2021 (12) TMI 1285 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Defective notice - non specification of charge - HELD THAT - AO has neither mentioned in the assessment order nor in his Penalty notice as to whether the penalty is initiated for concealment of income or for furnishing inaccurate particulars of income. He has also not mentioned in the order that the penalty is initiated under explanation 5 of section 271(1)(c) of the Act. We find that the only words used in the Assessment order are, It is found that the assessee has shown additional income of ₹ 24,00,000/- in the computation of income filed with the return, hence proceedings for penalty under section 271(1)(c) of the Act are to be initiated . Further, the Final Show-cause notice issued on 29/12/2016 alongwith the Assessment order clearly mentions the words Whereas in the course of proceedings before me for A.Y.2014-15, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income , and the AO has not stricken off the not applicable words We find that the AO has sent one printed form, wherein the specific finding of the AO as to whether he is initiating penalty for concealment of income or for furnishing inaccurate particulars of income is not mentioned. Further, the AO has also not mentioned that he intends to levy penalty under explanation 5 of Section 271(1)(c) and hence the said penalty U/s. 271(1)(c) is not justified and is directed to be deleted. Therefore, we direct to the delete the same. - Decided in favour of assessee. Penalty levied u/s 271AAB - Undisclosed income - HELD THAT - Assessee has been able to explain the source of the alleged undisclosed income may be relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each every case of levy of penalty pursuant to search action. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed and we direct to delete the penalty levied U/s. 271AAB - Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2014-15.
2. Penalty under Section 271AAB of the Income Tax Act, 1961 for A.Y. 2015-16.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for A.Y. 2014-15:

The assessee filed an appeal against the confirmation of a penalty of ?7,20,000 levied under Section 271(1)(c) of the Income Tax Act, 1961. The brief facts reveal that the assessee, deriving income from salary, business, house property, and other sources, had declared a total income of ?19,66,100 in his return filed on 31/07/2014. However, following a search and seizure operation on 10/09/2014, the AO determined the total income to be ?43,66,100 and initiated penalty proceedings under Section 271(1)(c).

The assessee contended that the additional income declared was based on advice to avoid audit and litigation, and was not an attempt to conceal income. The AO's assessment order and penalty notice lacked clarity on whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal referred to the case of Manu Engineering Works, which held that the absence of a clear finding on the nature of the penalty renders the penalty order invalid. The Tribunal also cited the case of Spykar Lifestyles (P) Ltd., which upheld the necessity of a specific finding by the AO.

Given the AO's failure to specify whether the penalty was for concealment or inaccurate particulars and the lack of mention of Explanation 5 of Section 271(1)(c), the Tribunal concluded that the penalty was not justified and directed its deletion.

2. Penalty under Section 271AAB for A.Y. 2015-16:

The assessee also appealed against the confirmation of a penalty of ?10,87,500 levied under Section 271AAB. The AO's show-cause notice mentioned a penalty at 10% of the undisclosed income, but the penalty was ultimately levied at 30%, indicating non-application of mind.

The Tribunal referred to the case of Rainbow Products P. Ltd., where it was held that a notice lacking specific charges under Section 271AAB is defective. Similarly, in Vivek Chug Vs. ACIT, it was held that a casual notice without specific charges renders the penalty proceedings invalid. The Tribunal also noted that Section 271AAB is not mandatory, as established in various precedents, including the case of SEL Textiles Ltd. Vs. DCIT, which emphasized the discretionary nature of the penalty under this section.

The Tribunal observed that the AO's notice did not specify the conditions under Section 271AAB and mentioned a penalty rate of 10%, demonstrating a lack of proper application of mind. The penalty was thus deemed unjustified and was directed to be deleted.

Conclusion:

Both appeals by the assessee were allowed. The penalties under Section 271(1)(c) for A.Y. 2014-15 and under Section 271AAB for A.Y. 2015-16 were deleted due to procedural deficiencies and non-application of mind by the AO. The Tribunal emphasized the necessity for clear and specific findings in penalty proceedings to uphold the principles of natural justice.