2018 (4) TMI 1786 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice - Addition u/s 68 - HELD THAT - AO by not striking off the irrelevant default in the Show cause‟ notice, had thus failed to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be to be imposed on it. We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which it was being proceeded against, therefore, the penalty of ₹ 14,90,241/- imposed by him under Sec. 271(1)(c) clearly being in violation of the mandate of Sec. 274(1), thus cannot be sustained. We thus for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) upholding the same. Even on merits failure on the part of the assessee to adduce necessary documentary evidence as was called for by the A.O to prove the creditworthiness of the donor to his satisfaction, would though in the backdrop of such unproved claim of the assessee justify addition of the same as an unexplained cash credit under Sec. 68, but however, in the absence of any material having been placed on record by the A.O on the basis of which the aforesaid claim of the assessee could be disproved, no penalty u/s 271(1)(c) could have been validly imposed in the hands of the assessee. though the assessee by failing to place on record the specific documentary evidence as was called for by the A.O to prove the credit worthiness of the donor, viz. Sh. Arun Jatia, had thus failed to prove his claim to the satisfaction of the A.O, but however, in the absence of any material having been placed on record by the A.O which could disprove the genuineness of the said claim of the assessee to the hilt, no penalty under Sec. 271(1)(c) could have been validly imposed in the hands of the assessee. We thus after deliberating at length on the merits of the case, not being able to persuade ourselves to subscribe to the views of the lower authorities, therefore, are of the considered view that the penalty imposed by the A.O under Sec.271(1)(c), which thereafter had been upheld by the CIT(A) cannot be sustained on merits and on the said count too is liable to be vacated. - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Assumption of jurisdiction by the Assessing Officer (A.O) for imposing the penalty.
3. Merits of the penalty imposed.

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings Under Section 271(1)(c):

The core issue was whether the penalty proceedings initiated under Section 271(1)(c) were valid. The assessee contended that the penalty notices issued under Section 274 read with Section 271(1)(c) did not specify the exact charge, i.e., whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." The Tribunal found substantial force in this contention, noting that the notices were issued in a standard proforma without striking off the irrelevant default. This failure to specify the charge was seen as a lack of application of mind by the A.O and a violation of the statutory obligation to inform the assessee of the specific default. The Tribunal cited various judicial pronouncements, including the Hon'ble Supreme Court's decision in CIT Vs. SSA’s Emerald Meadows, which held that such notices are bad in law. Consequently, the penalty order was quashed on this ground.

2. Assumption of Jurisdiction by the A.O:

The Tribunal examined whether the A.O had properly assumed jurisdiction to impose the penalty. It was observed that the A.O had issued the penalty notices without clearly specifying the default, thereby failing to meet the statutory requirement of fairly putting the assessee to notice. The Tribunal emphasized that the two defaults under Section 271(1)(c), namely "concealment of income" and "furnishing inaccurate particulars of income," are distinct and not interchangeable. The A.O's failure to strike off the irrelevant default in the notice was seen as a serious infirmity that rendered the penalty proceedings invalid. The Tribunal concluded that the A.O had not discharged his statutory obligation, and thus, the penalty could not be sustained.

3. Merits of the Penalty Imposed:

Even on merits, the Tribunal found that the penalty could not be validly imposed. The assessee had provided substantial documentary evidence to substantiate the genuineness of the gift transaction and the creditworthiness of the donor, which was not disproved by the revenue. The penalty was imposed not because the revenue had concrete evidence to disprove the assessee's claim but because the assessee failed to produce specific documents called for by the A.O. The Tribunal noted that the failure to provide these documents justified the addition under Section 68 but did not warrant a penalty under Section 271(1)(c) unless the claim was disproved. The Tribunal cited the Hon'ble Bombay High Court's decision in CIT Vs. Upendra V. Mithani, which held that no penalty could be imposed if the assessee's explanation was unproved but not disproved. Thus, the penalty was vacated on merits as well.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the penalty of ?14,90,241/- imposed under Section 271(1)(c) on both procedural and substantive grounds. The order was pronounced in the open court on 04.04.2018.