2019 (2) TMI 275 - AT - Income Tax

Penalty u/s 271(1)(c) - specification of charge - unexplained money u/s. 69A - Held that - The satisfaction recorded by the AO in the assessment proceedings, separately for ₹ 22.10 lacs and ₹ 3 lacs, toward initiating penalty proceedings u/s.271(1)(c), is categorical, i.e., for concealment of particulars of income. It is on the basis of this satisfaction that the AO derives the necessary jurisdiction to initiate penalty proceedings and issue the show cause notice u/s. 274, which only seeks to put the assessee to notice as to why penalty u/s. 271(1)(c) in the facts and circumstances of its case be not levied. How could, one may ask, the notice u/s. 274 be construed as not in terms of the said satisfaction? The limb of sec. 271(1)(c) under which the penalty may, where so, be finally levied, is determined only subsequently, i.e., upon considering the assessee s explanation. How could then the absence of the said specification in the notice, particularly where the satisfaction of the AO in the assessment proceedings giving rise to the said notice, is not under challenge, be fatal to the proceedings? The difference between the two limbs, which signify omission and commission respectively, may in the facts of a case, or considering the explanation furnished, be very thin or even overlap (refer A.M. Shah v. CIT 1998 (8) TMI 607 - GUJARAT HIGH COURT . The penalty u/s. 271(1)(c), it was further explained, could in either case be levied only where there is a failure to disclose fully and truly particulars of his income by the assessee, and that there could be no straitjacket formula for ascertaining the two charges. In the instant case, in fact, both the satisfaction as well as the levy of penalty is qua concealment of particulars of income. A defective notice, even assuming so, would not defeat the proceedings. As regards the issue on merits, what all, as a bare reading of the relevant provision (s.271(1)(c)) would reveal, the assessee is to do is to render a bona fide explanation, substantiating it (Explanation 1). This explains the ambit of the penalty proceedings u/s. 271(1)(c), also exhibiting as to how these are, thus, different from the assessment proceedings. A plausible explanation, thus, saves penalty. The requirement of substantiation, it may be appreciated, is toward establishing the truth of the explanation furnished. The burden to so explain is though on the assessee, failing which the assessee is deemed by law to have concealed the particulars of his income. The penalty would stand equally attracted where the assessee fails to give any explanation, or that furnished by him is found to be false by the Revenue. It is inconceivable that an amount given, assuming so, under trust by a close relative for a specific purpose/need, presumably urgent, is, as stated, retained for years, for which there is again no explanation. Why did not the assessee state the truth? A tractor, rather, could be purchased directly by his brother-in-law, even if by taking guidance from the assessee in the matter, if that was the reason, or from a dealer known to the assessee, where that was the case. No purchase of a tractor is shown in the relevant year or even subsequently. If indeed it was for the purchase of the tractor, his co-brother would have asked back the amount for acquiring it, rather than leaving it with the assessee to use the same and return it on his whim and fancy. The return of money, as it s giving, is without evidence. The statements of both, the assessee and Shri Harjeet Singh, are totally unconvincing, besides being contrary. Finally, the very fact that the assessee seeks a telescoping benefit, which he is allowed by the first appellate authority, again, strongly suggests of the money deposited in the account being kept out of books for being utilized for personal purposes or for rotation in his business. The assessee s claim of the untenability of the impugned penalty as it is based on estimation, raised before the ld. CIT(A), only needs to be stated to be rejected. There is no question of any estimation, and the penalty is qua cash found deposited in the assessee s bank account, the nature and source of which he though is unable to explain. No hesitation in confirming the levy of penalty, which though could be levied only on the addition as finally sustained by the first appellate authority in quantum. - Decided against assessee.

Issues Involved:
1. Validity of the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.
2. Merits of the penalty imposed for concealment of particulars of income.

Detailed Analysis:

1. Validity of the Penalty Proceedings under Section 271(1)(c):
The assessee argued that the notice under section 274 was invalid as it did not specify the limb under which the penalty was being proposed, citing the decision in SSA’s Emrald Meadows case. However, the Tribunal found this plea inadmissible because the notice was not on record, and the assessee did not take a specific ground regarding this issue. The Tribunal referred to NTPC Ltd. v. CIT, which allows a legal ground to be admitted if the necessary facts are on record and not disputed.

Without prejudice, the Tribunal held that the claim was untenable. The satisfaction recorded by the AO in the assessment proceedings was categorical for concealment of particulars of income, which provided the necessary jurisdiction to initiate penalty proceedings. The Tribunal emphasized that the absence of specification in the notice does not invalidate the proceedings, especially when the satisfaction of the AO is not under challenge. The Tribunal cited several judicial precedents, including Kantamani Venkata Narayana & Sons vs. First Additional ITO and CIT v. Manu Engineering Works, to support its stance that a defective notice does not defeat the proceedings.

2. Merits of the Penalty Imposed for Concealment of Particulars of Income:
The Tribunal examined whether the assessee provided a bona fide explanation for the cash deposits in the undisclosed bank account. The assessee claimed that the cash deposits were sourced from advances given by his younger brother and brother-in-law. However, the Tribunal found inconsistencies in the statements provided by these individuals.

The Tribunal noted that the assessee failed to explain why the bank account was not disclosed and why the transactions were not reported to the Revenue. The explanation provided by the assessee was found to be false and unsubstantiated. The Tribunal highlighted that the statements of the assessee's brother and brother-in-law were unconvincing and contrary to the assessee's claims.

The Tribunal referred to several Supreme Court decisions, including Mak Data (P.) Ltd. vs. CIT and Union of India v. Dharmendra Textile Processors, which clarify that a plausible explanation saves penalty, but the burden of substantiation lies on the assessee. The Tribunal concluded that both clauses (A) and (B) of Explanation 1 to section 271(1)(c) were attracted in this case, as the assessee failed to furnish a credible explanation and the explanation provided was found to be false.

The Tribunal rejected the assessee's claim that the penalty was based on estimation, clarifying that the penalty was for unexplained cash deposits in the bank account.

Conclusion:
The Tribunal confirmed the levy of penalty under section 271(1)(c) for concealment of particulars of income, but directed the AO to verify the exact amount of addition sustained by the first appellate authority and levy penalty accordingly. The assessee's appeal was dismissed.

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