2018 (3) TMI 1676 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - investments surrendered after detection of concealment by the Department by way of search u/s 132 - Held that - The surrender was never retracted by the assessee. Nothing to this effect is recorded in the orders of the authorities below nor has been brought to our notice during the course of hearing before us. As per the assessee own admission he had not disclosed income to the tune of Rs. 28lacs earned during the year. Then subsequently during assessment proceedings the assessee claims /admits to have invested this income in two properties. What this tantamounts to is that the surrender made by the assessee was on account of undisclosed income for the year invested in assets. And since the assessee had suo moto made the surrender it tantmounted to the assessee himself coming clean before the Revenue about the fact of earning such income and investing it in assets. Thus at the point of time when the surrender was made by the assessee during search the Revenue for all purposes had found the assessee to be the owner of assets acquired out of earlier undisclosed income during search. After the suo moto disclosure by the assessee no requirement remained for the Revenue to make any further discovery at all. The requirement of Explanation 5A of the assessee being found during search to be the owner of assets acquired out of earlier undisclosed income is therefore met. The contention of the assessee that no incriminating material was found during search we hold has been rightly dismissed by the CIT(A). - decided against assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5A to section 271(1)(c) of the Income Tax Act, 1961.
3. Requirement for specific charges in penalty notice under section 274 read with section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings Initiated Under Section 271(1)(c):
The assessee argued that the penalty proceedings initiated via notice under section 274 read with section 271(1)(c) were invalid and bad in law because the notice was issued in a standard proforma without striking off the irrelevant portions, thus violating the principles of natural justice. The Tribunal referenced the Hon'ble Supreme Court judgment in National Thermal Power Co. Ltd. Vs. CIT, which allows the admission of additional grounds involving points of law without requiring further investigation of facts. The Tribunal admitted the additional grounds for adjudication.

2. Applicability of Explanation 5A to Section 271(1)(c):
The Tribunal upheld the applicability of Explanation 5A to section 271(1)(c), which applies to searches initiated on or after June 1, 2007. The Explanation deems the assessee to have concealed particulars of income if the income declared after search was not declared in the original return filed before the search. The Tribunal noted that the assessee had surrendered Rs. 28 lacs during the search, which was not declared in the original return. The Tribunal found no merit in the assessee's contention that no incriminating material was found during the search, as the surrender itself indicated undisclosed income invested in assets. The Tribunal agreed with the CIT(A)'s interpretation and upheld the levy of penalty under Explanation 5A.

3. Requirement for Specific Charges in Penalty Notice:
The Tribunal examined whether the penalty notice under section 274 read with section 271(1)(c) was valid. The assessee contended that the notice was invalid as it did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal referenced the Hon'ble Karnataka High Court's judgment in Manjunatha Cotton & Ginning Factory, which mandates that the notice must clearly spell out the charge against the assessee. The Tribunal found that the notice issued to the assessee mentioned both charges (concealment and furnishing inaccurate particulars) and provided the assessee with an opportunity to defend against these charges. Therefore, the Tribunal held that there was no infirmity in the notice and dismissed the additional ground of appeal.

Conclusion:
The Tribunal dismissed the appeals of the assessee, upholding the validity of the penalty proceedings and the applicability of Explanation 5A to section 271(1)(c). The Tribunal found no violation of natural justice in the penalty notice and confirmed the levy of penalty of Rs. 7,66,320/- under section 271(1)(c) of the Income Tax Act, 1961.