2015 (10) TMI 2247 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - It is well settled proposition that the additions made in the assessment order would not automatically give rise to penalty. In the penalty proceedings, the assessing officer is required to examine the issues afresh and for that purpose the discussions made in the assessment order can be taken as guidance. In the instant cases, the assessing officer has imposed penalty without establishing that there was concealment of income. Accordingly, we are of the view that the basic condition for imposing penalty was not satisfied and hence the impugned penalty levied for the years under consideration is liable to be set aside. We also notice that, in the penalty notice issued by the AO, one of the limbs has not been struck off. However, in the assessment order, the assessing officer has clearly stated that the penalty proceedings are initiated for concealment of income. Hence, the legal issue urged by the assessee becomes debatable. The ld A.R also contended that there is no variation between the returned income and assessed income and hence the penalty was not leviable. Since we have deleted the penalty on merits, we do not find it necessary to adjudicate these legal issues. We set aside the orders passed by Ld CIT(A) and direct the assessing officer to delete the penalty levied u/s 271(1)(c) of the Act for the years under consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Justification of invoking Explanation 5A to Section 271.
3. Non-specification of the limb under which penalty was proposed.
4. Corroboration of additional income with seized documents.
5. Voluntary offer of additional income and its implications on penalty.
6. Consistency in penalty imposition across different assessment years and assessees.

Issue-wise Detailed Analysis:

1. Validity of Penalty Levied Under Section 271(1)(c):
The assessee challenged the penalty imposed by the AO for the assessment years 2007-08 to 2009-10. The AO had levied penalties of Rs. 33,660/-, Rs. 8,71,454/-, and Rs. 15,46,980/- respectively, based on the additional income disclosed by the assessee following a search operation. The assessee argued that the penalty was unjustified as the additional income was voluntarily offered to avoid litigation, with the condition that no penalty should be levied.

2. Justification of Invoking Explanation 5A to Section 271:
The AO relied on Explanation 5A to Section 271, which deems certain incomes as concealed if not declared within the prescribed time. The assessee contended that the AO did not refer to any specific seized documents to corroborate the additional income, thus failing to meet the conditions of Explanation 5A. The Tribunal agreed, noting that the AO did not link the additional income to any specific documents, and the partner's lump sum disclosure of Rs. 12 crores indicated no direct relationship between the documents and the income surrendered.

3. Non-Specification of the Limb Under Which Penalty Was Proposed:
The assessee argued that the penalty notices for AY 2008-09 and 2009-10 did not specify whether the penalty was for "concealment of particulars of income" or "furnishing of inaccurate particulars of income." The Tribunal referenced the Karnataka High Court's decision in Manjunath Cotton & Ginning Factory, which held that non-specification of the charge in the penalty notice violates principles of natural justice. However, the Tribunal found this issue debatable as the assessment order clearly stated that the penalty was for concealment of income.

4. Corroboration of Additional Income with Seized Documents:
The Tribunal observed that the AO did not corroborate the additional income with any specific seized documents. The partner's admission of paying salaries and loans in cash did not specify whether these payments were accounted for or unaccounted. The Tribunal concluded that the additional income could not be linked to specific documents, undermining the justification for invoking Explanation 5A.

5. Voluntary Offer of Additional Income and Its Implications on Penalty:
The assessee argued that the additional income was voluntarily offered and should not automatically lead to a penalty. The Tribunal agreed, noting that the additional income was a lump sum disclosure to cover all deficiencies and was not linked to specific documents. The Tribunal emphasized that penalty provisions should be strictly construed, and in this case, the conditions for invoking Explanation 5A were not met.

6. Consistency in Penalty Imposition Across Different Assessment Years and Assessees:
The assessee highlighted that the AO did not levy penalties for the entire Rs. 12 crores disclosed but selectively imposed penalties for the years under consideration. The Tribunal noted this inconsistency and found merit in the assessee's argument that the additional income was voluntarily offered and distributed among various assessees, further supporting the case against the penalty.

Conclusion:
The Tribunal set aside the orders passed by the CIT(A) and directed the AO to delete the penalties levied under Section 271(1)(c) for the assessment years 2007-08 to 2009-10. The appeals filed by the assessee were allowed, and the penalties were deleted based on the lack of specific reference to seized documents, the voluntary nature of the income disclosure, and the improper invocation of Explanation 5A.