2016 (10) TMI 935 - AT - Income Tax

Penalty u/s 271(1)(1) - validity of notice - there is no mention in the SCN, whether the assessee was guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income - Held that - The show-cause notices issued by the Assessing Officer under section 274 for the years under consideration not being in accordance with law, the penalty orders passed by the Assessing Officer in pursuance thereof are liable to be cancelled being invalid. We accordingly cancel the orders passed by the Assessing Officer imposing penalties under section 271(1)(c) for the years under consideration and allow the appeals of the assessee.

Summary

Issues Involved:
1. Validity of penalties imposed under section 271(1)(c) for concealment of income.
2. Legality of the show-cause notices issued under section 274.
3. Application of Explanation 5A to section 271(1)(c).

Issue-wise Detailed Analysis:

1. Validity of Penalties Imposed under Section 271(1)(c) for Concealment of Income:
The penalties were imposed by the Assessing Officer (AO) for assessment years 2007-08, 2008-09, 2009-10, and 2010-11, based on the discovery of an undisclosed bank account during a search conducted under section 132. The AO treated the additional income from the undisclosed bank account as concealment and imposed penalties. The CIT(A) upheld these penalties, stating that the surrender of undisclosed income was not voluntary but was made only after the assessee was inquired about the bank account by the AO. The CIT(A) emphasized that the revised returns filed by the assessee were invalid as they were beyond the due date specified in the notice under section 153A, and the assessee was deemed to have concealed the particulars of his income as per Explanation 5A to section 271(1)(c).

2. Legality of the Show-Cause Notices Issued under Section 274:
The assessee challenged the validity of the penalty orders on the ground that the show-cause notices issued under section 274 were defective. The notices did not specify whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of such income," as the irrelevant portion was not struck off. The Tribunal, relying on the decision of the Karnataka High Court in the case of CIT & Another vs. Manjunatha Cotton & Ginning Factory, held that such notices are invalid as they do not satisfy the requirement of law. The Tribunal noted that the assessee must be made aware of the specific grounds for penalty to contest the proceedings adequately. The Tribunal concluded that the penalty orders based on defective notices were invalid and liable to be quashed.

3. Application of Explanation 5A to Section 271(1)(c):
The CIT(A) applied Explanation 5A to section 271(1)(c), which deems the assessee to have concealed particulars of income if certain conditions are met, including the discovery of undisclosed income during a search. The CIT(A) found that the assessee's case was covered by Explanation 5A, as the undisclosed bank account was discovered during the search, and the income from this account was not declared in the original returns. The CIT(A) rejected the assessee's argument that the assessment was based on estimation, stating that the undisclosed income was meticulously worked out from the transactions in the undisclosed bank account.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the show-cause notices issued under section 274 were defective and invalid, leading to the invalidity of the penalty orders. The Tribunal's decision was based on the principle that the notices must clearly specify the grounds for penalty, as established in the case of CIT & Another vs. Manjunatha Cotton & Ginning Factory. Consequently, the penalties imposed under section 271(1)(c) for the assessment years in question were cancelled.