2022 (2) TMI 393 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained investment in paintings - HELD THAT - We agree with the submission of the Ld. AR that penalty due to addition on account of valuation of paintings is a matter of subjective assessment. It cannot result in levy of penalty for concealment of income. Accordingly, the order of the Ld. CIT(A) is set aside and the AO is directed to cancel the penalty.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for AY 2007-08.
- Whether penalty for concealment of income or furnishing inaccurate particulars of income was correctly imposed.
- Validity of penalty in relation to unexplained investment in paintings.
- Comparison with a similar case involving the wife of the assessee.

Analysis:
1. The appeal concerns the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2007-08. The assessee contested the penalty confirmed by the Ld. CIT(A) and challenged its validity before the ITAT Delhi.

2. The primary issue raised was whether the penalty was justified for concealment of income or furnishing inaccurate particulars of income. The appellant argued that the penalty was wrongly imposed without specific charges and contended that voluntary declaration of income should warrant penalty deletion. Additionally, the appellant highlighted that the addition due to valuation of paintings should not lead to penal consequences as it involves subjective assessment.

3. The appellant's representative referenced a similar case involving the wife of the assessee where the Tribunal directed the cancellation of the penalty, emphasizing that the penalty notice lacked specificity regarding the grounds for penalty imposition. The Tribunal's decision in the wife's case was presented as favorable to the appellant's position, indicating that the penalty in the present case was unsustainable.

4. Upon review, the ITAT Delhi examined the Tribunal's ruling in the wife's case, emphasizing the importance of specific charges in penalty notices under section 271(1)(c). The ITAT concluded that the penalty notice in the present case did not specify the grounds for penalty imposition, rendering the penalty unsustainable. The ITAT also concurred with the argument that penalty for the valuation of paintings, being a subjective assessment, should not result in concealment penalty.

5. In light of the above analysis and the precedents cited, the ITAT allowed the appeal of the assessee, setting aside the Ld. CIT(A)'s order and directing the AO to cancel the penalty imposed under section 271(1)(c) for the AY 2007-08. The ITAT's decision aligned with the principles established in previous judgments and emphasized the necessity of specific charges in penalty notices to uphold the validity of penalties under the Income Tax Act, 1961.