2020 (2) TMI 834 - AT - Income Tax

Penalty u/s 271(l)(c) - defective notice - non specification of charge - Assessee concealed his income from proprietary concern in which name the assessee has opened two bank accounts and made addition on maximum peak credit in both the accounts - HELD THAT - There is no dispute that the AO during the assessment on the basis of AIR information noted that the assessee was maintaining bank accounts with HDFC Bank Ltd in the name of proprietary concern Krishna Enterprises. The income from Krishna Enterprises was not disclosed by assessee in the income offered for taxation. The AO added peak credit of both the bank accounts. The AO while passing the assessment order initiated penalty for concealing the particulars of income and furnishing inaccurate particulars of income. However, while levying the penalty, the AO levied penalty only for concealment of income. In reply to the show cause notice the assessee explained that due to oversight the assessee could not disclosed the bank account. However, the AO while levying penalty not accepted the explanation furnished by assessee. The AO recorded that the assessee has not disclosed the transaction in the bank statement of his proprietory concern. The AO nowhere recorded that the assessee was with some other name or running more than one proprietorship. We noted that the AO, failed to discharge his onus as he was not sure at the initiation of penalty under section 271(1)(c) for which specific charge of penalty has been initiated by the AO. Even while levying the penalty also, the AO simply relied on the Explanation 1to s. 271(1)(c). Therefore, in our opinion, the basis of levy of penalty itself is not correct. Basis of levy of penalty itself is not correct. Thus, we direct the assessing officer to delete the penalty. In the result the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the assessee concealed income or furnished inaccurate particulars of income.
3. Application and interpretation of Explanation 1 to Section 271(1)(c).

Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c):
The appeals challenge the common order of the CIT(A)-3, Nasik, which confirmed the penalty levied under Section 271(1)(c) for the assessment years 2010-11, 2011-12, and 2012-13. The assessee contended that the penalty order was unsustainable as the penalty proceedings were not initiated in accordance with the provisions of law. The assessee argued that no penalty was leviable as there was no concealment of income or furnishing of inaccurate particulars.

2. Concealment of Income or Furnishing Inaccurate Particulars:
During the assessment, the AO noted that the assessee had not disclosed certain bank accounts and added the peak credit of these accounts to the total income. The AO issued a show cause notice under Section 274 r.w.s. 271(1)(c), and upon receiving the assessee's reply, concluded that the assessee had concealed income by not disclosing the bank accounts of Krishna Enterprises. The AO levied a penalty of ?3,85,920/- for AY 2010-11, which was confirmed by the CIT(A).

3. Application and Interpretation of Explanation 1 to Section 271(1)(c):
The Tribunal examined the provisions of Section 271(1)(c) and Explanation 1, which deals with the concealment of income and furnishing inaccurate particulars. The Tribunal noted that the AO initiated penalty proceedings under both limbs of Section 271(1)(c) but ultimately levied the penalty for concealment of income. The Tribunal emphasized that penalty can be imposed for a specific charge and not for an evasive observation. It was noted that the AO did not apply his mind while initiating and levying the penalty, as required by law.

The Tribunal referred to various judicial precedents, including the Supreme Court and High Court decisions, which highlighted the necessity for the AO to specify the exact charge and provide a fair opportunity to the assessee to explain their stand. The Tribunal found that the AO failed to discharge his onus and was not clear about the specific charge while initiating the penalty proceedings. The Tribunal also noted that the assessee's explanation for the non-disclosure of the bank accounts was not found to be false.

Conclusion:
The Tribunal concluded that the basis of the levy of penalty was incorrect and directed the AO to delete the penalty. The appeals for the assessment years 2010-11, 2011-12, and 2012-13 were allowed, and the penalty orders were set aside. The Tribunal's decision was based on the failure of the AO to specify the exact charge and the improper application of the provisions of Section 271(1)(c) and Explanation 1.