2015 (7) TMI 4 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - addition on account of undisclosed business income - Held that - AO while framing the assessment u/s 143(3) r.w.s 147 of the Act nowhere recorded the satisfaction that the assessee either concealed the income or furnished inaccurate particulars of income. He simply stated that the penalty notice u/s 271(1)(c) of the Act was being issued separately, therefore, in view of the ratio laid down by the Hon ble Jurisdictional High Court in the aforesaid referred to cases the penalty u/s 271(1)(c) of the Act was not leviable. In the present case, the AO had not arrived at a requisite satisfaction during the assessment proceedings, he simply initiated the penalty proceedings without observing as to whether it was a case of concealment of income or furnishing of inaccurate particulars of income, moreover, when the original assessment was framed u/s 143(3) of the Act, copy of bank account issued by Canara Bank was available to the AO which he later on had considered as fabricated. However, during the course of original assessment proceedings the same was accepted and no fault was found in the said account, even when assessment was framed u/s 143(3) of the Act. However, letter on the case was reopened u/s 147 of the Act by issuing the notice u/s 148 of the Act and the AO inquired about the source of ₹ 50 lac which was entered in the books of accounts by the assessee, the source of the said amount was explained as advance money amounting to ₹ 40 lac received on account of sale of two houses at Charthawal and Muzaffarnagar. The another amount of ₹ 10 lac was claimed to have been received from the father during the family arrangements in the earlier years, but the assessee was unable to produce the parties from whom the advances were received. He, therefore, surrendered the amount of ₹ 50 lac voluntarily and paid the tax on the said surrendered amount subject to no penal action. In the instant case the assessee himself agreed for surrender, so it was a good case to make the addition, however the said surrender itself cannot be considered as a concealment of particulars of income because all the relevant information were already available with the AO who framed the original assessment u/s 143(3) of the Act, it can also not be said to be a case of concealment of income because the AO in the body of assessment order has not stated that it was a concealed income of the assessee or the income for which inaccurate particulars were furnished by the assessee. Accordingly, the penalty confirmed by the ld. CIT(A) which was levied by the AO u/s 271(1)(c) of the Act is deleted. - Decided in favour of assessee.

Summary

Issues involved:
1. Confirmation of penalty imposed under section 271(1)(c) of the Income Tax Act.
2. Incorrect observation regarding satisfaction for initiation of penalty.
3. Applicability of sub-clause (1B) of Explanation 7 to section 271(1)(c).
4. Legality of proceedings initiated and conducted under section 147/148.
5. Bona fide nature of the surrender of Rs. 50 lacs.
6. Acceptance of surrender by the Assessing Officer.
7. Allegation of income concealment.
8. Explanation of the source of Rs. 50 lacs.
9. Adequacy of the explanation provided by the assessee.
10. Difference of opinion between the assessee and the Assessing Officer.
11. Validity of the penalty imposed by the Assessing Officer.
12. Assessee's right to amend grounds during the hearing.

Detailed Analysis:

1. Confirmation of Penalty Imposed under Section 271(1)(c):
The primary issue revolves around the confirmation of the penalty levied under section 271(1)(c) of the Income Tax Act. The Assessing Officer (AO) imposed a penalty of Rs. 16,88,730/- on the assessee for alleged concealment of income by furnishing fabricated bank statements. The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Incorrect Observation Regarding Satisfaction for Initiation of Penalty:
The assessee contended that the CIT(A) incorrectly observed that the AO had recorded satisfaction for initiating penalty in the body of the assessment order. The AO merely mentioned that a penalty notice under section 271(1)(c) was being issued separately, which does not constitute clear satisfaction.

3. Applicability of Sub-clause (1B) of Explanation 7 to Section 271(1)(c):
The CIT(A) held that the issue was covered by sub-clause (1B) of Explanation 7 to section 271(1)(c). However, the assessee argued that the AO did not record satisfaction in clear terms, making section 271(1)(1B) inapplicable.

4. Legality of Proceedings Initiated and Conducted under Section 147/148:
The assessee challenged the legality of the proceedings initiated under sections 147/148, arguing that they were not in accordance with the law. The reassessment proceedings were based on alleged discrepancies in the bank statements, which the assessee claimed were already before the AO during the original assessment.

5. Bona Fide Nature of the Surrender of Rs. 50 Lacs:
The assessee argued that the surrender of Rs. 50 lacs was bona fide, made to avoid litigation and purchase peace of mind. The surrender was conditional upon no penal action being taken, which the AO did not accept.

6. Acceptance of Surrender by the Assessing Officer:
The assessee contended that the AO accepted the surrender by accepting the advance tax payment. However, the AO argued that the surrender was not voluntary and was made under compelling circumstances.

7. Allegation of Income Concealment:
The CIT(A) observed that the assessee had concealed income by furnishing fabricated bank statements. The surrender was not voluntary but made after detection by the department, leading to the conclusion that the assessee had concealed income.

8. Explanation of the Source of Rs. 50 Lacs:
The assessee explained the source of Rs. 50 lacs as savings of his family and advances received against properties. However, the AO rejected this explanation, leading to the imposition of the penalty.

9. Adequacy of the Explanation Provided by the Assessee:
The CIT(A) found the explanation provided by the assessee unsatisfactory and vague. The assessee failed to substantiate the source of Rs. 50 lacs, leading to the conclusion that the amount represented unexplained money.

10. Difference of Opinion Between the Assessee and the Assessing Officer:
The assessee argued that the surrender was due to a difference of opinion with the AO and was made to avoid litigation. The AO, however, viewed the surrender as an admission of concealed income.

11. Validity of the Penalty Imposed by the Assessing Officer:
The assessee argued that the penalty was unwarranted and should be deleted. The CIT(A) upheld the penalty, stating that the surrender was not voluntary and was made after detection by the department.

12. Assessee's Right to Amend Grounds During the Hearing:
The assessee sought leave to add, amend, alter, abandon, or substitute any of the grounds during the hearing of the appeal.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not leviable as the AO did not record clear satisfaction of concealment or furnishing inaccurate particulars of income. The reassessment proceedings were based on information already available during the original assessment, and the surrender was made to avoid litigation. The penalty imposed by the AO and confirmed by the CIT(A) was deleted. The appeal of the assessee was allowed.