2023 (4) TMI 1404 - AT - Income Tax

Penalty u/s 271(1)(c) - Commission income in business of accommodation entries - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings? - HELD THAT - Bare perusal of the notice issued in this case by the AO goes to prove that the AO at the time of issuing the notice was not satisfied if he was initiating the penalty against the assessee for concealing particulars of his income or for furnishing inaccurate particulars of such income. This issue has been decided in case of Md. Farhan A Sheikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) and held that penalty u/s 271(1)(c) is not leviable when invalid notice as in the instant case has been issued to the assessee. Undisputedly entire addition in this case was made/confirmed by the AO as well as the CIT (A) on the basis of estimation and guess work on the alleged bogus entry provided by the assessee during the year under consideration initially @ 100% by the AO which was reduced by the Ld. CIT (A) to 2% of the turnover which was further reduced by the Tribunal to 0.15% of total bogus entries provided. Thus we are of the considered view that when the entire addition has been made on the basis of estimation penalty levied by the AO and sustained by the CIT (A) is not sustainable. When entire addition in this case is on estimation basis and at no point of time Revenue Authorities have reached the specific conclusion that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income rather made the addition on the basis of information received from Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases the penalty levied by the AO and confirmed by the CIT (A) is not sustainable in the eyes of law. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment was whether the assessee, M/s. Goldstar Finvest Pvt. Ltd., had concealed particulars of income or furnished inaccurate particulars of income during the assessment proceedings, thereby justifying the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around section 271(1)(c) of the Income Tax Act, 1961, which pertains to the imposition of penalties for concealing income or furnishing inaccurate particulars of income. The Tribunal also referenced the judgment of the Hon'ble Bombay High Court in Md. Farhan A Sheikh vs. ACIT, which established that a penalty under section 271(1)(c) is not leviable if an invalid notice is issued to the assessee.

Court's Interpretation and Reasoning

The Tribunal examined whether the Assessing Officer (AO) had issued a valid notice under section 271(1)(c) read with section 274 of the Act. The Tribunal found that the notice was vague and did not specify whether the penalty was for concealing income or furnishing inaccurate particulars. This vagueness rendered the notice invalid, as it failed to inform the assessee of the specific charge against them, as required by law.

Key Evidence and Findings

The Tribunal noted that the addition of income was based on an estimation of commission income at 0.15% for providing bogus entries. The AO initially estimated the commission income at 2%, which was later reduced by the Tribunal to 0.15%. The Tribunal found that the entire addition was based on estimation and guesswork, without concrete evidence of concealment or inaccuracy in particulars.

Application of Law to Facts

The Tribunal applied the legal principles established in the Md. Farhan A Sheikh case, emphasizing that penalty proceedings must stand on their own and cannot rely on defective notices. The Tribunal concluded that since the AO failed to issue a valid notice, the penalty proceedings were unsustainable.

Treatment of Competing Arguments

The assessee argued that the penalty proceedings were initiated without a valid notice, and the addition was based solely on estimation. The Tribunal agreed with the assessee, finding that the AO did not provide a clear basis for the penalty and relied on estimated figures without independent verification.

Conclusions

The Tribunal concluded that the penalty imposed by the AO and confirmed by the CIT(A) was not sustainable due to the invalid notice and the reliance on estimation rather than concrete evidence of concealment or inaccurate particulars.

SIGNIFICANT HOLDINGS

The Tribunal held that:

"Since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT (A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice."

The Tribunal emphasized that penalty proceedings must be based on valid notices and concrete evidence, not estimations or vague notices.

Core Principles Established

The judgment reinforced the principle that penalty proceedings under section 271(1)(c) require a valid notice specifying the exact charge against the assessee. It also underscored the necessity of basing penalties on concrete evidence rather than estimations.

Final Determinations on Each Issue

The Tribunal determined that the penalty imposed was unsustainable and ordered its deletion. The appeal filed by the assessee was allowed, and the penalty was set aside.