2018 (6) TMI 1681 - AT - Income Tax

Penalty u/s 271(1) - search initiated u/s 132 - defective notice - Assessment Year involved is A.Y. 2008-09 and the due date of filing the return was 31-07-2008. The search operation was conducted on 13-10-2010 i.e. after the due date for filing the return 31-07-2008 - HELD THAT - The facts are not denied that the assessee disclosed additional income in all the years in the return of income filed in response to notices issued u/s 153A of the Act. The ld. CIT(A) considered the case and held that Explanation 5A to Section 271(1)(c) is applicable in this case because the search was carried out after 1st of June 2007 i.e on dated 13.10.2010. However, simply because the assessee has agreed and offered the additional income during the course of the search and disclosed the same in the returns u/s 153A, does not obviate the necessity and is rather a precondition for the AO to make sure that the show cause notice u/s 274 r.w 271(1)(c), specifically state the grounds mentioned in S. 271(1)(c) i.e whether it is for concealment of income or furnishing of inaccurate particulars of income. Merely sending a printed performa without striking off the particular limb or specifying the particular ground or default would not satisfy the requirement of law. The assessee must know specifically the ground which he has to meet otherwise, no penalty can be imposed on the assessee. AO has not specified which limb of the provision, the assessee was asked to reply. This does not meet with the requirement of law. The Hon ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton Ginning Factory Ors. 2013 (7) TMI 620 - KARNATAKA HIGH COURT held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be could be imposed to the assessee. Notices issued u/s 274 r.w.s. 271(1)(c) of the Act dated 19.03.2013 are not valid and the same are quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of penalty proceedings under Section 271(1)(c) read with Explanation 5A.
2. Applicability of Section 271AAA versus Section 271(1)(c).
3. Validity of the show cause notice issued under Section 274.
4. Satisfaction of conditions for immunity under Section 271AAA(2).

Detailed Analysis:

Issue 1: Legality of Penalty Proceedings under Section 271(1)(c) read with Explanation 5A
The assessee was penalized under Section 271(1)(c) for the Assessment Years 2007-08 to 2010-11 following a search operation on 13.10.2010. The AO imposed penalties based on the additional income disclosed in returns filed under Section 153A. The assessee argued that the penalties were not justified as the additional income was disclosed voluntarily. The CIT(A) upheld the penalties, citing Explanation 5A to Section 271(1)(c), which deems the undisclosed income as concealed if the due date for filing the return under Section 139 has expired and no return was filed.

Issue 2: Applicability of Section 271AAA versus Section 271(1)(c)
The assessee contended that since the search was conducted after 01.06.2007 but before 01.07.2012, only Section 271AAA could be invoked for imposing penalties. Section 271AAA, introduced to provide amnesty in search cases, overrides other penalty provisions, including Section 271(1)(c). The CIT(A) rejected this argument, but the Tribunal found merit in it, noting that Section 271AAA applies exclusively to searches conducted during the specified period and provides conditions for immunity if fulfilled.

Issue 3: Validity of the Show Cause Notice Issued under Section 274
The Tribunal found that the show cause notices issued under Section 274 were vague and did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The notices used the conjunction "and/or," which does not meet the legal requirement of clarity. The Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory and subsequent cases emphasized that such vagueness violates principles of natural justice. The Tribunal quashed the notices and the consequential penalties.

Issue 4: Satisfaction of Conditions for Immunity under Section 271AAA(2)
The assessee argued that all conditions for immunity under Section 271AAA(2) were satisfied: the undisclosed income was admitted in the statement under Section 132(4), the manner of deriving the income was specified, and the tax along with interest was paid. The Tribunal agreed, noting that the AO did not provide any specific question regarding the manner of earning the undisclosed income, and thus, the assessee could not be denied immunity.

Conclusion
The Tribunal allowed the appeals, quashing the penalties levied under Section 271(1)(c) for all the assessment years in question. The decision was based on the invalidity of the show cause notices under Section 274 and the applicability of Section 271AAA, which provides immunity if certain conditions are met. The Tribunal emphasized the necessity for clear and specific grounds in penalty notices to satisfy the principles of natural justice.