2021 (4) TMI 11 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus share capital transactions - HELD THAT - We notice that the action of the AO for formation of satisfaction in the course of assessment is quite vague without expressing exact nature of charge proposed against the assessee. The satisfaction in the course of assessment proceedings was neither here nor there. It is not known whether the charge is formed for alleged 'furnishing of inaccurate particulars of income' or for 'concealment of particulars of income'. The assessment order does not clearly specify the nature of default for which the penalty is sought to be initiated and thus suffers from vice of ambiguity. The condition precedent for exercise of jurisdiction under s. 271(1)(c) r.w.s. 271(1B) of the Act is thus not satisfied in the instant case. Having regard to the complex facts involved in the case in hand, the nature of charge against the assessee cannot be left to imagination. Consequently, the penalty proceedings initiated towards additions made on the basis of vague satisfaction in the course of assessment is a complete non-starter. The consequent penalty imposed under s. 271(1)(c) of the Act as a sequel to such invalid satisfaction requires to be quashed. The explanation offered towards bonafide issue of share capital thus cannot be outrightly rejected when tested on the touchstone of penalty proceedings of strict nature. The fact in the present case does not conclusively establish the malafide on the part of the assessee company. The assessee has filed detailed submissions in the course of assessment. The contentions raised do create some doubt in favour of the assessee. The impugned transactions of issue of share capital have been carried out through banking channel. The statement of third party has not been cross examined to fasten the onerous penalty. Hence, the assessee has shown existence of mitigating circumstances for exoneration from imposition of penalty. Thus, when tested on distinct parameters of penalty proceedings, the issue involved cannot said to be entirely free of any debate whatsoever. Hence, additions towards share capital in question would not ipso facto tantamount to alleged concealment of income. - Decided in favour of assessee.

Summary

Issues Involved:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 concerning AY 2007-08 based on addition of share capital at premium in the books of account.

Analysis:

Issue 1: Imposition of Penalty by the AO and CIT(A)
The appeal was filed by the Assessee against the penalty order passed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 concerning AY 2007-08. The AO made an addition of ?45 Lakhs under section 68 of the Act on account of introduction of share capital at premium in the books of account and imposed a penalty of ?13,50,000 thereon. The CIT(A) upheld the penalty. The Assessee challenged the penalty before the Tribunal, arguing against the imposition of the penalty.

Issue 2: Nature of Charge and Vagueness in Penalty Proceedings
The AO initiated penalty proceedings under section 274 read with section 271(1)(c) of the Act based on 'furnishing inaccurate particulars/concealment of income'. However, it was contended that the satisfaction of the AO for initiating the penalty was vague and did not clearly specify the nature of the charge proposed against the Assessee. The assessment order and the penalty notice lacked clarity on the nature of the default for which the penalty was sought to be initiated, leading to ambiguity in the penalty proceedings. The Tribunal found that the condition precedent for exercising jurisdiction under section 271(1)(c) was not satisfied due to the invalid satisfaction formed during the assessment proceedings.

Issue 3: Justification for Penalty and Mitigating Circumstances
The Assessee argued that the addition towards share capital at premium was conditionally agreed upon to avoid prolonged litigation, and no penalty was to be imposed as a consequence. The Assessee also contended that the penalty was not justified as the transactions were genuine and carried out through banking channels. The Tribunal noted that the Assessee presented mitigating circumstances and raised doubts regarding malafide intentions. It was emphasized that the quantum findings do not automatically lead to penalty imposition under section 271(1)(c) of the Act.

Conclusion
The Tribunal found merit in the Assessee's plea for deletion of the penalty on both counts. The appeal of the Assessee was allowed, and the penalty imposed by the AO and upheld by the CIT(A) was quashed. The Tribunal's decision was based on the lack of clarity in the penalty proceedings, the presence of mitigating circumstances, and the genuine nature of the transactions involving share capital.