2015 (1) TMI 1324 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - AO has not brought out any specific charge for which the penalty has been imposed on the assessee u/s 271(1) (c) of the Act. He has not brought out whether the assessee has concealed the particulars of income or whether the assessee has furnished inaccurate particulars of income. None of the decision of Hon ble Supreme Court as relied by the AO, it has been held that the penalty u/s 271 (1) (c) is mandatory or automatic wherever the addition or disallowances are made by the AO. The assessing officer merely observed that the penalty is mandatory as he was fully aware of that no charge as specified u/s 271 (1) (c) was leviable against the assessee. On this basis also, the penalty was wrongly levied just for the purpose of levying the penalty. We, accordingly set aside the order of CIT(A) and delete the penalty imposed u/s 271(1)(c). - Decided in favour of assessee

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) for unexplained unsecured loans.
2. Penalty under Section 271(1)(c) for disallowed repairs and maintenance expenses.
3. Validity of penalty proceedings initiated without specific charges.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for Unexplained Unsecured Loans:
The Assessee contended that the penalty for the addition of Rs. 790,719 as unexplained unsecured loans was upheld by the CIT(A) without appreciating that the appellant accepted the addition in the spirit of settlement rather than concealment. The Tribunal noted that penalty under Section 271(1)(c) is applicable if the AO is satisfied that there was concealment of income or furnishing of inaccurate particulars. The Tribunal found that the AO did not provide a clear indication or direction in the assessment order regarding the satisfaction of concealment or furnishing of inaccurate particulars. The Tribunal referred to the Supreme Court decision in MAK Data P. Ltd. vs. CIT, emphasizing that voluntary disclosure does not absolve the assessee from penalty. However, the Tribunal found that the AO's initiation of penalty proceedings was not in compliance with the requirements of Section 271(1)(c), as there was no specific direction or charge mentioned. Consequently, the penalty imposed for unexplained unsecured loans was deleted.

2. Penalty under Section 271(1)(c) for Disallowed Repairs and Maintenance Expenses:
The Assessee also faced a penalty for disallowed repairs and maintenance expenses amounting to Rs. 342,902. The Tribunal observed that the penalty proceedings were initiated without specifying whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal reiterated that the penalty proceedings and assessment proceedings are distinct, and the AO must clearly state the charge for which the penalty is being levied. The Tribunal found that the AO failed to establish whether the disallowed expenses were due to concealment or inaccurate particulars. Given the lack of specific charges and proper direction in the assessment order, the penalty for disallowed repairs and maintenance expenses was also deleted.

3. Validity of Penalty Proceedings Initiated Without Specific Charges:
The Tribunal emphasized the importance of specifying the charge for which the penalty under Section 271(1)(c) is being levied. It highlighted that the penalty can be levied for either concealment of income or furnishing inaccurate particulars, and the AO must clearly state which charge is applicable. The Tribunal noted that in both cases, the penalty proceedings were initiated without mentioning any specific default, and the penalty orders did not state the specific charge. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Reliance Petroproducts, which held that mere rejection of a legal claim does not amount to furnishing inaccurate particulars of income. The Tribunal concluded that the penalty proceedings were invalid due to the lack of specific charges and proper direction in the assessment orders. As a result, the penalties imposed in both cases were deleted.

Conclusion:
The Tribunal allowed the appeals filed by the Assessees and deleted the penalties imposed under Section 271(1)(c) for unexplained unsecured loans and disallowed repairs and maintenance expenses. The appeal filed by the Revenue was dismissed. The Tribunal emphasized the necessity for the AO to clearly specify the charge for which the penalty is being levied and found that the penalty proceedings in these cases were not in compliance with the legal requirements.