2016 (8) TMI 1130 - AT - Income Tax

Penalty u/s 271(1)( c) - income offered after the search but in the return filed u/s 153A - Held that - there was lot of correspondences between the assessee and the revenue with regard to centralization of cases to Ranchi and Patna and ultimately that dispute got settled vide order of CBDT dated 9.4.2009 wherein it was decided to centralize the cases at Kolkata. Only after the said CBDT order was served on the officials of Kolkata jurisdiction , thereafter ld DGIT (Inv) Kolkata vide his order dated 15.5.2009 assigned the jurisdiction of the case to DCIT, CC-XI, Kolkata. After the issue of jurisdiction over the group was settled, seized materials were transferred by DDIT (Inv) Ranchi to the ld AO at Kolkata in July 2009 who thereafter allowed inspection of the seized documents to the assessee at Kolkata. Notice u/s 153A of the Act was issued by the Kolkata jurisdictional officer on 3.8.2009 and the returns were filed by the assessee on 31.8.2009. We find that on the date of giving sworn statement u/s 132(4) of the Act on the date of search, the amended provisions of Explanation 5A to section 271(1)(c ) of the Act was not in force. It is quite evident from the statement recorded u/s 132(4) of the Act on 24.1.2008 / 25.1.2008 that there is a reference to waiver of penalty proceedings by the group head in his statement. The assessee was prevented from reasonable cause from filing the return u/s 153A of the Act before the amendment was proposed by the Finance (No.2 ) Act, 2009 in Explanation 5A to Section 271(1)( c) of the Act. It cannot be ignored that returns u/s 153A of the Act could be filed only after issuance of notice u/s 153A of the Act thereon which was admittedly issued only on 3.8.2009 and assessee had immediately filed the returns in response thereto on 31.8.2009. It is not in dispute that the assessee had filed regular returns u/s 139(1) of the Act prior to the date of search for all the years under appeal. Hence penalty u/s 271(1)(c ) of the Act by application of Explanation 5A (amended provisions) could not be made applicable to the assessee. - Decided in favour of assessee. We find that the ld AO had merely made a tick mark in the show cause notice for the Asst Year 2003-04 without striking off the specific charge on which the assessee has to meet while replying to the penalty notice. In respect tof Asst Years 2004-05 to 2007-08, we find that the ld AO had not even given any tick or struck off the irrelevant portion and had merely given a blank show cause notice by just mentioning the name of the assessee, Asst Year, date and time of penalty hearing. - Decided in favour of assessee

Issues Involved:
1. Reduction of penalty amount by CIT(A) from 300% to 100%.
2. Confirmation of levy of penalty at 100% by CIT(A).
3. Applicability of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for income disclosed post-search but filed in the return under Section 153A.
4. Validity of the show-cause notice under Section 274 read with Section 271(1)(c).

Detailed Analysis:

Reduction of Penalty Amount by CIT(A):
The revenue's appeal centers on the reduction of the penalty amount from 300% to 100% by the CIT(A). The penalty was initially imposed by the AO at 300% under Section 271(1)(c) of the Act, on the premise that the assessee would not have disclosed the undisclosed income of ?15 crores but for the search operation. The CIT(A) reduced this penalty to 100%, leading to the revenue's appeal.

Confirmation of Levy of Penalty at 100%:
The assessee's appeal challenges the confirmation of the penalty at 100% by the CIT(A). The assessee argued that the disclosure of income was made voluntarily and in good faith during the search operation under Section 132(4) and subsequently in the returns filed under Section 153A. The assessee contended that the penalty should not be levied as the disclosure was made based on the understanding of the law at the time of the search.

Applicability of Penalty Under Section 271(1)(c):
The core issue is whether the penalty under Section 271(1)(c) can be levied for income disclosed after a search operation but included in the return filed under Section 153A. The tribunal noted that the search operation led to the disclosure of ?15 crores as undisclosed income, which was then included in the returns filed under Section 153A. The AO levied the penalty citing Explanation 5A to Section 271(1)(c), which deems such income as concealed.

However, the tribunal observed that the assessee had disclosed the income voluntarily during the search and paid the due taxes. The tribunal referenced the Supreme Court's decision in Hindusthan Steel vs. State of Orissa, which stated that penalty should not be imposed unless there is contumacious conduct. Additionally, the tribunal cited the Calcutta High Court's decision in CIT vs. Amardeep Singh Dhanjal, which supports the assessee's position that voluntary disclosure should not attract penalty.

Validity of the Show-Cause Notice:
The tribunal also examined the validity of the show-cause notice issued under Section 274 read with Section 271(1)(c). The notice was found to be defective as it did not specify whether the penalty was for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory held that such notices must clearly state the grounds for penalty, and failure to do so invalidates the penalty proceedings. The tribunal followed this precedent and concluded that the defective notice invalidated the penalty.

Conclusion:
The tribunal concluded that the penalty under Section 271(1)(c) was not applicable in this case due to the voluntary nature of the disclosure and the defective show-cause notice. Consequently, the appeals of the revenue were dismissed, and the appeals of the assessee were allowed, resulting in the cancellation of the penalty.

Order:
In the result, the appeals of the assessee are allowed, and the appeals of the revenue are dismissed. The order was pronounced in the open court on 26.08.2016.

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