2017 (2) TMI 175 - AT - Income Tax

Exemption u/s 54F - addition towards consideration for unsold flats - penalty proceedings u/s 271(1)(c) initiated - Held that - We find that the assessee had admitted income in respect of development agreement as soon as she came to know that she had to pay tax on development agreement which cannot be termed as concealment of particulars of income, more particularly when she is an illiterate lady not assessed to income tax in the earlier period. The matter would have been different if she had assessed to income tax regularly and filed her return of income for these assessment years under regular provisions of the Act and not admitted capital gains in respect of development agreement in the returns filed for those years. But, the fact is that the assessee is not assessed to income tax and also fact that she had admitted income and filed her return of income disclosing resultant capital gains in pursuance to development agreement and paid taxes, therefore, admission of assessee cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of income. Though there is a slight difference in income admitted by the assessee and income determined by the A.O. for the assessment year 2007-08, this is because of disallowance of exemption claimed u/s 54F towards 4 flats retained by her, which was further supported by case of CIT Vs. K.G. Rukminiamma 2010 (8) TMI 482 - Karnataka High Court which was followed by the Hon ble High Court of Andhra Pradesh in the case of CIT Vs. Syed Ali Adil (2013 (6) TMI 278 - ANDHRA PRADESH HIGH COURT). Therefore, we are of the view that there is neither concealment of income nor furnishing inaccurate particulars of income, which warrants levy of penalty u/s 271(1)(c) of the Act. Hence, penalty levied by the A.O. u/s 271(1)(c) of the Act for all the assessment years 2007-08 to 2009-10 is not sustainable, even on merits. - Decided in favour of assessee.

Issues Involved:
1. Legality of penalty proceedings initiation.
2. Validity of penalty notice under section 274 read with section 271(1)(c).
3. Merits of penalty levied for assessment years 2007-08, 2008-09, and 2009-10.

Detailed Analysis:

1. Legality of Penalty Proceedings Initiation:

The assessee contended that the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act was invalid because the Assessing Officer (A.O.) did not record the required satisfaction before initiating the penalty proceedings. The CIT(A) rejected this claim, referring to the Supreme Court's decision in CIT Vs. S.V. Angidi Chettiar, which held that a mere indication of penalty proceedings initiation in the assessment order is sufficient. The CIT(A) also cited the Supreme Court's decision in MAK Data Pvt. Ltd. Vs. CIT, which stated that the A.O. is not required to record satisfaction in a specific manner. Therefore, the CIT(A) concluded that the A.O.'s statement that "penalty proceedings u/s 271(1)(c) of the Act are initiated separately" was sufficient compliance.

2. Validity of Penalty Notice under Section 274 Read with Section 271(1)(c):

The assessee argued that the penalty notice was vague because it did not specify whether the penalty was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." The CIT(A) dismissed this argument, stating that the subsequent notice issued by the A.O. clearly specified the reasons for penalty initiation. However, the Tribunal observed that the A.O. issued a printed form of notice without specifying the exact reason for the penalty, which is against the principles of natural justice. The Tribunal referred to the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton and Ginning Factory, which held that a notice must clearly state the grounds for penalty. The Tribunal also noted that the Supreme Court dismissed the SLP filed by the revenue against this decision, thus upholding the requirement for specific grounds in the penalty notice.

3. Merits of Penalty Levied:

Assessment Year 2007-08:
The A.O. levied a penalty for concealing income by disallowing the exemption claimed under section 54F for four flats retained by the assessee. The CIT(A) held that the claim was bona fide and the issue was debatable. Therefore, the CIT(A) directed the A.O. to delete the penalty related to the addition of ?35,79,000. The Tribunal agreed, stating that the assessee's claim was supported by judicial decisions and there was no concealment or furnishing of inaccurate particulars of income.

Assessment Year 2008-09:
The CIT(A) upheld the penalty for this year, stating that the conditions laid down in Explanation (3) to section 271(1)(c) were satisfied. The Tribunal, however, found that the penalty notice was vague and thus invalid, leading to the quashing of the penalty proceedings.

Assessment Year 2009-10:
The CIT(A) canceled the penalty, stating that the notice under section 148 was issued within the stipulated period, and thus Explanation (3) to section 271(1)(c) did not apply. The Tribunal upheld this decision, noting that the A.O. issued the notice within two years from the end of the relevant assessment year, making the penalty under Explanation (3) inapplicable.

Conclusion:
The Tribunal quashed the penalty proceedings for all the assessment years due to the invalidity of the penalty notices and the lack of specific grounds for penalty initiation. The appeals filed by the assessee for the assessment years 2007-08 and 2008-09 were allowed, and the appeal filed by the revenue for the assessment year 2009-10 was dismissed.

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