2017 (1) TMI 394 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained sundry advance addition - Held that - As during the year the assessee was not having any source of concealed income. The Department carried out intensive search over the assessee and no cogent material was found to show that the assessee was having any concealed source of income during the year under consideration. It is also noted in the assessment order that sundry debtors created to generate cash was utilized for gift to Shri Murari Lal Mittal in assessment year 2007-08 was without bringing any adverse positive material. No any positive material was brought in penalty proceeding to show that the assessee had made willful attempt to conceal the income or to furnish inaccurate particulars of income. The assessment proceedings and penalty proceedings are two separate proceedings. The addition made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of his income. It is observed that assessment proceedings and penalty proceedings are two separate proceedings. The addition made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of income. The addition in assessment order may be because of some technical reasons which do not mean that the assessee had concealed income. Therefore, for imposing a penalty, the AO had to prove that the assessee was having concealed income. The penalty u/s 271(1)(c) of the Act is not automatic and for imposing penalty u/s 271(1)(c) of the Act, the AO had to brought on record any positive material to show that the assessee concealed his income. There must be independent finding. See Vaibhav Tulsyan Versus I.T.O Ward 29 (4) , Kolkata 2016 (11) TMI 1030 - ITAT KOLKATA wherein allowed the appeal of the assessee on the issue of penalty u/s 271(1)(c) of the Act.- Decided in favour of assessee

Summary

Issues Involved:
1. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
2. Justification for the imposition of penalty of ?99,000 under Section 271(1)(c) on account of unexplained investment.

Issue-wise Detailed Analysis:

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

The assessee contested the penalty proceedings initiated by the Assessing Officer (AO) on the grounds that the notice 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 AO had ticked both options without deleting either, leading to ambiguity. The assessee argued that this constituted a jurisdictional and legal mistake not curable under Section 292B of the Income Tax Act.

The Tribunal examined the scope of Section 292B, which allows for rectifying technical defects in notices if they substantially conform to the intent and purpose of the Act. However, the Tribunal noted that the provision cannot rectify fundamental infirmities such as failing to specify the exact charge in a penalty notice. Several case laws, including CIT vs. Manjunatha Cotton & Ginning Factory and CIT vs. SSA’s Emerald Meadows, were cited, which held that ambiguity in penalty notices invalidates the proceedings.

The Tribunal concluded that the penalty notice issued to the assessee was defective as it did not specify the exact charge, offending the principles of natural justice. Therefore, the initiation of penalty proceedings was deemed invalid.

2. Justification for Imposition of Penalty:

The AO imposed a penalty of ?99,000 under Section 271(1)(c) on the basis of an addition of ?4,00,000 made under Section 69B for unexplained investment. The assessee argued that the sundry advances of ?4,00,000 were given to farmers for land purchase from past savings and were carried forward from the previous year’s balance sheet. The AO found no documentary evidence during the search to support the assessee’s claim and deemed the amount as unexplained investment.

The Tribunal noted that the penalty proceedings are separate from assessment proceedings and require independent findings. The AO had not brought any positive material to prove that the assessee had willfully concealed income or furnished inaccurate particulars. The Tribunal emphasized that penalty under Section 271(1)(c) is not automatic and requires the Department to establish that the additions made represent real income of the assessee.

The Tribunal also referred to the decision in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries, which held that penalty proceedings must be based on independent findings and not solely on the basis of assessment proceedings. The Tribunal found that the AO’s reliance on the assessment order without additional evidence in the penalty proceedings was insufficient to justify the penalty.

Conclusion:

The Tribunal allowed the appeal, holding that the penalty proceedings were invalid due to the defective notice and that the imposition of penalty was unjustified as the Department failed to provide independent evidence of concealment or inaccurate particulars. The penalty of ?99,000 under Section 271(1)(c) was thus deleted.