2018 (9) TMI 1883 - AT - Income Tax

Penalty u/s. 271(1)(c) - Addition u/s 68 - HELD THAT - We hold that the notice issued u/s 271 r.w.s. 274 of the Act is not valid and consequential penalty proceedings are not sustainable. Assessee has furnished all the relevant material before the AO both during the assessment proceedings as well as during the penalty proceedings to prove the identity, creditworthiness and genuineness of the transaction of payment of share application money, but, the AO had failed to carry out proper investigation to verify the documents such as PAN, etc. Further, he also brought out that the AO has not recorded satisfaction about concealment of income or furnishing of inaccurate particulars of income by the assessee. Assessee has produced relevant material, but, since AO was not satisfied with the same, he made addition. Assessee, in order to avoid further litigation, has not appealed, but, that does not mean that the addition will automatically attract penalty provisions. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order deleting the penalty under Section 271(1)(c) of the Income Tax Act.
2. Whether the assessee can raise additional grounds of appeal in the revenue's appeal.
3. Validity of the notice issued under Section 271 read with Section 274 of the Act.
4. Merits of the grounds raised by the revenue regarding penalty provisions.

Detailed Analysis:

1. Legality of the CIT(A)'s Order Deleting the Penalty:
The revenue contended that the CIT(A)'s order was erroneous in law and on facts, arguing that the CIT(A) erred in deleting the penalty under Section 271(1)(c) when the assessee did not satisfactorily explain the identity, creditworthiness, and genuineness of the transaction during both assessment and penalty proceedings. The revenue also argued that the CIT(A) ignored the AO's in-depth verification and investigations, which led to the assessee not challenging the addition in appeal and accepting the same.

2. Assessee's Right to Raise Additional Grounds of Appeal:
The assessee filed a petition to admit an additional ground of appeal, asserting that the levy of penalty under Section 271(1)(c) was invalid due to the absence of a specific charge in the notice issued under Section 274 read with Section 271(1)(c). The revenue objected, arguing that the respondent-assessee could not raise new grounds in the revenue's appeal, relying on the Bombay High Court's judgment in New India Life Assurance Co. Ltd. Vs. CIT.

The Tribunal considered the assessee's reliance on Rule 27 of the IT Rules and judicial pronouncements, including the Bombay High Court's decision in CIT Vs. Hazarimal Nagji & Co., which allowed the respondent-assessee to raise a new ground in support of the order appealed against, provided it did not require fresh investigation of facts. The Tribunal also noted that the assessee had no occasion to file cross-objections or a cross-appeal since the CIT(A) had granted relief in toto.

3. Validity of the Notice Issued Under Section 271 Read with Section 274:
The Tribunal found merit in the assessee's additional ground, referencing the Telangana and AP High Court's decision in Pr. CIT Vs. Smt. Baisetty Revathi, which held that penalty proceedings under Section 271(1)(c) require a specific and unequivocal charge. The Tribunal agreed that the notice issued was ambiguous and thus invalid, rendering the consequential penalty proceedings unsustainable.

4. Merits of the Grounds Raised by the Revenue:
On the merits, the Tribunal upheld the CIT(A)'s findings that the assessee had furnished all relevant material to prove the identity, creditworthiness, and genuineness of the transaction. The AO's failure to carry out proper verification and record satisfaction about concealment or furnishing inaccurate particulars was noted. The Tribunal emphasized that the assessee's decision not to appeal the addition did not automatically attract penalty provisions.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order deleting the penalty under Section 271(1)(c) and holding the notice issued under Section 271 read with Section 274 as invalid. The Tribunal also allowed the assessee to raise additional grounds in the revenue's appeal, following judicial precedents that permit such grounds to be raised in support of the order appealed against.