2017 (1) TMI 181 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - Returns filed u/s.153A - as result of search and seizure operation some incriminating documents were found and seized relating to transaction of purchase and sale of plots shops etc. - on-money offered by the assessee - Held that - The satisfaction as recorded by AO which is evident from the assessment order itself does not establish the case of Revenue against the assessee that it is liable for levy of penalty for concealment under which limb i.e. for concealment of income or for furnishing of inaccurate particulars of income. The notice issued under section 274 by the Assessing Officer also does not show cause the assessee as to make him aware of exact charge levied against him. In the absence of same it causes prejudice to the right of reasonable opportunity to be allowed to the assessee before levy of penalty under section 271(1)(c) of the Act. Consequently penalty notice issued in the present case suffers from infirmities i.e. lack of satisfaction and lack of notice being issued in making the assessee aware of exact charge against him hence the same is quashed. The penalty proceedings completed pursuant to such notice are vitiated and the same are held to be invalid. The assessee had offered additional income on account of on-money on sale of plots. The Assessing Officer had accepted the same and had initiated penalty proceedings under section 271(1)(c) of the Act. The CIT(A) during the course of appellate proceedings relating to section 271(1)(c) of the Act issued enhancement notice to the assessee. Thereafter he had gone through the seized documents and elaborately referred to them and even reproduced the scanned copies of such documents and comes to conclusion that loans were received from Ratanlal Bafna but still upholds the penalty levied under section 271(1)(c) of the Act. Once the finding of CIT(A) is that these are loans received from Bafna and are not on-money received on sale of plots then in cases where penalty proceedings have been initiated on a different footing and the CIT(A) reverses the same and holds the same to be loans received by the assessee there is change in opinion and basis for levy of penalty for concealment varies. In such circumstances there is no merit in levy of penalty under section 271(1)(c) of the Act and there is no merit at all in levying the penalty @ 150%. Accordingly we allow the claim of assessee even on merits. Thus the grounds of appeal raised by the assessee and additional ground of appeal raised by the assessee are allowed. - Decided in favour of assessee

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Enhancement of penalty by the Commissioner of Income-Tax (Appeals) [CIT(A)].
3. Validity of the notice issued under Section 274 read with Section 271(1)(c).
4. Whether the penalty should be levied on the entire additional income or only on the net profit percentage.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The penalty proceedings were initiated following a search and seizure action under Section 132 of the Income Tax Act, 1961, conducted on the Chhoriya group on 22-08-2008. The search resulted in the discovery of incriminating documents related to the purchase and sale of plots and shops. The assessee offered additional income for the assessment years 2003-04 to 2006-07. The Assessing Officer levied penalties for these assessment years for "concealing particulars of income" under Section 271(1)(c) read with Explanation 5A. The penalties levied were ?11,97,660 for 2003-04, ?21,04,100 for 2004-05, ?4,92,620 for 2005-06, and ?7,68,950 for 2006-07.

2. Enhancement of Penalty by CIT(A):
The CIT(A) not only confirmed the penalties but also enhanced them from 100% to 150%. The assessee challenged this enhancement, arguing that the CIT(A) had no power to enhance the penalty levied by the Assessing Officer and that the additional income declared was to "buy peace and to cooperate with the department." The CIT(A) held that the additional income declared by the assessee group was not correct and indicated unaccounted loans received by the assessee, thereby justifying the penalty.

3. Validity of the Notice Issued under Section 274 read with Section 271(1)(c):
The assessee contended that the notice issued under Section 274 was ambiguous and did not clearly specify whether the penalty proceedings were for "concealing particulars of income" or "furnishing inaccurate particulars of income." The Tribunal referenced the case of Kanhaiyalal D. Jain Vs. ACIT, where a similar issue of invalid notice led to the deletion of the penalty. The Tribunal observed that the Assessing Officer's satisfaction recorded during the assessment proceedings was not clear, as it mentioned both "concealing particulars of income" and "furnishing inaccurate particulars of income." The Tribunal held that such ambiguity in the notice invalidated the penalty proceedings.

4. Whether Penalty Should Be Levied on Entire Additional Income or Only on Net Profit Percentage:
The assessee argued that if penalty were to be levied, it should not be on the entire additional income but only on a reasonable net profit percentage. However, the Tribunal did not address this issue in detail, as it decided the case based on the invalidity of the notice issued under Section 274.

Conclusion:
The Tribunal quashed the levy of penalties, finding that the notice issued under Section 274 was invalid due to ambiguity and lack of clear satisfaction by the Assessing Officer. The Tribunal followed the precedent set in the case of Kanhaiyalal D. Jain, where similar facts led to the deletion of penalties. Consequently, the appeals of the assessee were allowed, and the penalties levied were quashed.