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2021 (2) TMI 866 - AT - Income TaxPenalty u/s. 271(1)(c) - concealment of income - Defective notice - non specification of charge - income which was disclosed by assessee only on the basis of seized material and shown in return filed in response to notice u/s. 153A - HELD THAT - On perusal of the above show cause notice it is evident that the Ld. A.O. has mentioned both the charges as provided in Section 271(1)(c) of the Act. Ld. A.O. has not striked off one of the charge not applicable on the assessee. In the assessment order framed on 30.11.2017 Ld. A.O. initiated the penalty proceedings against the assessee for concealment of income. However in the penalty notice both the charges are mentioned. Under these given facts where specific charges have not levelled against the assessee in the notice issued u/s. 274 of the Act, we in view of settled judicial principles as well as following the judgment of Hon'ble Jurisdictional High Court in the case of PCIT V/s. Kulwant Bhatia 2018 (5) TMI 960 - MADHYA PRADESH HIGH COURT are treating such type of notices as bad in law since they are not meeting the specific requirement of law. AO. was not justified in levying the penalty for the alleged concealment of income even when the income was duly disclosed in the original return of income, no incriminating material was found during search u/s. 132 of the Act relating to this transaction of sale of equity shares and assessee suo moto offered it to tax under other head of income. Thus the finding of Ld. CIT(A) deleting the penalty u/s. 271(1)(c) of the Act needs no interference - Decided in favour of assessee.
Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of the penalty notice issued under Section 274 of the Income Tax Act, 1961. 3. Applicability of Explanation 5A to Section 271(1)(c) of the Income Tax Act, 1961. 4. Merits of the case regarding the change in the head of income. Issue-wise Detailed Analysis: 1. Deletion of Penalty Levied under Section 271(1)(c): The revenue challenged the deletion of a penalty amounting to ?1,01,17,700/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961, on grounds of concealment of income. The assessee had initially declared an income of ?64,72,500/- for the Assessment Year (AY) 2014-15. Following a search operation, the assessee revised the income to ?3,62,34,200/- in response to a notice under Section 153A, including an additional income of ?2,97,66,605/- which was previously claimed as exempt. The AO viewed this as concealment of income and levied a penalty. The CIT(A) deleted this penalty, relying on the judgment of the Hon'ble Supreme Court in CIT vs. Suresh Chandra Mittal, which held that no penalty could be levied when an assessee voluntarily surrenders income in good faith to avoid litigation. 2. Validity of the Penalty Notice Issued under Section 274: The CIT(A) allowed the legal ground in favor of the assessee, holding that the penalty notice issued under Section 274 was vague and not legally sustainable as it did not specify the exact charge against the assessee—whether it was for concealment of income or furnishing inaccurate particulars of income. This was supported by the jurisdictional High Court's decision in PCIT vs. Kulwant Singh Bhatia, which held that a penalty notice must be specific in its charge to meet legal requirements. 3. Applicability of Explanation 5A to Section 271(1)(c): The AO had invoked Explanation 5A to Section 271(1)(c), which deems an assessee to have concealed income if it was not declared in the return filed before the date of search. However, the CIT(A) found that the income in question was disclosed in the original return under the head "Income from Capital Gains" and was not a case of non-disclosure. The mere change in the head of income during the search did not amount to concealment, and thus, Explanation 5A was not applicable. 4. Merits of the Case Regarding the Change in the Head of Income: The assessee had disclosed the sale of shares and claimed the resultant long-term capital gain as exempt in the original return. During the search, the assessee offered this income as business income. The AO initiated penalty proceedings, arguing that the income would not have been offered if not for the search. The CIT(A) found that the income was duly disclosed in the original return and that the change in the head of income during the search did not constitute concealment. The Tribunal upheld this view, noting that the particulars of income were disclosed and the change in the head of income was voluntarily made by the assessee. Conclusion: The Tribunal confirmed the CIT(A)'s decision to delete the penalty, holding that the penalty notice was vague and not legally sustainable, and that the change in the head of income did not amount to concealment. The Tribunal also noted that the AO's reliance on Explanation 5A was misplaced, as the income was disclosed in the original return. The revenue's appeal was dismissed.
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