2018 (5) TMI 706 - AT - Income Tax

Penalty u/s 271(1)(c) - survey conducted u/s 133A - assessee surrendered additional stock and paid the taxes thereon but not disclosed in return of income - non specification of charge - Held that - The assessee not only surrendered the income during the course of survey but also paid the tax thereon before filing the return of income - assessee did not reflect the surrendered amount and tax paid thereon in the said return but when the mistake was pointed out, the assessee surrendered that income. It is well settled that the assessment proceedings and the penalty proceedings are two different and separate proceedings. Therefore, even when some addition is to be made to the income of the assessee, it is not always necessary that the penalty u/s 271(1)(c) of the Act is to be levied. In the present case, it cannot be said that the surrendered income was not voluntarily and the assessee wanted to conceal the income since the tax had already been paid on the amount which was surrendered during the course of survey. AO in the notice issued u/s 274 r.w.s. 271 was not sure as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of such income which is evident from the said notice wherein neither of the two was struck off. Penalty u/s 271(1)(c) of the Act was not leviable - Decided in favour of assessee.

Issues Involved:
1. Confirmation of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Adequacy of opportunity provided to the assessee during penalty proceedings.
3. Nature of the mistake made by the assessee (bonafide or otherwise).
4. Specificity of the charge in the penalty notice issued under Section 274 read with Section 271 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this appeal was the confirmation of a penalty of ?3,00,000/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed due to the assessee's failure to include an additional income of ?10,00,000/- surrendered during a survey conducted under Section 133A of the Act. The AO considered this as concealed income and levied the penalty accordingly. However, the assessee argued that the omission was inadvertent and the income was credited to the capital account instead of the profit and loss account.

2. Adequacy of Opportunity Provided to the Assessee During Penalty Proceedings:
The assessee contended that the penalty proceedings were completed in a hurry and that adequate opportunity was not provided. However, the CIT(A) observed that the assessee took four months to disclose the additional income after being confronted by the AO, which indicated a lack of bonafide intention. The CIT(A) thus confirmed the penalty, viewing the delay as a betrayal of trust.

3. Nature of the Mistake Made by the Assessee (Bonafide or Otherwise):
The assessee maintained that the omission was a bonafide mistake. The assessee had disclosed the income and paid the taxes, but the amount was inadvertently not credited to the profit and loss account. The ITAT Delhi Bench in a similar case (Saran Kumar Goel Vs ITO) had ruled that no penalty is leviable if the omission was inadvertent and the tax had been paid before filing the return. The Tribunal in the present case also found that the assessee had surrendered the income during the survey and paid the tax before filing the return, supporting the claim of inadvertence.

4. Specificity of the Charge in the Penalty Notice Issued under Section 274 read with Section 271 of the Income Tax Act:
The assessee argued that the penalty notice issued under Section 274 read with Section 271 did not specify the charge, i.e., whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal noted that the AO was not specific in the notice, as neither of the two charges was struck off. The Karnataka High Court in CIT Vs Manjunatha Cotton and Ginning Factory held that the AO must be specific about the charge in the penalty notice. The Supreme Court also dismissed the SLP against this ruling, reinforcing the requirement for specificity.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not justified in this case. The assessee had voluntarily surrendered the income during the survey and paid the taxes before filing the return. The omission was inadvertent, and the AO's penalty notice lacked specificity regarding the charge. Therefore, the penalty levied by the AO and sustained by the CIT(A) was dismissed, and the appeal of the assessee was allowed.

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