2020 (1) TMI 246 - AT - Income Tax

Penalty u/s 271(1)(c) - income surrendered by the assessee during survey as well as addition made during the course of assessment framed u/s 143(3) - HELD THAT - At the outset, it is to be noted that the Explanation 5A to the section 271(1)(c) is relevant only when there is a search and seizure action under section 132 of the Act carried out after 1st June, 2007 and consequently during the course of search and seizure action if assessee is found to be owner of money, bullion, jewellery and other valuables or any income based on the entries in the books of account etc. then notwithstanding that such income is declared by the assessee in the return of income furnished on or after the date of search for the purpose of section 271(1)(c), he shall be deemed to have concealed the particulars of income or furnished inaccurate particulars of income. Therefore, the applicability of Explanation 5A is exclusively in the case of search and seizure action under section 132 of the Act and the said deeming provision cannot be applied in the case of survey conducted under section 133A of the Act. Concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee has to be in the income tax return filed by it. Even if some discrepancies were found during the survey resulting in surrender of income by the assessee, once the assessee has declared the said income in the return of income filed under section 139(1) of the Act, then the penalty cannot be levied on the surmises, conjectures and possibilities that the assessee would not have disclosed the income but for survey. Accordingly, following the earlier decision of this Tribunal as well as the decision of Hon ble Delhi High Court in case of CIT vs. SAS Pharmaceuticals 2011 (4) TMI 888 - DELHI HIGH COURT the penalty levied by the AO and confirmed by the ld. CIT (Appeals) in respect of the amount of ₹ 3 crore is not sustainable, the same is deleted.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the IT Act.
2. Confirmation of penalty imposed under section 271(1)(c) for the amount of ?1,03,86,055.
3. Vagueness of the show cause notice under section 274 and the consequent penalty order.
4. Additional grounds of appeal.

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The assessee challenged the penalty order dated 23rd July 2019, arguing it was bad in law and lacked jurisdiction. The penalty was imposed under section 271(1)(c) of the IT Act for the assessment year 2016-17. The primary contention was that the penalty was levied without specifying whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income," making the order vague and contrary to judicial principles.

2. Confirmation of Penalty Imposed under Section 271(1)(c) for ?1,03,86,055:
The assessee, an individual deriving income from business and profession, had a survey conducted under section 133A of the IT Act on 4th March 2016, where a diary indicating advances worth ?3 crores was found. The assessee admitted this amount as undisclosed income and included it in the return filed on 17th October 2016. The AO accepted the returned income, except for an addition of ?10,565 for short rental income, and initiated penalty proceedings for the surrendered income of ?3 crores and the addition of ?10,565. The AO imposed a penalty of ?1,03,86,055, which was upheld by the CIT (A).

The assessee argued that since the income was declared in the return filed under section 139(1) and no addition was made by the AO, it could not be considered as furnishing inaccurate particulars or concealing income. The assessee also contended that Explanation 5A to section 271(1)(c) was not applicable as it pertains to search and seizure actions under section 132, not surveys under section 133A.

The Tribunal noted that the AO's reliance on Explanation 5A was misplaced as it applies only to search and seizure actions. Since there was no difference between the returned and assessed income concerning the ?3 crores, it did not amount to concealment or furnishing inaccurate particulars. The Tribunal referred to the Delhi High Court's decision in CIT vs. S.A.S. Pharmaceuticals, which held that penalty under section 271(1)(c) requires actual concealment or non-disclosure in the return of income.

3. Vagueness of the Show Cause Notice under Section 274 and the Consequent Penalty Order:
The assessee argued that the show cause notice issued under section 274 was vague as it did not specify the exact charge—whether it was for concealment of income or furnishing inaccurate particulars. The Tribunal found merit in this argument, noting that such vagueness goes against judicial principles and renders the penalty order unsustainable.

4. Additional Grounds of Appeal:
The assessee sought the Tribunal's indulgence to add, amend, or alter grounds of appeal before the hearing date. However, this issue was not elaborated upon in the judgment.

Conclusion:
The Tribunal concluded that the penalty of ?1,03,86,055 levied on the surrendered income of ?3 crores was not sustainable as there was no concealment or furnishing of inaccurate particulars in the return filed. However, the penalty concerning the addition of ?10,565 for short rental income was upheld as it constituted clear concealment. The appeal was partly allowed, deleting the penalty on the ?3 crores but maintaining it for the ?10,565 addition.