2017 (7) TMI 207 - AT - Income Tax

Levying penalty u/s 271(1)(c) - whether Assessing Officer has issued a vague notice for the initiation of the penalty proceedings? - Held that - We have seen the copy of the notice which shows that irrelevant clauses of the notice were not struck by the Assessing Officer at the time of initiation of proceedings. These types of notices are severely criticized by various courts including case of Manju Nath Cotton Mills 2013 (7) TMI 620 - KARNATAKA HIGH COURT which held that penalty proceedings are liable to be quashed if the same are initiated on these type of notices. Issuance of these type of notices would show complete non application of mind of the Assessing Officer which is not permissible. DR made arguments that it is a case of difference of opinion because the Assessing Officer has made the addition, in quantum proceedings u/s 68. While ITAT in quantum proceedings has upheld the addition u/s 69A which provisions are materially different from the provisions of section 68 and hence it is a case of difference opinion. But on this point also penalty is not leviable. The assessee has turnover of ₹ 4.79 crore and has paid salary to the tune of ₹ 2043 lacs in the impugned year and whatever the assessee has also produced a certificate from the national bank certifying that alleged share application money received by the assessee was actually returned to the subscriber. The ld. DR could not controvert these arguments and hence we are fully convinced with the ld. AR that whatever entries were passed in the books were passed in the bona fide manner. No penalty is leviable for violation of deeming provisions. - Decided in favour of assessee.

Issues involved:
1. Validity of penalty proceedings under section 271(1)(c)
2. Distinction between concealment of income and furnishing inaccurate particulars
3. Discretionary nature of section 271(1)(c) provisions
4. Difference of opinion between AO and ITAT on additions sustained in quantum proceedings
5. Applicability of legal precedents in penalty imposition
6. Violation of deeming provisions and penalty imposition

Issue 1: Validity of penalty proceedings under section 271(1)(c):
The appeal questioned the initiation of penalty proceedings by the Assessing Officer (AO) under section 271(1)(c) for the assessment year 2000-01. The appellant argued that the notice for penalty initiation was vague and lacked specific charges against the assessee, rendering it invalid. The appellant relied on legal precedents criticizing such notices and contended that penalty proceedings should be quashed. The Tribunal examined the notice provided in the paper book and the original notice, finding no discrepancy. Citing the Supreme Court and High Court judgments, the Tribunal agreed with the appellant's argument, emphasizing the importance of clear and specific notices for penalty initiation. Consequently, the appeal was allowed on this ground.

Issue 2: Distinction between concealment of income and furnishing inaccurate particulars:
The appellant contended that the AO failed to establish whether the assessee concealed income or furnished inaccurate particulars, which are distinct under section 271(1)(c). The Tribunal noted the difference between the two and emphasized the necessity of framing clear charges before levying a penalty. Despite the AO's addition under section 68, the Tribunal upheld the addition under section 69A due to the absence of entries in the assessee's books. The Tribunal highlighted the burden on the assessee to provide evidence regarding the nature and source of credits, which the appellant failed to discharge. Ultimately, the Tribunal affirmed the addition, underscoring the importance of complying with the provisions of the Act.

Issue 3: Discretionary nature of section 271(1)(c) provisions:
The appellant argued that penalty imposition under section 271(1)(c) should be discretionary and executed judiciously. The Tribunal considered the arguments presented by both parties and examined the material on record. It emphasized the need for penalties to be imposed in a just manner, taking into account legal provisions and factual circumstances. Relying on legal principles, the Tribunal concluded that the penalty imposed in this case was not justified, leading to the allowance of the appeal.

Issue 4: Difference of opinion between AO and ITAT on additions sustained in quantum proceedings:
The dispute arose from the variance in the provisions cited by the AO and the ITAT concerning the additions made in quantum proceedings. The appellant's turnover and salary payments were scrutinized, along with the submission of a certificate from a national bank confirming the return of alleged share application money. The Tribunal found no merit in the arguments presented by the Revenue, supporting the appellant's position that entries were made in good faith. Consequently, the Tribunal ruled in favor of the appellant, considering the factual and legal aspects of the case.

Issue 5: Applicability of legal precedents in penalty imposition:
The appellant referenced legal precedents such as CIT vs. S. Kalyan and ITO vs. Rakesh Gupta to support the contention that penalty should not be levied for violations of deeming provisions. The Tribunal analyzed the cited cases and the factual scenario of the present case, ultimately agreeing with the appellant's position. By invoking established legal principles, the Tribunal directed the deletion of the penalty imposed under section 271(1)(c).

Issue 6: Violation of deeming provisions and penalty imposition:
The Tribunal considered the violation of deeming provisions and its impact on penalty imposition. Citing relevant legal authorities, the Tribunal highlighted the inapplicability of penalties for violations of deeming provisions. By referring to specific case laws and the factual matrix of the case, the Tribunal concluded that the penalty under section 271(1)(c) should be deleted. As a result, the appeal was allowed, and the penalty was directed to be removed.

This comprehensive analysis covers the key issues raised in the judgment, detailing the arguments presented, legal principles applied, and the Tribunal's findings leading to the final decision in favor of the appellant.

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