2021 (4) TMI 542 - AT - Income Tax

Penalty u/s 271(1)(c) - defective notice u/s 274 - decision of quantum appeal - as per assessee no mention of specific limb of Section 271(1)(c) for which penalty proceedings have been initiated by way of striking off the inappropriate words in penalty notice - HELD THAT - It is pertinent to note that the assessee company was not in existence when the first search took place on the group of BPTP and the seized material therein clearly does not belong to assessee company. Secondly, at the time of the second search no incriminating material was found in respect of the assessee company. Hence, the addition made on PDC s based on the first search does not have any corroborative evidence which has been brought by the Revenue on record. The CIT(A) as well as the Assessing Officer has failed to establish that the assessee company was involved in unexplained/unaccounted money transactions. Therefore, the assessee succeeds in quantum appeal. As regards penalty order, firstly, the correct limb was not struck off or rather indicated by the Assessing Officer in the notice under Section 274 r.w.s. 271(1)(c) of the Act and hence the decision of the Jurisdictional High Court in case of M/s Sahara India Life Insurance Ltd. 2019 (8) TMI 409 - DELHI HIGH COURT is squarely applicable in present case. Besides this, since the quantum appeal has been decided in favour of the assessee and addition has been deleted, the penalty itself does not survive. Hence, both the appeals of the assessee are allowed.

Summary

Issues:
1. Validity of assessment under section 153A of the Income Tax Act
2. Addition of interest paid from undisclosed sources
3. Validity of penalty imposed under section 271(1)(c) of the IT Act

Analysis:

Issue 1: Validity of assessment under section 153A of the Income Tax Act
The appellant challenged the assessment made under section 153A of the Income Tax Act, contending that no material was seized during the search on the assessee, and the utilization of material seized from another entity was impermissible. The appellant argued that no incriminating material was found during the search related to the assessee, and therefore, the addition made on Post Dated Cheques (PDCs) lacked evidential support. The appellant relied on decisions by the Tribunal to support their case. The Tribunal noted that the seized material did not pertain to the assessee, and no evidence linked the assessee to unaccounted money transactions. Consequently, the Tribunal allowed the quantum appeal in favor of the assessee.

Issue 2: Addition of interest paid from undisclosed sources
The appellant contested the addition of interest paid from undisclosed sources, arguing that the seized material did not relate to the assessee and no evidence supported the claim. The Tribunal found that there was no corroborative evidence linking the assessee to the alleged transactions. As a result, the Tribunal ruled in favor of the assessee and allowed the quantum appeal.

Issue 3: Validity of penalty imposed under section 271(1)(c) of the IT Act
Regarding the penalty imposed under section 271(1)(c) of the IT Act, the appellant argued that the penalty notice did not specify the specific limb of the section for which the penalty was initiated. Citing relevant court decisions, the appellant contended that the penalty was invalid due to this procedural flaw. The Tribunal, considering the success of the assessee in the quantum appeal and the deletion of the addition, concluded that the penalty did not stand. Therefore, the Tribunal allowed both the quantum and penalty appeals of the assessee.

In conclusion, the Tribunal allowed both appeals of the assessee, ruling in their favor based on the lack of evidence linking the assessee to the alleged transactions and procedural flaws in the penalty imposition.