2019 (7) TMI 1216 - AT - Income Tax

Penalty u/s 271(1)(c) - AO was not satisfied with the assessee s explanation and holding that the assessee could not have offered the additional income after the search and concealment of income based on an estimate, he levied the minimum penalty i.e. 100% of the amount sought to be evaded - HELD THAT - Penalty u/s 271(1)(c) is levied for not offering the additional income to tax in the original returns of income for offering the same only after confrontation during the course of search. Non-striking off the irrelevant portion of the show cause notice u/s 271(1)(c) - AO does not specify as to whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. DR had submitted that the assessee had concealed the income as well as furnished inaccurate particulars of income, but we find that the AO has used or and not and between concealment of income and furnishing of inaccurate particulars of income. Therefore, it is clear that the AO was not clear in his mind whether it was a case of furnishing of inaccurate particulars or concealment of income or he has failed to strike off the irrelevant portion in the proforma of the notice before issuing the same. Therefore, the additional grounds of appeal is to be admitted and allowed in view of the decision of the jurisdictional High Court in the case of Pr. CIT vs. Baisetty Revati reported in 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT The additional ground is therefore, allowed. Even on merits of the other grounds, we find that the disallowance of expenditure was not because it has been found to be bogus expenditure but it was because the assessee could not substantiate the same with bills and vouchers. In response to the show cause notice u/s 271(1)(c), the assessee had filed its explanation and there is no finding of the AO that the assessee s explanation is not acceptable or that it is not bonafide. Therefore, we are in agreement with the contentions of the learned Counsel for the assessee that though it is a good ground for making addition, it cannot be a ground for penalty u/s 271(1)(c) as held by the Hon'ble Supreme Court in the case of Reliance Petrochem Ltd 2010 (3) TMI 80 - SUPREME COURT Notice u/s 271AAB to levy penalty u/s 271(1)(c) - HELD THAT - AO gets the jurisdiction to levy the penalty by issuing a notice and therefore, it is not a procedural requirement but is a jurisdictional one. By issuing a notice, the AO has intimated the assessee the reasons for initiating penalty and the assessee gets an opportunity to explain the circumstances under which the default, if any, was committed and as to why the penalty was not leviable. By issuance of notice u/s 271AAB AO is seeking assessee s explanation as to why the penalty should not be levied on the undisclosed income declared in the returns of income, whereas u/s 271(1)(c) he is seeking assessee s explanation for furnishing of inaccurate particulars or concealment of income. Therefore, we agree with the findings of the CIT (A) that these two provisions operate in different circumstances and by issuance of notice u/s 271AAB AO cannot thereafter change it to section 271(1)(c) and levy penalty thereunder. Therefore, we do not find any reason to interfere with the order of the CIT (A). - Decided against revenue.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of penalty notice not specifying the charge (concealment of income or furnishing inaccurate particulars).
3. Legality of penalty proceedings under Section 271AAB versus Section 271(1)(c).

Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act:
The assessee was penalized under Section 271(1)(c) for not offering additional income in the original returns and only admitting it after a search. The assessee argued that the expenditure was not disputed, but due to deficiencies in maintaining records, additional income was offered. The AO levied a penalty, which was confirmed by the CIT (A). However, the Tribunal found that the disallowance was due to the inability to substantiate the expenses with bills and vouchers, not because the expenditure was bogus. The Tribunal agreed with the assessee that this is grounds for addition but not for penalty under Section 271(1)(c), citing the Supreme Court's decision in Reliance Petrochem Ltd.

2. Validity of Penalty Notice Not Specifying the Charge:
The Tribunal examined the penalty notice issued to the assessee, which did not specify whether the penalty was for "concealment of income" or "furnishing inaccurate particulars." The Tribunal noted that the AO used "or" instead of "and," indicating a lack of clarity. Citing the jurisdictional High Court's decision in Pr. CIT vs. Baisetty Revati, the Tribunal held that the penalty notice was invalid due to non-specification of the charge, thus allowing the additional ground raised by the assessee.

3. Legality of Penalty Proceedings Under Section 271AAB Versus Section 271(1)(c):
For the A.Y. 2014-15, the AO issued a notice under Section 271AAB but levied penalty under Section 271(1)(c). The CIT (A) observed that the conditions for penalties under Sections 271AAB and 271(1)(c) are different. The Tribunal agreed, stating that the AO cannot switch from Section 271AAB to Section 271(1)(c) after issuing the notice. The Tribunal upheld the CIT (A)'s decision, noting that the provisions operate in different circumstances and the jurisdiction to levy penalty depends on the correct issuance of notice.

Conclusion:
The Tribunal allowed the assessee's appeals for the A.Ys 2009-10, 2010-11, 2012-13, and 2013-14, and dismissed the Revenue's appeal for A.Y. 2014-15. The key findings were that the penalty under Section 271(1)(c) was not justified due to the lack of clear specification in the penalty notice and the differing conditions between Sections 271AAB and 271(1)(c). The Tribunal emphasized the necessity for the AO to clearly specify the grounds for penalty in the notice to maintain its validity.