2020 (12) TMI 574 - HC - Income Tax

Penalty u/s 271(1)(c) - defective notice - non specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars - HELD THAT - Admittedly, the notice did not specifically mention as to whether the assessee concealed particulars of his income or furnished inaccurate particulars or both. Such notices, which did not specify as to which limb of Section 271(1)(c) of the Act would get attracted, were held to be bad in law in the decision of CIT Vs. Manjunatha Cotton and Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT - we can safely hold that such notices are bad in law. Consequently, the penalty proceedings initiated are to be held to be wholly invalid. Whether there is any concealment of particulars of the assessee's income ? - mistake done by the assessee was to treat both the lands as agricultural lands - AO is incorrect because while completing the assessment under Section 143(3) of the Act, there was no allegation against the assessee as to furnishing of inaccurate particulars. But, AO did not accept the explanation offered by the assessee and made certain additions, which will not automatically result in interpreting the same as furnishing of inaccurate particulars - there is no specific finding as regards the concealment against the assessee because, on facts, it has been established before the Assessing Officer while completing the assessment under Section 143(3) of the Act that all transactions were through banking channels. In the instant case, the assessee offered an explanation and we find the explanation to be cogent because all deposits were made through banking channels and out of two properties sold, the AO accepted the assessee's stand that one of the properties was an agricultural land. Hence, we find that the burden cast upon the assessee to offer an explanation stands fulfilled. Consequently, the burden now shifts to the Revenue to establish the concealment of income or furnishing of inaccurate particulars of income or both. If the Revenue does not agree with the explanation offered by the assessee as in the instant case, then the onus is on the Revenue to prove that there was concealment of particulars of income or furnishing of inaccurate particulars of income. We find this aspect to be completely absent in the instant case. Therefore, we also find the imposition of penalty to be unjustified. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30.3.2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under Section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 271(1)(c) of the Income Tax Act, 1961.
2. Legality and validity of the proceedings initiated by the Assessing Officer.
3. Justification of the Appellate Tribunal in rejecting the technical ground of wrong initiation of penalty proceedings.
4. Consideration of the law laid down by the Apex Court regarding 'facts disproved' and 'facts not proved.'
5. Appellate Tribunal's treatment of the source of cash deposits from the sale of capital assets.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 271(1)(c):
The notice dated 30.3.2016 did not specifically mention whether the proceedings were initiated on the ground of concealment of income or furnishing of inaccurate particulars. This was held to be bad in law based on precedents from the Karnataka High Court and the Madras High Court. The court concluded that such notices are invalid, rendering the penalty proceedings wholly invalid.

2. Legality and Validity of the Proceedings Initiated by the Assessing Officer:
The assessee argued that there was no concealment of particulars of income or furnishing of inaccurate particulars. The court found that the assessee had disclosed all transactions through banking channels and had consistently maintained that the lands were agricultural. The court concluded there was no material to allege concealment of income, and the proceedings initiated were invalid.

3. Justification of the Appellate Tribunal in Rejecting the Technical Ground:
The Tribunal's rejection of the technical ground regarding the wrong initiation of penalty proceedings was found to be incorrect. The court noted that the assessee had raised a specific plea against the issuance of the notice, and the Tribunal's finding that the assessee raised a new stand was erroneous. The court held that the notice's inherent defect vitiated the entire proceedings.

4. Consideration of the Law Laid Down by the Apex Court:
The court examined the application of the law regarding 'facts disproved' and 'facts not proved.' The court found that the assessee had provided a cogent explanation for the transactions, and the burden shifted to the Revenue to prove concealment or furnishing of inaccurate particulars. The Revenue failed to discharge this burden, making the imposition of penalty unjustified.

5. Appellate Tribunal's Treatment of the Source of Cash Deposits:
The court found that the assessee had consistently explained the source of cash deposits as proceeds from the sale of livestock and standing crops. The Tribunal's finding that the assessee raised a new stand was incorrect. The court held that the explanation offered by the assessee was bona fide and that the penalty could not be imposed based on the rejection of the explanation alone.

Conclusion:
The court allowed the appeal, set aside the impugned order passed by the Tribunal, and answered the substantial questions of law in favor of the assessee. The notice initiating the penalty proceedings was declared defective and invalid, and the findings of the Assessing Officer, CIT(A), and the Tribunal did not warrant the imposition of penalty.

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