2021 (1) TMI 834 - AT - Income Tax

Penalty u/s 271(1)(c) - Assessee failed to substantiate the details of all the assets held by him with the explainable sources and adopted Net Wealth Accretion Method to arrive at his undisclosed income - whether the charge against the assessee is concealing of particulars of income or furnishing of inaccurate particulars of income? - defective notice u/s 274 - income so declared by the assessee was accepted by the AO and assessment was completed for the aforesaid Assessment Year under section 153A - HELD THAT - Show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee, which is based on the decisions referred to in the earlier part of this order, has to be accepted. We therefore hold that imposition of penalty in the present cases cannot be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing appeals and cross-objections.
2. Validity of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.
3. Defectiveness of the show cause notice issued under section 274 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The Revenue's appeals had a delay of one day, which was explained as due to administrative reasons. The Tribunal condoned this delay, considering it not inordinate. Conversely, the assessee's cross-objection (C.O.) was delayed by 327 days. The delay was attributed to the previous Chartered Accountant's failure to advise the filing of a C.O. and subsequent advice from new counsel. The Tribunal accepted the reasons and condoned the delay, citing Rule 27 of the ITAT Rules, 1963, which allows the assessee to support the order appealed against on any ground.

2. Validity of Penalty under Section 271(1)(c):
The Revenue appealed against the CIT(A)'s decision to delete the penalty imposed by the AO under section 271(1)(c). The AO had imposed the penalty on the grounds that the assessee, engaged in real estate and leasing quarries, had not filed returns regularly despite earning taxable income and was found with concealed income during a search. The assessee filed returns in response to a notice under section 153A, which were accepted without any additions. The CIT(A) deleted the penalty, referencing the Karnataka High Court's ruling in CIT vs. Manjunatha Cotton & Ginning Factory, which held that penalty cannot be imposed merely because the assessee accepted the assessment order, unless it is discernible that the addition was due to concealment or filing of inaccurate particulars of income.

3. Defectiveness of Show Cause Notice under Section 274:
The assessee raised an additional ground in the C.O., challenging the validity of the penalty order on the basis that the show cause notice under section 274 was defective. The notice did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal reviewed the show cause notices and found that the AO had not struck off the irrelevant portions, thus failing to specify the exact charge. This defect was deemed fatal, referencing the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which mandates that the notice under section 274 should clearly state the grounds for penalty. The Tribunal concluded that the imposition of penalty based on such a defective notice could not be sustained.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the penalty, albeit for different reasons, specifically the defectiveness of the show cause notice under section 274. Consequently, the Revenue's appeals were dismissed, and the assessee's cross-objections were partly allowed.