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2023 (3) TMI 1511 - HC - Income TaxPenalty u/s. 271 (1) (c) - defective notice u/s 274 - as argued notice u/s. 274 does not strike off the portion relating to levy of penalty for delay in filing Return of Income and also does not indicate whether it is a case of Concealment of income or furnishing of inaccurate particulars of income - Ascertainment of facts as to the business expenditure in question HELD THAT - ITAT is a fact finding authority insofar a search and seizure action was conducted in the case of Sri.Gali Janardhan Reddy on 26.10.2007 including the premises business of M/s. Ennoble Constructions, Ballari. In response to the notices under Section 153A return of income came to be filed. In the absence of any material on record specifically to show the concealment of income or furnishing inaccurate particulars, it cannot be inferred that the said addition is on account of concealment. Therefore, the ITAT was considered the scope of provision of the IT Act, 1961, as in the instant appeal, the respondent/assessee preferred an appeal before the ITAT and the ITAT on carefully examining the entire material on record, even relating to the specific materials, though dwelling in detail about the particulars i.e., the concealment of particulars furnishing the inaccurate particulars of income, it cannot be arise to draw adverse inference as contended by the learned standing counsel Sri. Y.V. Raviraj for the appellant/revenue. Therefore, the ITAT held under Section 271 (1) (c) that even though the provision has been mandated, the ingredients cannot be attracted in both, either the facts, but the facts found by the ITAT, is based upon the materials. Keeping in view the provision of Section 271 (1) (c), the deemed provision, a legal fiction is created. But reading of Section closely and more so the ingredients of the said provision of IT Act, it is the domain vested with the appellant / revenue to establish their case relating to the scope of inaccurate particulars and concealment of income. But it must be noticed that this finding recording concealment in the order passed by the authorities is only for the purpose initiating, but the presumption found in explanation (1) is a rebuttable presumption. If the authority after hearing the assessee and looking into the material produced in the said proceeding before him, satisfies, perhaps holds that there is no concealment of income, then the question of penalty would not arise. In the instant case, the penalty proceedings are distinct from assessment proceedings. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of the assessment are independent and separate aspects of the proceedings, separate provisions are made for imposition of penalty. Even in the light of the materials which secured by the Investigating Agency under the relevant provisions of the IT Act, 1961, but the penalty under Section 271 (1) (c) is a civil liability which can be emerged and the imposition of penalty even if the tax liability is admitted is not automatic, but Section 271 (1) (c) of IT Act, 1961 indicating whether it is concealment of income or for furnishing inaccurate particulars of income. In totality of the circumstances of the case, it cannot be inferred that insofar as addition even on account of concealment, moreover the assessee has offered the explanation, even the said explanation is not found to be false, on the contrary it is held to be bona fide. In fact in the instant case, in the assessment proceedings there is no whisper about the concealment of income and inaccurate particulars. It is even clear that the conduct of the assessee cannot be construed as a mala fide. Therefore the order passed by the ITAT is found to be justifiable and it is based upon the materials secured by the Investigating Agency under the IT Act, 1961. However, the ITAT justified in holding that the proceedings are initiated even keeping the provision of Section 271 (1) (c), it is not in accordance with law and accordingly justified in interfering with the order passed by the ITAT as well as the Assessing Officer/Authority. Accordingly, the substantial questions of law are answered in favor of the respondent/assessee. Appeal preferred by the appellant/revenue do not hold any substances that calls for any interference in the impugned order passed by the ITAT C Bench, Bengaluru in Smt. G. Lakshmi Aruna and M/s. Ennoble Construction Versus The Deputy Commissioner of Income Tax, Central Circle 1 (3) , Bangalore 2016 (9) TMI 796 - ITAT BANGALORE and in terms of the aforesaid reasons and findings, the appeal deserves to be dismissed as being devoid of merits.
Issues Involved:
1. Validity of the penalty notice under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the omission of the Assessing Officer to explicitly mention the grounds for penalty (concealment of income or furnishing inaccurate particulars) makes the penalty order liable for cancellation. 3. Justification of the Tribunal in deleting the penalty based on the defective notice. 4. Consideration of Explanation 5A to Section 271(1)(c) in the context of the penalty. Detailed Analysis: 1. Validity of the Penalty Notice: The Tribunal found that the Assessing Officer (AO) did not specify in the penalty notice whether the proceedings were initiated for concealment of income or furnishing inaccurate particulars. This omission was deemed critical. The Tribunal relied on the decision in M/s. Manjunath Cotton and Ginning Factory (359 ITR 565), which held that such ambiguity in the notice invalidates the penalty proceedings. The Tribunal concluded that due to the defective notice, the penalty order passed by the AO was not sustainable in law. 2. Omission of Explicit Grounds: The Tribunal emphasized that the penalty provisions under Section 271(1)(c) deal with two distinct offenses: concealment of income and furnishing inaccurate particulars. The AO must clearly specify which of these offenses the penalty proceedings are based on. The Tribunal cited precedents, including the Supreme Court's decision in Ashok Pai (292 ITR 11), which clarified that these two offenses carry different connotations and must be distinctly identified. The Tribunal found that the failure to strike off the irrelevant part in the notice led to ambiguity, thus violating principles of natural justice. 3. Justification of Tribunal's Deletion of Penalty: The Tribunal's decision to delete the penalty was based on the defective notice, which failed to specify the grounds for the penalty. The Tribunal held that such a notice does not satisfy the legal requirement and offends principles of natural justice. Consequently, the Tribunal set aside the orders of the CIT (Appeals) and the AO, deleting the penalty on account of the wrong initiation of penalty proceedings. 4. Consideration of Explanation 5A: Explanation 5A to Section 271(1)(c) creates a deeming fiction that an assessee is deemed to have concealed income if certain conditions are met. However, the Tribunal noted that the AO must still record clear satisfaction that the conditions for penalty are met. In this case, the Tribunal found that the AO did not properly record such satisfaction. The Tribunal also considered the assessee's argument that the additional income was disclosed in a subsequent assessment year and that the explanation for the discrepancy was bona fide. Conclusion: The Tribunal's decision to delete the penalty was upheld, emphasizing the importance of clear and specific notices for penalty proceedings under Section 271(1)(c). The Tribunal's reliance on established precedents and the requirement for explicit grounds in penalty notices were pivotal in its decision. The High Court confirmed the Tribunal's order, dismissing the appeal by the revenue and affirming that the penalty proceedings were not in accordance with the law due to the defective notice.
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