2020 (4) TMI 580 - AT - Income Tax

Penalty u/s 271(l)(c) - Defective notice without striking of inapplicable part of show cause notice - estimation of income on unexplained cash deposits in bank account - estimation of unexplained expenditure incurred by the assessee for household and ceremonial expenses - HELD THAT - AO has recorded clear satisfaction as required under the law during the course of assessment proceedings, before initiate penalty proceedings u/s 271(1)(c). Therefore, we are of the considered view that there is no merit in legal arguments taken by the assessee and accordingly, ground of assesee appeal is rejected. Levy of penalty u/s 271(1)(c) instead of penalty u/s 271AAA - Assessment pursuant to search u/s 132 - HELD THAT - In this case, the search was conducted on 28/02/2009, which comes within the relevant assessment year 2009-10. The addition made in assessment proceedings is consequent to search proceedings conducted u/s 132 and on the basis of incriminating material found during the course of search. Thus, two requirements of the provisions of section 271AAA i.e, the undisclosed income and specified previous year are fulfilled - Penalty, if at all is leviable, it can be levied only u/s 271AAA of the I.T.Act, 1961, but not u/s 271(1)(c) Arguments of the Ld. DR that although, provision of section 271AAA is applicable for specified previous year, but additions made in the assessment is on estimation basis, and therefore, the conditions prescribed u/s 271AAA are not fulfilled in order to levy penalty under said section is incorrect, because whether addition is made on estimation basis or on the basis of certain evidences, fact remains that the additions made in the assessment is pursuant to search conducted u/s 132 and such income is on the basis of incriminating material found, as a result of search. Therefore, we are of the considered view that the additions made in the assessment proceedings, is towards undisclosed income of a specified year and hence, penalty if at all is leviable, it can be levied only u/s 271AAA of the Act, but not under section 271(1)(c) AO was erred in levying penalty u/s 271(1)(c) in a cases, where the assessment has been completed for a specified previous year and addition has been made towards undisclosed income unearthed during the course of search conducted u/s 132 - penalty levied by the Ld. AO u/s 271(1)(c) cannot be sustained under the law and hence, we direct the Ld. AO to delete penalty levied u/s 271(1)(c). Additions towards undisclosed income on account of cash deposits in undisclosed bank account towards professional receipts for the relevant year, on the basis of incriminating material found during the course of search - Addition is only on estimation basis that too on the basis of expenditure incurred by the assesee in cash for household expenses, ceremonial expenses etc. Therefore, we are of the considered view that when, addition is made on estimation basis that too on the basis of material found during the course of search for part of the period, then levying penalty u/s 271(1)(c) on such estimated addition is incorrect. AO has made additions towards undisclosed cash deposits in bank account without establishing fully that assessee has deposited cash into bank account for the remaining period of the financial year. AO has not made out a clear case of concealment of particulars of income or furnishing inaccurate particulars of income, which warrants levy of penalty u/s 271(1)(c) - AO was incorrect in levying penalty u/s 271(1)(c), in respect of additions made towards undisclosed income on the basis of estimation. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under section 274 read with section 271(1)(c).
2. Applicability of penalty provisions under section 271(1)(c) versus section 271AAA.
3. Legitimacy of the penalty imposed on estimated income additions.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 274 read with section 271(1)(c):
The assessee contended that the notice issued under section 274 read with section 271(1)(c) was invalid as it did not record any satisfaction before initiating penalty proceedings. However, the tribunal found that the Assessing Officer (AO) had recorded clear satisfaction during the assessment proceedings before initiating penalty proceedings under section 271(1)(c). Consequently, the tribunal rejected the assessee's argument and upheld the validity of the notice.

2. Applicability of penalty provisions under section 271(1)(c) versus section 271AAA:
The assessee argued that the penalty should be levied under section 271AAA, which applies to cases where searches are conducted, rather than under section 271(1)(c). The tribunal noted that the search was conducted on 28/02/2009, falling within the relevant assessment year 2009-10, and the additions were made based on incriminating material found during the search. The tribunal concluded that the penalty, if any, should be levied under section 271AAA, as it pertains to undisclosed income of a specified previous year. The tribunal cited judicial precedents supporting this view, including decisions from the ITAT Delhi and Ahmedabad benches, which held that section 271AAA and section 271(1)(c) are mutually exclusive. Therefore, the tribunal directed the AO to delete the penalty levied under section 271(1)(c).

3. Legitimacy of the penalty imposed on estimated income additions:
The AO had made additions towards undisclosed income based on cash deposits in undisclosed bank accounts, estimated from incriminating materials found during the search. The ITAT had sustained a portion of these additions on an estimation basis for household and ceremonial expenses. The tribunal observed that penalties under section 271(1)(c) should not be levied on estimated additions, especially when the additions were based on partial records and estimations. The tribunal noted that the AO did not establish a clear case of concealment of income or furnishing inaccurate particulars. Consequently, the tribunal found that the penalty levied under section 271(1)(c) was incorrect and directed the AO to delete the penalty.

Conclusion:
The tribunal concluded that the penalty levied under section 271(1)(c) was not sustainable under the law. It directed the AO to delete the penalty, thereby allowing the assessee's appeal and dismissing the revenue's appeal. The tribunal emphasized that penalties should be levied under the appropriate provisions, considering the specific circumstances and legal requirements.