2016 (4) TMI 462 - AT - Income Tax

Penalty U/s 271(1)(c) - Held that - It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search. We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer specifically at the time of initiation or even in the show cause notice issued by the Assessing Officer but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. In case of two views of the court favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ) Thus we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. - Decided in favour of assessee

Issues Involved:
1. Legality of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5A to Section 271(1)(c).
3. Adequacy of the notice issued under Section 274 read with Section 271-272.
4. Procedural correctness in initiating penalty proceedings.
5. Basis of income additions and their linkage to incriminating documents found during the search.

Issue-Wise Detailed Analysis:

1. Legality of the Penalty Imposed Under Section 271(1)(c):
The appellant challenged the penalty of Rs. 13,00,000 levied under Section 271(1)(c) for concealing particulars of income and furnishing inaccurate particulars of income. The appellant argued that the penalty was not justified as the additions were based on estimations or legal interpretations without positive material evidence. The Assessing Officer (AO) countered that the additional income disclosed in the return filed under Section 153A was not declared in the original return, thereby justifying the penalty.

2. Applicability of Explanation 5A to Section 271(1)(c):
The AO and CIT(A) held that Explanation 5A, inserted w.e.f. 01/06/2007, was applicable since the search was conducted after this date, and the additional income disclosed in the return filed under Section 153A was not declared in the original return. The CIT(A) emphasized that Explanation 5A is a deeming provision, making the appellant liable for penalty as the conditions stipulated were met: search conducted post-01/06/2007, unaccounted income not disclosed in the original return, and incriminating documents found during the search.

3. Adequacy of the Notice Issued Under Section 274 Read with Section 271-272:
The appellant argued that the notice issued under Section 274 was defective as it did not specify whether the penalty was for concealing particulars of income or furnishing inaccurate particulars of income. The AO had ticked both options in the notice without specifying the exact nature of the default. The Tribunal agreed with the appellant, stating that the notice must clearly indicate the specific charge to ensure the appellant is aware of the grounds for penalty, adhering to principles of natural justice.

4. Procedural Correctness in Initiating Penalty Proceedings:
The Tribunal found that the AO initiated penalty proceedings under both limbs (concealing particulars of income and furnishing inaccurate particulars of income) without specifying the exact charge in the notice under Section 274. This non-specific initiation was deemed procedurally incorrect, as it did not meet the requirement of law for clear and specific communication of the grounds for penalty.

5. Basis of Income Additions and Their Linkage to Incriminating Documents Found During the Search:
The appellant contended that the additional income disclosed was voluntary and not based on any incriminating documents found during the search. However, the CIT(A) and AO held that the additional income was disclosed due to incriminating documents found during the search, including a sale deed showing an undervalued transaction. The Tribunal noted that the AO did not conclusively link the additional income to specific incriminating documents, which was necessary for justifying the penalty.

Conclusion:
The Tribunal concluded that the penalty proceedings were not initiated correctly as the notice under Section 274 was defective, and the AO did not specify the exact charge. Consequently, the penalty imposed under Section 271(1)(c) was deleted. The Tribunal did not express any view on the merits of the case, focusing solely on the procedural aspects.

Order:
The appeal of the assessee was allowed, and the penalty confirmed by the CIT(A) was deleted. The order was pronounced in the open court on 11/03/2016.

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