2020 (2) TMI 986 - AT - Income Tax

Unexplained investment u/s.69 - physical stock found is less than what is reflected in the books of account - HELD THAT - CIT(Appeals) observed that where physical stock found is less than what is reflected in the books of account, than there cannot any addition on account of unexplained investment. In the case of shortage of stock a valid presumptions would be that the stock has been sold outside the books of accounts and therefore, the Ld.CIT(Appeals) was of the view, the only addition that can be made is that of gross profit on estimate basis. Since the stock was accounted for in the books of account accordingly there can be no addition on account of unexplained investments. - Decided against revenue Penalty proceedings u/s.271 (1)(c) - Defective notice - HELD THAT - AO should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation of penalty proceedings would be on both the limbs i.e. for furnishing inaccurate particulars of income or concealment of income or without any limbs of Section 271(1)(c) of the Act. AO has to mention specific limbs while imposing penalty u/s.271(1)(c) of the Act. The sanctity in terms of natural justice with regard to this proposition is that the assessee under the scheme of welfare legislation which is embedded in the Income Tax Act, 1961 should get an opportunity to prepare himself for the defense as regards to the exact charge on which penalty is imposed upon him u/s. 271(1)(c) of the Act. In the instant case, no limb/charge has been mentioned by the Assessing Officer and therefore, levy of penalty is not warranted. - Decided in favour of assessee.

Summary

Issues:
1. Addition on account of unexplained investment
2. Deletion of penalty u/s.271(1)(c) of the I.T. Act

Issue 1: Addition on account of unexplained investment

The case involved an appeal by the Revenue against the order of the Ld. CIT(Appeals) for the assessment year 2008-09. The Assessing Officer had added an amount as unexplained investment under section 69 of the Income Tax Act, 1961, based on discrepancies found during a survey. The Ld.CIT(Appeals) granted partial relief to the assessee, leading to the Revenue's appeal. The Ld.CIT(Appeals) held that where physical stock is less than what is in the books, no addition for unexplained investment is warranted. The only valid addition is for gross profit. Citing legal precedents, the Ld.CIT(Appeals) directed the deletion of the unexplained investment amount. The ITAT upheld the Ld.CIT(Appeals)'s order, stating that the Revenue's grounds lacked merit, and dismissed the appeal.

Issue 2: Deletion of penalty u/s.271(1)(c) of the I.T. Act

In the second appeal, the Revenue challenged the deletion of the penalty imposed under section 271(1)(c) of the I.T. Act by the Ld. CIT(Appeals). The Ld. AR of the assessee argued that the penalty was unsustainable due to the Assessing Officer's failure to specify the limb of clause (c) under which the penalty was levied. The ITAT noted that both the assessment order and the penalty order lacked specificity regarding the charge for the penalty. Relying on legal judgments, the ITAT concluded that the penalty order was unsustainable in law due to the ambiguity in specifying the limb of clause (c). Upholding the Ld. CIT(Appeals)'s order, the ITAT dismissed the Revenue's appeal, emphasizing the importance of clarity in specifying the charge for penalty imposition under section 271(1)(c) of the Act.

In conclusion, the ITAT dismissed both appeals by the Revenue, affirming the decisions of the Ld.CIT(Appeals) in both instances. The judgments highlighted the necessity of clarity and specificity in legal proceedings, particularly regarding additions and penalties under the Income Tax Act, 1961.