted that the AO did not carry out any independent investigation during the penalty proceedings and merely relied on the quantum assessment proceedings. The Tribunal emphasized that penalty is not automatic merely because additions were upheld. It cited various judgments, including the Hon'ble Gujarat High Court in CIT vs. Baroda Tin Works, 221 ITR 661, and ITAT Mumbai Bench in Remex Pharmaceuticals Ltd vs. ACIT, which held that the AO must examine the issue afresh during penalty proceedings. The Tribunal concluded that the identity of the creditor and genuineness of the transaction were not disputed, and the evidence provided by the assessee was not found to be false. Therefore, the penalty under Section 271(1)(c) was not warranted. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty, thereby allowing the assessee's ground.

Conclusion:

The appeal filed by the assessee was allowed, and the penalty levied under Section 271(1)(c) of the I.T. Act, 1961, was deleted. The Tribunal held that the penalty proceedings were invalid due to defective notices and that the penalty was not warranted based on the facts and circumstances of the case.