2021 (9) TMI 1136 - AT - Income Tax

Penalty u/s 271(1)(c) - Defective notice u/s 274 - surrendered of the income - assessee has submitted that the AO while issuing the show-cause notice has not specified whether the penalty is proposed to be levy for furnishing of inaccurate particulars of income or for concealment of particulars of income - Addition based on the surrendered of the income by the assessee being accommodation entries of share application money - HELD THAT - Addition was made on the basis of the surrendered made by the assessee and hence this addition and the nature of the addition was very much known to the assessee right from the time when the assessee surrendered this amount in the statement recorded during the post search enquiry - this addition does not fall in the category where the Assessing Officer has made addition based on some enquiry or his decision but this addition was made on the basis of surrendered made by the assessee. Accordingly, the default and the charge for which the penalty was proposed to be levied was very much in the knowledge of the assessee being the surrendered made by the assessee. Assessing Officer has very much recorded the satisfaction in the assessment order and stated that the penalty proceedings u/s 271(1)(c) of the Act are initiated as the assessee has concealed the particulars of income. Therefore, to the extent of initiating penalty proceedings as well as levy of penalty proceedings u/s 271(1)(c) of the Act against addition based on the surrendered of the income by the assessee being accommodation entries of share application money there is no failure on the part of the Assessing Officer to make assessee known about the default of the assessee and charge for which the penalty was proposed to be levied. Addition by disallowing the claim of property tax - This was addition made by the Assessing Officer by disallowing the claim of expenditure and therefore this addition does not fall in the category of concealment of the particulars of income. The assessee is having show room on lease and for which the assessee is paying rent of ₹ 1 lakhs per month as well as the property tax. Therefore, even if the claim of the property tax is disallowed by the Assessing Officer, the same cannot be held to be the concealment of particulars of income but at the most it can be regarded as furnishing of inaccurate particulars of income. Addition based on surrender was made because of the enquiry conducted by the Investigation Wing during survey proceedings - The said addition of ₹ 50 Lakhs made by the Assessing Officer out of the surrendered made by the assessee has attained finality. The assessee has nowhere disputed the said surrender being made under coercive circumstances or under compulsion. Even otherwise, the surrender is not without any basis but the entry of share application money is very much in existence which was accepted by the assessee as accommodation entries. Therefore, there is no substance or merit in the contention of the Ld. AR that surrender was made by the assessee to buy peace of mind. Hence, the appeal of the assessee is devoid of any merit or substance so far as the levy of penalty against the addition of ₹ 50 Lakhs.

Issues Involved:
1. Validity of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961.
3. Merits of the penalty of ?16,41,194/- levied under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961:

The assessee challenged the initiation of penalty proceedings on the grounds that the show-cause notice issued by the Assessing Officer (AO) did not specify whether the penalty was for "furnishing of inaccurate particulars of income" or "concealment of particulars of income." The AR of the assessee argued that the AO's uncertainty at the time of issuing the notice and passing the penalty order rendered the initiation of proceedings illegal and bad in law. Reliance was placed on the Third Member decision of the Amritsar Benches of the Tribunal in the case of M/s HPCL Mittal Energy Ltd. vs Addl. CIT and the decision of the Hon’ble Supreme Court in CIT vs Suresh Chandra Mittal. The AR submitted that the penalty order lacked a conclusive finding on the default for which the penalty was levied, thus making it invalid.

The CIT-DR countered that the AO had initiated the penalty on a definite charge, referring to specific additions made during the assessment. The CIT(A) confirmed the penalty, holding that the assessee had concealed particulars of its income.

The Tribunal noted that the AO must specify the default/charge for which the penalty proceedings are initiated. Failure to do so would render the initiation and subsequent penalty order invalid. In this case, the AO had recorded satisfaction for initiating penalty proceedings for concealment of particulars of income in the assessment order, and the charge was known to the assessee. Therefore, the initiation of penalty proceedings for the addition of ?50 Lakhs was upheld, while the penalty for the disallowance of ?3,11,306/- was deemed invalid due to incorrect charge specification.

2. Validity of the penalty order passed under Section 271(1)(c) of the Income Tax Act, 1961:

The Tribunal examined whether the penalty order was based on a definite charge. The AO had added ?50 Lakhs based on the assessee’s surrender during post-survey proceedings and disallowed ?3,11,306/- on account of property tax. The Tribunal found that the addition of ?50 Lakhs was based on the assessee’s surrender and not on any independent enquiry by the AO. Therefore, the charge of concealment of particulars of income was clear and known to the assessee.

However, for the disallowance of ?3,11,306/-, the Tribunal noted that the AO had incorrectly charged the assessee with concealment of particulars of income instead of furnishing inaccurate particulars. This incorrect charge rendered the penalty proceedings for this amount invalid.

3. Merits of the penalty of ?16,41,194/- levied under Section 271(1)(c) of the Income Tax Act, 1961:

On the merits, the AR argued that the surrender of ?50 Lakhs was not voluntary but under compulsion, and there was no criminal intent. The AR cited the Hon’ble Supreme Court's decision in CIT vs Suresh Chandra Mittal, where it was held that a surrender made to buy peace of mind could be treated as bona fide, and penalty under Section 271(1)(c) was not justified.

The Tribunal, however, found that the surrender of ?50 Lakhs was not disputed by the assessee and was based on accommodation entries of share application money. The addition had attained finality, and there was no evidence of coercion or compulsion. Thus, the levy of penalty for ?50 Lakhs was upheld.

For the disallowance of ?3,11,306/-, since the penalty was deleted on legal grounds, the Tribunal did not address the merits.

Conclusion:

The appeal was partly allowed. The penalty for the addition of ?50 Lakhs was upheld, while the penalty for the disallowance of ?3,11,306/- was deleted. The decision was pronounced in the open court on 24.09.2021.

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