2021 (8) TMI 335 - AT - Income Tax

Penalty u/s 271(1)(c) - non specification of charge - whether for concealment of income or furnishing of inaccurate particulars of income? - concealment of income or for furnishing inaccurate particulars of income - HELD THAT - Notice u/s 274 r.w.s. 271(1)(c) of the Act should have specifically indicated in which limb of Sec. 271(1)(c) the penalty proceedings were initiated i.e. whether for concealment of income or furnishing of inaccurate particulars of income. Thus, in absence of a particular limb, no penalty should have been levied on the assessee as the determination of such limb is sine qua non for imposition of penalty u/s 271(1)(c). AO has simply mentioned in his order with regard to initiation of penalty by stating that the assessee has concealed the income or furnishing inaccurate particulars of income by introducing non-genuine purchases thus it is a fit case for initiating the penalty proceedings u/s 271(1)(c) of the Act. Later on a pre-printed/cyclostyle performa by way notice u/s 274 r.w.s 271(1)(c) of the Act without striking off the unnecessary portions of the notice was served upon the assessee, we are of the view that, if at all, the A.O. was of the view that the assessee has concealed the income or furnishing inaccurate particulars of income then in that eventuality, he should have deleted or not mentioned the other limb for imposition of penalty. This act of the A.O. clearly indicates that the entire exercise of initiation of penalty proceedings has been done in a casual and cavalier manner. The notice u/s 271 should be specific for imposition of penalty u/s 271 (1) (c) of Act i.e. for concealment of particulars of income or furnishing inaccurate particulars of income as has been held in the case of CIT Vs. M/s SSA's EMERALD MEADOWS 2015 (11) TMI 1620 - KARNATAKA HIGH COURT . We are of the view that concealment of income or furnishing of inaccurate particulars of income are two different forms and they cannot be inter mixed, therefore, we quash the penalty proceedings initiated U/s 271(1)(c). Trading addition - Bogus purchases - HELD THAT - It is a settled law that additions based on estimation where higher trading profit as declared against the gross profit has been declared therein, in that cases, no penalty is leviable as it cannot be held that in those cases, the assessee has concealed income or of furnishing inaccurate particulars of income within the provisions of Section 271(1) (c) of the Act. This proposition has been upheld in case of CIT Vs. Dhillon Rice Mills 2000 (9) TMI 10 - PUNJAB AND HARYANA HIGH COURT and in case of Hari Gopal Singh 2019 (4) TMI 1997 - ITAT JAIPUR - In both these decisions, it has been held by the Hon ble Courts that the provisions of Section 271(1)(c) are not attracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein. As per the facts of the present case, the additions were made on estimation basis whereas the gross profit declared by the assessee was much better than the previous years. Even in the case of CIT Vs. Aero Traders P. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT the profit was estimated after rejection of the books of account due to certain discrepancies, imposed a penalty on the assessee on the ground that it was clear case of furnishing of inaccurate particulars of income. However, the Tribunal held that it did not amount to concealment of income or furnishing of inaccurate particulars of income therefore, deleted the penalty and Hon'ble High Court of Delhi confirmed the order of ITAT. Further the Hon ble Rajasthan High Court in case of Shiv Lal Tak . 2001 (2) TMI 62 - RAJASTHAN HIGH COURT also upheld the said proposition. Further glaring facts have also been placed on record before us wherein we noticed that the ld. CIT(A) in assessee s own case for the previous year i.e. A.Y. 2007-08 had deleted the penalty levied by the A.O. on identical facts and circumstances, therefore, taking into consideration the totality of facts and circumstances of the case as mentioned above, we are of the view that since the additions in the present case were made purely on the basis of estimation, therefore, no penalty is leviable or attracted in the present case. Accordingly, we direct to delete the penalty levied u/s 271(1)(c) .

Summary

Issues Involved:
1. Validity of the penalty notice under Section 271(1)(c) of the Income Tax Act, 1961.
2. Justification of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Notice under Section 271(1)(c):

The primary contention raised by the assessee was that the notice issued by the Assessing Officer (A.O.) under Section 271(1)(c) was invalid as it did not specify whether the penalty proceedings were initiated for "concealment of income" or "furnishing inaccurate particulars of income." The assessee argued that this ambiguity rendered the notice bad in law. The A.O. used a pre-printed notice without striking off the unnecessary portions, indicating non-application of mind. The assessee relied on several judicial precedents, including the Karnataka High Court's decision in CIT Vs. SSA’s Emerald Meadows and the Supreme Court's dismissal of the SLP against this decision, which held that a notice under Section 274 read with Section 271(1)(c) must specify the exact charge. The Tribunal, after examining the records, found that the A.O. had indeed failed to clearly specify the limb under which the penalty was initiated. The Tribunal held that this ambiguity invalidated the penalty proceedings, drawing on the principles established in the cited cases.

2. Justification of the Penalty Imposed under Section 271(1)(c):

The second issue concerned the justification for the penalty imposed by the A.O. The assessee contended that the addition of ?34,49,579 was based on estimated disallowance of unverifiable purchases, not on any finding of bogus purchases. The A.O. had disallowed 25% of the purchases, which the CIT(A) reduced to 15%, while allowing the remaining 85%. The assessee argued that since the purchases were not entirely disallowed and were merely deemed unverifiable, it could not be a case of furnishing inaccurate particulars or concealment of income. The Tribunal noted that the addition was made on an estimated basis under Section 145(3) due to unverifiability, not due to any clear evidence of bogus transactions. The Tribunal cited various judicial precedents, including CIT Vs. Dhillon Rice Mills and CIT Vs. Aero Traders P. Ltd., which held that penalties under Section 271(1)(c) are not applicable to cases where income is assessed on an estimated basis. The Tribunal also noted that in the assessee’s own case for the previous assessment year, the CIT(A) had deleted the penalty under similar circumstances. Consequently, the Tribunal concluded that the penalty was unjustified and directed its deletion.

Conclusion:

The appeal was allowed in favor of the assessee, with the Tribunal quashing the penalty proceedings under Section 271(1)(c) due to the invalidity of the penalty notice and the unjustified nature of the penalty itself, given that the additions were based on estimations rather than concrete evidence of concealment or inaccurate particulars. The order was pronounced on 30th July 2021.