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2021 (4) TMI 666 - AT - Income TaxPenalty u/s. 271(1)(c) - unexplained share application money and unsecured loans - defective notice u/s 274 - assessment u/s. 153A r.w.s. 143(3) of the Act was completed on 24.03.2015 accepting the returned income -additional income offered in the Income Tax Return - Assessee contending that proper show cause notice was not issued and on merits relied on various decisions contending that penalty was not leviable since no incriminating material was found during the course of search and the assessee has suo moto offered the additional income for tax - HELD THAT - As from show cause notice it is very much clear that the Ld. A.O. failed to strike off one of the specific charge levied against the assessee which thus violates the principle of natural justice available to the assessee as provided u/s. 274 of the Act.CIT(A) was justified in deleting the penalty on legal ground by holding the penalty proceedings as void ab initio as the Ld. A.O. failed to level the specific charge against the assessee. Thus on the legal ground itself the appeal of revenue deserves to be dismissed. Also no incriminating material was found during the curse of search relating to the alleged surrender of income made by the assessee in the Income Tax Return. The assessee suo moto offered the additional income in the return and paid taxes there on. It is also an established fact in the instant case that Ld. A.O. was not sure that which assessee has concealed the particulars of income or furnished inaccurate particulars of income. Even though the share application money was received by M/s. Exotic Exports P Ltd. and duly reflected in its books of accounts but Ld. A.O. accepted the additional income offered by the assessee in his individual capacity and levied the penalty also. Simultaneously the Ld. A.O. also made addition in the hands of M/s. Exotic Exports P Ltd. for the similar amount of share application money and initiated the penalty proceedings. In the given facts and circumstances itself the revenue fails to succeed and the action of initiating penalty by Ld. A.O. is unjustified. No incriminating material was found during the course of search relating to the additional income offered by the assessee during the course of search which was subsequently honoured by disclosing in the return of income and paying taxes thereon. Transaction of alleged share application money was duly reflected in the regular books of accounts. Under these given facts and circumstances revenue fails to succeed as the Ld. A.O. was not justified in levying the penalty u/s. 271(1)(c) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961. 2. Consideration of the decision of the Hon'ble Supreme Court in the case of M/s. Mak. Data (P) Ltd. 3. Determination of whether the disclosure of income was voluntary or a result of a search operation. 4. Implications of not levying a penalty for additional income detected during a search operation. Issue-wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961: The Revenue challenged the deletion of the penalty amounting to ?1,43,45,000/- imposed under Section 271(1)(c) of the Act by the Assessing Officer (AO). The penalty was initially levied due to the additional income offered by the assessee during the search operation. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty, stating that no incriminating material was found during the search and the assessee voluntarily offered the additional income for tax. The CIT(A) relied on various judicial decisions, including the Hon'ble M.P. High Court's judgment in the case of CIT vs. Suresh Chandra Mittal, which was upheld by the Hon'ble Supreme Court. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to specify the charge in the show cause notice, thus violating the principles of natural justice. 2. Consideration of the Decision of the Hon'ble Supreme Court in the Case of M/s. Mak. Data (P) Ltd.: The Revenue argued that the CIT(A) did not consider the decision of the Hon'ble Supreme Court in the case of M/s. Mak. Data (P) Ltd., which was specifically relied upon in the penalty order. However, the Tribunal found that the CIT(A) had adequately addressed this concern by referring to the relevant judicial precedents and the specific circumstances of the case, which indicated that the penalty was not justified. 3. Determination of Whether the Disclosure of Income was Voluntary or a Result of a Search Operation: The Revenue contended that the disclosure of income was a result of the search operation and not voluntary. The Tribunal examined the facts and found that no incriminating material was discovered during the search related to the alleged share application money. The assessee voluntarily offered the additional income in the return filed in response to the notice under Section 153A of the Act. The Tribunal noted that the AO was uncertain about the correct entity for the addition, as similar additions were made in the hands of M/s. Exotic Exports P. Ltd., which were later deleted. 4. Implications of Not Levying a Penalty for Additional Income Detected During a Search Operation: The Revenue argued that not levying a penalty for additional income detected during a search would incentivize concealment of income until detected by the Revenue. The Tribunal, however, emphasized that the penalty proceedings must adhere to legal requirements, including the issuance of a proper show cause notice specifying the charge. The Tribunal found that the AO's failure to specify the charge rendered the penalty proceedings void ab initio. Furthermore, the Tribunal referred to judicial precedents indicating that penalty is not automatic and must be based on incriminating evidence found during the search, which was absent in this case. Conclusion: The Tribunal concluded that the CIT(A) was justified in deleting the penalty on both legal and merit grounds. The AO's failure to specify the charge in the show cause notice violated the principles of natural justice, and no incriminating material was found during the search to justify the penalty. The appeal of the Revenue was dismissed, and the order pronounced in the open Court on 08.03.2021.
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