2017 (10) TMI 723 - AT - Income Tax

Penalty u/s 271(1)(c) - AO did not strike off the inappropriate portion of the notice - Held that - The initiation of penalty proceedings has happened by recording of satisfaction in the assessment order and the issuance of notice u/s 274 is thus in continuation of recording of such satisfaction and has thus to be read along with the assessment order and not disjoint of the assessment order. It is not a case where the penalty has been initiated for one limb and finally levied in respect of another limb. The AO has been consistent in his approach and his action doesn t reflect any non-application of mind. We therefore donot feel there is any infirmity in the initiation of penalty proceedings as contended by the ld AR. The additional ground of appeal is thus dismissed. Where the assessee offers an explanation and substantiate the explanation the question of imposing penalty would not arise. Even in cases where he fails to substantiate the explanation but if he proves that explanation offered is a bonafide one and all the facts relating to the same and material to the computation of his total income has been disclosed by him then in law a discretion is vested with the authority not to impose penalty. In penalty proceedings the assessee vide letter dated 21.04.2014 submitted that during the relevant period the assessee was suffering from serious diseases of mental disturbance and wife of the assessee under such adverse circumstances without having any specific knowledge about the sale of relevant flat situated at Mumbai filed his return of income on the basis of adhoc and incomplete information. The assessee in support of his contention submitted the affidavits of his wife and Sh. Rajesh Vijay who filed the relevant return of income. Subsequently during the course of assessment proceedings all relevant facts relating to the sale of flat and a revised computation of income determining long term capital gains along with details of taxes and interest deposited thereon was filed. The said explanation of the assessee along with the contents of the affidavits have not been found to be false or controverted by the Revenue authorities. Where the assessee was incapacitated to file his return of income due to his ill-health and incomplete return was filed which was subsequently revised by way of filing revised computation of income along with payment of taxes during the course of assessment proceedings it shows the bonafide of the assessee and accordingly cannot be made subject to levy of penalty u/s 271(1)(c) of the Act. Assessee s appeal is allowed.

Summary

Issues Involved:
1. Justification of penalty under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars.
2. Validity of initiation of penalty proceedings under Section 271(1)(c) due to non-striking off inappropriate portions in the notice.

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c) for Concealment of Income and Furnishing Inaccurate Particulars:

The assessee sold a flat in Mumbai but did not disclose the income from long-term capital gains in the original return filed on 06.01.2012. During the assessment proceedings, the assessee's Authorized Representative (AR) claimed that the omission was due to mental disturbance and business losses, and subsequently submitted a revised computation of income including capital gains of ?53,25,629. The Assessing Officer (AO) computed the long-term capital gains with a minor adjustment and initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars and concealing income.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the penalty, noting that the disclosure was not voluntary but prompted by a specific query from the AO regarding immovable properties. The CIT(A) referenced case law indicating that voluntary disclosure does not absolve an assessee from penalty if it is a reaction to a notice rather than a proactive disclosure. The CIT(A) concluded that the assessee's explanation of mental disturbance was unsupported by evidence and that the disclosure was not voluntary but forced by the AO's inquiry.

2. Validity of Initiation of Penalty Proceedings under Section 271(1)(c) Due to Non-Striking Off Inappropriate Portions in the Notice:

The assessee argued that the penalty proceedings were invalid as the AO did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars in the notice issued under Section 274 read with Section 271(1)(c). The assessee relied on decisions from various High Courts, including the Karnataka High Court in Manjunatha Cotton and the Rajasthan High Court in Sheveta Construction, which held that the AO must clearly specify the grounds for penalty to ensure the assessee has an opportunity to contest the specific charges.

The Tribunal noted that in this case, the AO had initiated penalty proceedings for both offences and issued a notice accordingly. The Tribunal found that the AO's approach was consistent and did not reflect non-application of mind. The Tribunal dismissed the additional ground of appeal, concluding that the initiation of penalty proceedings was valid as it included both offences, giving the assessee adequate opportunity to explain both charges.

Conclusion:

The Tribunal concluded that the assessee's failure to disclose the capital gains was not voluntary and was prompted by the AO's specific inquiry. However, considering the peculiar facts and circumstances, including the assessee's mental disturbance and subsequent voluntary disclosure during assessment proceedings, the Tribunal held that the explanation was bona fide. Consequently, the penalty under Section 271(1)(c) was not justified, and the assessee's appeal was allowed.

Order Pronounced:

The appeal was allowed, and the order was pronounced in the open court on 04/10/2017.