2017 (10) TMI 1453 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - deemed income u/s. 69/69A - HELD THAT - In the facts of the present case which appears to be a case of concealment of particulars of income even as the AO finally holds in the penalty order it could be that the AO finds the assessee s accounts as not reliable so that there is scope for leakage of revenue by way of under reporting of profits. Though only one addition would stand to be made as that on account of undisclosed profit would stand telescoped against the investment in which it gets crystallized it would clearly be a case of both concealment as well as furnishing inaccurate particulars of income. No wonder the statute itself in certain circumstances as specified in Explanation 5 and 5A (to s. 271(1)(c)) deems the assessee to have concealed the particulars of income or furnished inaccurate particulars of income i.e. of both or either of the charges which are in fact limbs of the same single charge. As explained there could be instances where the two converge or overlap. On the contrary the assessee rather than explaining the non disclosure of income per her original return based her case in the penalty proceedings on the deposit of tax even prior to the issue of reassessment notice and of the survey that led to the detection of undisclosed income being not at her premises both of which aspects have been found by us as irrelevant. As explained by the Hon ble Courts it is the entire factual background that falls for consideration and the rules of the natural justice cannot be imprisoned in any strait-jacket formula. The due procedure of law has been observed in the present case. Rather as explained where no prejudice is caused even a defect in notice which is an administrative devise to put the assessee to notice i.e. of the proposed penalty and further provide an opportunity to state its case shall not invalidate proceedings (also refer s. 292B). The legal argument raised is de hors the facts of the case and in view of the law as explained is without merit. CIT(A) has found the AO to have not found the assessee s explanation as not bona fide or false. The same is inconsequential as he enjoying co-terminus powers found the assessee s explanation and conduct as bona fide so that no penalty is leviable and in his order that by the AO merges. Two we have found the assessee to have only issued a bald statement which cannot be regarded as an explanation much less sustainable in the eyes of law. There is no question of it having been found bona fide or false by the AO. In fact there is nothing to show that the assessee forwarded the penalty notice to her counsel instructing him (her) to represent her for her to plead ignorance of the penalty proceedings which remained un-responded. Further still the gifts even where proved genuine would stand assessable as income where other than from defined relatives whose identity remains undisclosed. The assessee s case is thus sans any basis in facts or in law. - Decided in favour of revenue

Summary

Issues Involved:
1. Delay in filing appeals.
2. Maintainability of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
3. Justification of penalty based on explanation provided by the assessee.
4. Validity of the show cause notice initiating penalty proceedings.
5. Bona fide conduct of the assessee and its impact on penalty.

Detailed Analysis:

1. Delay in Filing Appeals:
Both the Revenue’s appeal and the Assessee’s Cross Objection (CO) were delayed by 11 and 8 days respectively. The delay was nominal and reasonably explained, and hence, the appeals were admitted for hearing.

2. Maintainability of Penalty under Section 271(1)(c):
The primary issue was whether the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 12,39,345, was maintainable. The assessee had not disclosed certain investments in immovable property in her original return, which led to the issuance of a notice under Section 148 for bringing the escaped income to tax. The assessee admitted the investment but could not provide an explanation for its source, leading to the application of Section 69 and the addition of the unexplained income.

3. Justification of Penalty Based on Explanation Provided by the Assessee:
The assessee claimed that the source of the investment was gifts from relatives, but no confirmation was provided as the relatives were either deceased or unwilling to expose themselves to the Income Tax Department. The CIT(A) found the explanation bona fide and canceled the penalty, noting that the assessee had cooperated with the assessment proceedings and paid substantial tax even before the notice under Section 148. However, the Tribunal found that the explanation was vague and unsubstantiated, and the gifts, even if genuine, would still be taxable if not from defined relatives. The Tribunal emphasized that the law requires a plausible explanation to save penalty and that the burden of proof lies on the assessee.

4. Validity of the Show Cause Notice Initiating Penalty Proceedings:
The assessee argued that the show cause notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars, citing the decision in CIT v. Manjunatha Cotton & Ginning Factory. The Tribunal, however, found that no prejudice was caused to the assessee as she was aware of the charge against her and had already paid a substantial part of the tax relating to the escaped income. The Tribunal referenced multiple decisions, including those by the Hon’ble High Courts, which clarified that a mistake in the notice does not invalidate penalty proceedings if no prejudice is caused to the assessee.

5. Bona Fide Conduct of the Assessee and Its Impact on Penalty:
The Tribunal examined whether the assessee’s conduct was bona fide. The Tribunal noted that the assessee did not disclose the additional income even after the notice under Section 148 and that the explanation regarding the source of investment was found to be a mere ruse. The Tribunal concluded that the explanation was not bona fide and that the conduct of the assessee did not preclude the levy of penalty.

Conclusion:
The Tribunal reversed the order of the CIT(A) and upheld the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Revenue’s appeal was allowed, and the assessee’s Cross Objection was dismissed. The order was pronounced on October 17, 2017, at Chennai.