2017 (8) TMI 1504 - AT - Income Tax

Penalty u/s. 271(1)(c) - addition on receipt of on money consequent to dealing in land developing - AO in search proceedings considering the fact that the assessee may have paid some amounts in cash for making its purchases, the Assessing Officer opined to take net cash receipts in this case at 50% of the total sale consideration for the years under consideration - addition made by the AO by estimating on-money @ 50% of total consideration was deleted by the CIT(A)- defective notice Held that - AO had recorded satisfaction of the assessee having concealed its income but where while levying penalty for concealment, the Assessing Officer held the assessee to have furnished inaccurate particulars of income and also concealed its income in para 5 and thereafter, in para 6 to have held that it has concealed income and in para 7, AO was satisfied that the assessee has furnished inaccurate particulars of income, the said order of Assessing Officer suffers from infirmities in not coming to the conclusion as to whether the assessee has concealed its income or furnished inaccurate particulars of income. Penalty for concealment is leviable in the case of assessee on satisfaction of one of the limbs, since the ultimate addition which has been sustained in the case of assessee is one. In the totality of the above said facts and circumstances, penalty order passed in the present case suffers from non-exercise of jurisdictional power of the Assessing Officer correctly and hence, the same is held to be invalid. - Decided in favour of assessee In assessment year 2008-09 AO had initiated penalty proceedings on that basis. Further, addition which has been made in the hands of assessee on account of evidence found and also on estimation of on-money. CIT(A) has totally changed the colour of addition though on account of on-money the addition made by the AO has been deleted and has been held to be unwarranted and further, the CIT(A) has directed assessment of on-money of ₹ 12 lakhs in assessment year 2007-08 instead of amount offered by the assessee in assessment year 2008-09 and had worked out the balance addition on account of on-money at ₹ 13,48,300/-. CIT(A) has changed the colour of addition, then it is incumbent upon the CIT(A) to initiate penalty proceedings. The order levying penalty passed by the Assessing Officer was no doubt on addition sustained by the CIT(A) but was on different basis. Further, the Assessing Officer had initiated penalty proceedings in the hands of assessee on an addition of ₹ 1,51,10,774/- for having concealed the income under section 271(1)(c) of the Act. The said addition has been struck down. No other satisfaction was recorded by the AO in respect of addition of ₹ 13,48,300/-. CIT(A) has also failed to record such satisfaction for initiating penalty proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Estimation of on-money receipts.
3. Addition of unexplained expenditure.
4. Jurisdictional and procedural correctness in penalty proceedings.

Detailed Analysis:

1. Levy of Penalty Under Section 271(1)(c):
The primary issue in both appeals is the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The assessee argued that the CIT(A) erred in confirming penalties of ?4,03,200 and ?4,12,580 levied by the AO. The assessee contended that the penalties were not justified as the additions were made on estimation without concrete evidence, and the CIT(A) had not initiated penalty proceedings for the specific additions confirmed.

2. Estimation of On-Money Receipts:
The Assessing Officer (AO) estimated on-money receipts at 50% of the total sale consideration for various years during the search assessment. The CIT(A) found this estimation unwarranted and deleted the addition based on the estimation. Instead, the CIT(A) referred to specific transactions where on-money was admitted by the assessee in statements recorded under Section 132(4) of the Act. For Assessment Year (AY) 2007-08, the CIT(A) directed the AO to tax ?12,00,000 as on-money income. For AY 2008-09, the CIT(A) recomputed the on-money addition to ?13,48,300 after adjusting for the amount already taxed in AY 2007-08.

3. Addition of Unexplained Expenditure:
In AY 2007-08, the AO made an addition of ?93,25,772 on account of unexplained expenditure, which was subsequently deleted by the CIT(A). The penalty proceedings were initiated based on the addition of ?33,65,995 for on-money receipts, which was later confirmed to the extent of ?12,00,000 by the CIT(A).

4. Jurisdictional and Procedural Correctness in Penalty Proceedings:
The Tribunal noted procedural errors in the penalty order. The AO initially recorded satisfaction for concealment of income but later mentioned both concealment and furnishing inaccurate particulars in the penalty order. This inconsistency was found to be a jurisdictional defect, as highlighted by the Hon'ble Bombay High Court in CIT Vs. Shri Samson Perinchery and the Hon'ble Karnataka High Court in CIT Vs. Manjunatha Cotton & Ginning Factory.

Tribunal's Findings:
1. AY 2007-08: The Tribunal observed that the basis for penalty proceedings (estimation of on-money at 50%) was struck down by the CIT(A). Since the CIT(A) did not initiate penalty proceedings for the ?12,00,000 addition, the penalty levied by the AO was invalid. The Tribunal also noted the procedural defect in the penalty order, where the AO failed to clearly specify whether the penalty was for concealment of income or furnishing inaccurate particulars.

2. AY 2008-09: The Tribunal found that the penalty proceedings initiated by the AO were based on an addition of ?1,51,10,774, which was deleted by the CIT(A). The addition sustained by the CIT(A) was ?13,48,300, but no separate satisfaction for penalty proceedings was recorded for this amount. The procedural defects in the penalty order were also noted, similar to AY 2007-08.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for both AY 2007-08 and AY 2008-09, directing the deletion of penalties levied under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal emphasized the importance of clear and specific satisfaction for initiating penalty proceedings and upheld the principle that penalties cannot be levied based on estimations without concrete evidence.