2018 (6) TMI 1525 - AT - Income Tax

Penalty u/s 271(1)(c)/271AAA - Assessee has not substantiated the manner in which the undisclosed income was derived - Held that - In all these cases the AO has not struck down the relevant word from the sentence in the cyclostyled proforma of penalty show cause notice which means that the Assessing Officer was not sure as to on what ground he has initiated the penalty proceedings and in such a case the alleged notice is not sustainable in law and is liable to be quashed. If the revenue has not asked specific question relating to the manner of deriving undisclosed income, the assessee while fulfilling the first condition of admitting the undisclosed income has already specified the manner of earning the income i.e. from business sources and the statement u/s 132(4) was not for individual business concern, but was for the group concerns/companies/business associates/individuals and at the point of time of giving the statement during the course of search, specific details about each business concern and the source of earning such undisclosed income are not practically possible for the person giving the statement on behalf of the group concerns/individuals. The business income surrendered has been offered and assessed as business income only. We are, therefore, of the view that the learned Commissioner of Income Tax (Appeals) erred in confirming the findings of the AO levying penalty u/s 271AAA. We accordingly set aside the findings of the learned Commissioner of Income Tax (Appeals) and delete the penalty in the case of M/s Keti Sangam Infrastructure (I) Limited, in the case of Keti-T Construction (India) Limited and in the case of Keti Sangam Infrastructure (I) Limited levied u/s 271AAA of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of notices issued under Section 274 read with Section 271(1)(c) of the Income Tax Act.
2. Merits of penalties levied under Section 271(1)(c) of the Income Tax Act.
3. Penalties levied under Section 271AAA of the Income Tax Act.

Detailed Analysis:

1. Legality of Notices Issued Under Section 274 Read with Section 271(1)(c):

The assessees challenged the legality of the notices issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, arguing that the notices did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The Tribunal noted that the penalty notices were issued in a cyclostyled format without striking off either of the two charges, indicating that the Assessing Officer was unsure of the specific charge. The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's decision in T Ashok Pai v. CIT (2007) 292 ITR 11 (SC) and the Hon'ble Karnataka High Court's decision in CIT v. Manjunath Cotton & Ginning Factory (2013) 359 ITR 565 (Karn.), which held that penalty notices must specify the charge. The Tribunal concluded that the notices were invalid and quashed the penalties levied under Section 271(1)(c).

2. Merits of Penalties Levied Under Section 271(1)(c):

Given the Tribunal's decision to quash the penalty proceedings due to the invalidity of the notices, the other grounds raised in these appeals became infructuous. Therefore, the Tribunal did not delve into the merits of the penalties levied under Section 271(1)(c).

3. Penalties Levied Under Section 271AAA:

The assessees contended that they were entitled to immunity from penalties under Section 271AAA(2) as they had admitted the undisclosed income during the search, specified the manner in which the income was derived, and paid the taxes along with interest. The Assessing Officer had denied immunity on the ground that the assessees did not substantiate the manner in which the undisclosed income was derived. The Tribunal observed that the statement recorded during the search did not include a specific question about the manner of deriving the undisclosed income. Relying on judicial precedents, including the Hon'ble Gujarat High Court's decision in CIT v. Mahendra C. Shah (2008) 299 ITR 305 (Guj) and the Hon'ble High Court of Delhi's decision in Principal CIT v. M/s Emirates Technologies Pvt. Ltd., the Tribunal held that if the revenue authorities did not ask a specific question, the assessee should not be penalized for not specifying the manner. The Tribunal concluded that the assessees had fulfilled all conditions under Section 271AAA(2) and deleted the penalties levied.

Conclusion:

The Tribunal allowed all 12 appeals filed by the assessees, quashing the penalties levied under Sections 271(1)(c) and 271AAA of the Income Tax Act due to the invalidity of the notices and the fulfillment of conditions for immunity, respectively.