2016 (12) TMI 1349 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Held that - AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. - Decided in favour of assessee

Issues Involved:
1. Validity of the penalty notice under Section 271(1)(c) of the Income Tax Act.
2. Application of Explanation 5A to Section 271 regarding the cash found during the search.
3. Voluntariness of the income offer by the assessee and its impact on penalty.

Detailed Analysis:

1. Validity of the Penalty Notice under Section 271(1)(c) of the Income Tax Act:

The preliminary issue raised by the assessee was that the Assessing Officer (AO) did not issue a proper notice specifying the charge under Section 271(1)(c) of the Act. The notice was primarily meant to ask the assessee to furnish a return of income and did not specify whether the penalty proceedings were for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This lack of specification and non-application of mind by the AO was argued to vitiate the penalty proceedings.

The Tribunal referred to the Hon’ble Supreme Court's observations in the case of *Dilip N Shroff* and the Hon’ble Bombay High Court's decision in *Smt. Kaushalya and Others*, emphasizing the necessity for the AO to apply his mind and specify the charge clearly. The Tribunal concluded that the AO's failure to specify the charge and the issuance of an incorrect notice demonstrated non-application of mind, thus invalidating the penalty proceedings.

2. Application of Explanation 5A to Section 271 Regarding the Cash Found During the Search:

The assessee contended that Explanation 5A to Section 271 would not apply to the cash found during the search, as "cash" does not fall under the category of "assets" specified in Explanation 5A. The argument was that "cash" cannot be acquired by utilizing income, thus the penal provisions should be construed strictly.

The Department, on the other hand, argued that the term "money" in Explanation 5A does refer to "cash" and should be given a purposive interpretation. However, since the Tribunal decided the case on the preliminary issue of the validity of the penalty notice, it did not delve into the merits of this argument.

3. Voluntariness of the Income Offer by the Assessee and Its Impact on Penalty:

The assessee argued that the cash balance found during the search would normally be assessable in AY 2010-11, and had it been offered in AY 2010-11, the assessee would have received immunity from penalty under Section 271AAA. The offer made in AY 2009-10 of ?1.95 crores out of the cash balance was a voluntary offer, as was the ?30 lakhs offered in respect of the flat purchase. Therefore, the penalty should not have been levied on the income voluntarily offered by the assessee.

The Tribunal, having quashed the penalty proceedings on the basis of non-application of mind by the AO while issuing the notice, did not find it necessary to address the arguments on the merits regarding the voluntariness of the income offer.

Conclusion:

The appeal filed by the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal set aside the penalty proceedings initiated by the AO due to non-application of mind and the issuance of an incorrect notice. The Tribunal did not address the merits of the arguments regarding Explanation 5A and the voluntariness of the income offer due to the preliminary issue's resolution.

← Previous Next →