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2011 (8) TMI 748 - AT - Income TaxPenalty u/s 271 - reopening of an assessment - whether the assessee can raise question of validity of assessment in appeal against levy of penalty - held that - the decision of Hon ble Rajasthan High Court in the case of Deep Chand Kothari (1987 -TMI - 25179 - RAJASTHAN High Court) is also in favour of the assessee and therefore we are of the view that the validity of assessment proceedings can be looked into during the penalty proceedings even though the assessment itself has not been challenged by the assessee. Income escaping assessment - Survey u/s 133 - loose paper Impounded - Opening Balance of creditors could not be examined - Credits may have been shown opening balances instead of fresh deposits - AO Invoked 148 - held That - Reasons recorded by the AO speak of non-application of mind - 147 of the Act cannot be initiated either on the basis of mere suspicion or making fishing or roving enquiries. Initiation of proceedings were Bad in Law. As assessment is invalid very basis of imposition of penalty cease to exist. Penalty under 271(1)(c) - Held That - In view of Manu Engineering Works (1978 - TMI - 37011 - GUJARAT High Court), Either Concealment or In accurate particulars. No such clear-cut finding was reached by the AO and, on that ground alone the order of penalty passed by the AO is liable to be struck down.
Issues Involved:
1. Legality of penalty under Section 271(1)(c) of the IT Act, 1961. 2. Validity of the reassessment proceedings under Section 147 of the IT Act, 1961. 3. Application of legal precedents and principles regarding concealment of income and furnishing of inaccurate particulars. Detailed Analysis: 1. Legality of Penalty under Section 271(1)(c) of the IT Act, 1961: The Revenue appealed against the CIT(A)'s order which deleted the penalty of Rs. 3,98,209 imposed by the AO for the concealed income of Rs. 10,75,062. The AO had initiated penalty proceedings under Section 271(1)(c) after the assessee filed a revised return post-survey, surrendering the amount to avoid litigation. The AO contended that the revised return was not voluntary and was filed only after a notice under Section 148 was issued. The CIT(A) held that the AO did not make sufficient enquiries to prove concealment or furnishing of inaccurate particulars by the assessee. On appeal, the Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to provide a clear-cut finding on whether the penalty was for concealment or furnishing inaccurate particulars, as required by law. 2. Validity of the Reassessment Proceedings under Section 147 of the IT Act, 1961: The assessee challenged the validity of the reassessment proceedings initiated under Section 147, arguing that the reasons recorded were based on mere suspicion and not on concrete evidence. The Tribunal examined the reasons recorded by the AO and found them to be vague, lacking specific details about the unexplained credit balances. The Tribunal noted that the AO did not demonstrate how the opening balances were not explainable or whether they matched the closing balances of the previous year. Consequently, the Tribunal concluded that the reassessment proceedings were initiated on suspicion and for making roving enquiries, which is not permissible under the law. Therefore, the reassessment proceedings were deemed illegal and invalid. 3. Application of Legal Precedents and Principles: The Tribunal considered various legal precedents to determine the applicability of penalty under Section 271(1)(c). The Tribunal referred to the decisions in CIT v. Suresh Chandra Mittal and Sir Shadi Lal Sugar & General Mills Ltd. v. CIT, which established that voluntary surrender of income to buy peace of mind does not automatically lead to penalty unless the Revenue proves deliberate concealment. The Tribunal also relied on the decision in Manu Engineering Works, which mandates a clear finding by the AO on whether the penalty is for concealment or furnishing inaccurate particulars. The Tribunal found that the AO's order did not meet this requirement, as it used the term "and/or," indicating ambiguity. Consequently, the Tribunal held that the penalty order was invalid on this ground alone. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the penalty of Rs. 3,98,209. The Tribunal concluded that the reassessment proceedings were invalid due to lack of concrete reasons and that the penalty under Section 271(1)(c) was not sustainable as the AO failed to provide a clear-cut finding on the nature of the offence. The decision reinforced the principle that reassessment and penalty proceedings must be based on concrete evidence and clear findings, not on suspicion or ambiguous language.
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