2018 (8) TMI 673 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - defective notice - concealment of income or furnishings of inaccurate particulars - During the assessment proceedings, AO has made the addition by bifurcating the capital gain into capital gain and business income and thereafter recomputed the capital gain on the basis of the cost of acquisition adopted by the AO. The AO has also disallowed the claim of deduction U/s 80C of the Act of ₹ 16,000/- for want of required evidences. Held that - It is pertinent to note that in the show cause notice, the Assessing Officer has mentioned the charge as the assessee furnished inaccurate particulars of income or concealed the particulars of income whereas in the order passed U/s 271(1)(c), the Assessing Officer has stated that the assessee has furnished inaccurate particulars of income and concealed his income, therefore, the charge in the show cause notice is not certain whereas the levy of penalty in the impugned order is for both the limbs which is inconsistent with the charge as mentioned in the show cause notice. The findings of the Assessing Officer in the order passed U/s 271(1)(c) holding the assessee guilty of charge of furnishing inaccurate particulars of income and concealment of income is also contrary to the facts of the case. This action of the Assessing Officer bifurcating is based on the premises that the development work on the land and carving out of plots amount to converting the capital asset into stock in trade. Therefore, it is not a case of suppression of particulars or details of income but it is only different of view on the matter before the Assessing Officer. Hence it is not a case of concealment of particulars of income but at the most can be a case of furnishing inaccurate particulars of income. The claim of deduction U/s 80C of the Act regarding the tuition fee and LIC premium is also not a bogus claim and disallowance of same for want of payment receipt can only be considered as furnishing the inaccurate particulars of income but not as concealment of income when the fact regarding the children of assessee studying and the assessee is having LIC policy is not found to be false. Levy of penalty deleted - Decided in favor of assessee.

Issues Involved:
1. Validity of the order passed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Legality of the penalty levied under Section 271(1)(c) amounting to ?99,750.
3. Procedural correctness of the penalty proceedings initiated by the Assessing Officer.
4. Merits of the penalty imposed for disallowance of deduction under Section 80C.

Issue-Wise Detailed Analysis:

1. Validity of the Order Passed Under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee contended that the Assessing Officer (AO) failed to specify the exact charge for the penalty under Section 271(1)(c), whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income." This ambiguity in the charge was evident in both the assessment order and the show cause notice. The Tribunal referenced the Hon'ble Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory & Ors. and the Hon'ble Supreme Court's decision in CIT Vs SSA’s Emerald Meadows, which emphasized that penalty proceedings initiated without specifying the charge are invalid. Consequently, the Tribunal concluded that the order passed by the AO under Section 271(1)(c) was invalid and liable to be quashed.

2. Legality of the Penalty Levied Under Section 271(1)(c) Amounting to ?99,750:
The Tribunal examined the grounds for the penalty, which included the bifurcation of capital gains into long-term capital gains and business income, and the disallowance of deduction under Section 80C. The AO's decision to bifurcate the capital gains was based on the development work carried out on the land, which was deemed to convert the investment into stock-in-trade. However, the Tribunal found this to be a matter of differing views rather than a clear case of furnishing inaccurate particulars or concealment of income. Additionally, the fair market value estimation as of 01/04/1981 was considered a matter of estimation rather than suppression of particulars. The Tribunal held that these grounds did not justify the penalty under Section 271(1)(c).

3. Procedural Correctness of the Penalty Proceedings Initiated by the Assessing Officer:
The Tribunal noted that the AO did not specify the charge in the show cause notice, which mentioned both "concealment of particulars of income" and "furnishing inaccurate particulars of income." This lack of specificity rendered the initiation of penalty proceedings invalid. The Tribunal cited several judicial precedents, including the Hon'ble Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory & Ors., which held that the AO must clearly specify the grounds for penalty to allow the assessee an opportunity to respond. The Tribunal concluded that the penalty proceedings were initiated in a mechanical manner without proper application of mind, making the penalty order unsustainable.

4. Merits of the Penalty Imposed for Disallowance of Deduction Under Section 80C:
The AO disallowed the deduction under Section 80C for want of evidence of payment of tuition fees and Life Insurance Premium (LIC). The Tribunal found that the disallowance was made due to the assessee's inability to produce receipts, rather than the claim being bogus. The Tribunal held that the inability to produce receipts did not amount to furnishing inaccurate particulars or concealment of income. Therefore, the penalty imposed for this disallowance was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961, on the grounds of procedural invalidity and lack of merit in the penalty imposed. The order was pronounced in the open court on 09/08/2018.

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