2018 (11) TMI 469 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - unexplained investment in construction of house - recording of satisfaction - opinion of the registered valuer is not accepted - Held that - The notice initiating the penalty proceedings is uncertain where he uses the expression concealment particulars of income or furnished inaccurate particulars of income . As during the penalty proceedings, he has given a decisive finding as reflected in the penalty order that the assessee is guilty of concealment of particulars of income by not disclosing the investment in the construction of his house. As held in case of HPCL Mittal Energy vs Add. CIT 2018 (8) TMI 507 - ITAT AMRITSAR the uncertain charge at the time of initiation of penalty has been made good and substituted with a conclusive default at the time of passing the penalty order and that in such a case, no fault can be found in the penalty order. In such a case, we donot see any infirmity in the penalty order so passed by the Assessing officer and the contentions so raised by the AR in this regard are not accepted. Minor differences in estimation and consequent valuation are but natural and so long as fundamental methodology so adopted by the valuation officer are not disputed, such minor differences in valuation cannot form the basis for levy of penalty as held by various Courts including the Hon ble Supreme Court in case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME COURT) wherein it was held that only because the opinion of registered valuer is not accepted or some other expert gives another opinion, is not by itself sufficient for arriving at a conclusion that the assessee had furnished inaccurate particulars attracting penalty u/s 271(1)(c). In light of the same, the penalty so levied u/s 271(1)(c) of the Act is hereby directed to be deleted in hands of Sh. Sapan Jain. - decided in favour of assessee.

Issues Involved:
1. Legality of penalty orders under Section 271(1)(c) of the Income Tax Act.
2. Confirmation of penalty on unexplained investment in house construction.
3. Applicability of Explanation 5A to Section 271(1)(c).
4. Specificity of charges in penalty notices and orders.
5. Validity of penalty based on estimated additions.

Issue-wise Detailed Analysis:

1. Legality of Penalty Orders under Section 271(1)(c):
The appellants challenged the legality of the penalty orders passed under Section 271(1)(c) of the Income Tax Act, claiming they were illegal and bad in law. The Tribunal analyzed whether the conditions specified in Explanation 5A to Section 271(1)(c) were fulfilled. It was concluded that the conditions were met, making the invocation of Explanation 5A appropriate. However, the Tribunal emphasized that penalty provisions require strict interpretation, and the specific charge against the assessee must be clear.

2. Confirmation of Penalty on Unexplained Investment in House Construction:
The assessees were penalized for unexplained investments in house construction. The Assessing Officer (AO) referred the matter to the District Valuation Officer (DVO), who estimated the construction cost significantly higher than what the assessees declared. The CIT(A) reduced the addition based on defects in the DVO's report. The Tribunal noted that the penalty was based on the DVO's estimation, which was not substantiated by concrete evidence of actual investment. The Tribunal cited several cases, including Dilip N. Shroff vs. JCIT and CIT vs. K.R. Chinni Krishna Chetty, to support the view that penalty should not be levied based solely on valuation differences.

3. Applicability of Explanation 5A to Section 271(1)(c):
Explanation 5A deems the assessee to have concealed income if certain conditions are met during a search. The Tribunal found that these conditions were satisfied in the instant case, as the assessees did not disclose the full cost of construction in their returns filed under Section 153A. The Tribunal upheld the applicability of Explanation 5A but emphasized that the presumption of concealment is rebuttable.

4. Specificity of Charges in Penalty Notices and Orders:
The Tribunal highlighted the importance of specifying the charge against the assessee in penalty notices and orders. It referred to the decision in HPCL Mittal Energy vs. Add. CIT, which emphasized that the AO must be clear whether the penalty is for "concealment of income" or "furnishing inaccurate particulars of income." In this case, the AO's penalty notice was found to be uncertain, using the expression "concealment particulars of income or furnishing inaccurate particulars of income." However, the penalty order conclusively found the assessee guilty of "concealment of particulars of income," which the Tribunal deemed acceptable.

5. Validity of Penalty Based on Estimated Additions:
The Tribunal noted that the penalty was based on estimated additions from the DVO's report, which were not supported by concrete evidence. The Tribunal referred to various judicial pronouncements, including Shiv Lal Tak vs. CIT and CIT vs. Krishi Tyre Retreating and Rubber Ind., which held that penalty should not be levied on estimated additions. The Tribunal concluded that minor differences in valuation should not form the basis for penalty and directed the deletion of the penalty in both cases.

Conclusion:
The Tribunal allowed the appeals, deleting the penalties imposed under Section 271(1)(c) for both assessment years. The decision emphasized the need for clear and specific charges in penalty notices and orders and held that penalties should not be based solely on estimated additions from valuation reports. The Tribunal's judgment underscored the importance of strict interpretation of penal provisions and the rebuttable nature of presumptions under Explanation 5A.

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