2016 (5) TMI 365 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - The perusal of order levying penalty under section 271(1)(c) of the Act reflects the Assessing Officer held the assessee to have defaulted in concealing particulars of income and also furnishing inaccurate particulars of income. Under the provisions of section 271(1)(c) of the Act, it is provided that a person is liable for levy of penalty where he has concealed the particulars of his income or furnished inaccurate particulars of income; either of two conditions have to be satisfied before penalty for concealment can be levied. The Courts have time and again held that the Assessing Officer has to be specific in reasons levying penalty for concealment, whether it is for concealment of income or furnishing of inaccurate particulars of income. Where the Assessing Officer is not clear whether penalty is levied for concealment of income or furnishing of inaccurate particulars, then such an order suffers from non-application of mind and cannot be upheld in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) for immunity from penalty.
3. Specificity of the charge of concealment of income or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c):
The Revenue's appeal challenges the order of CIT(A) which deleted the penalty levied under section 271(1)(c). The assessee had filed the return of income under section 153A post-search operations, declaring additional income. The Assessing Officer imposed a penalty, asserting that the additional income was not disclosed in the original return filed under section 139(1). The CIT(A) initially cancelled the penalty, referencing the Gujarat High Court's decision in CIT Vs. Mahendra C. Shah. However, the Tribunal remanded the case to examine the relevance of the seized material to the declared income. In the second round, CIT(A) again deleted the penalty, stating no incriminating documents were found correlating to the income on which the penalty was imposed. The CIT(A) concluded that the case fell under both clauses of Explanation 5 to section 271(1)(c), granting immunity from penalty.

2. Applicability of Explanation 5 to Section 271(1)(c):
The CIT(A) found that the assessee's case was covered by Explanation 5 to section 271(1)(c). Clause (1) was deemed inapplicable as no books of account were required to be maintained by the assessee. For Clause (2), the CIT(A) noted that the Assessing Officer had acknowledged the manner in which the income was earned, thus satisfying the requirement for immunity. The CIT(A) emphasized that the assessee had disclosed full facts and cooperated during the assessment and penalty proceedings, further supporting the decision to delete the penalty.

3. Specificity of the Charge of Concealment or Furnishing Inaccurate Particulars:
The Tribunal highlighted the need for specificity in the charge for levying penalty under section 271(1)(c). The Assessing Officer's penalty order lacked clarity on whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal referenced its decision in Sanjog Tarachand Lodha Vs. ITO, emphasizing that ambiguity in the reasons for penalty invalidates the proceedings. The Tribunal observed that the penalty order mentioned both concealment and furnishing of inaccurate particulars without specifying the exact default, leading to the conclusion that the penalty proceedings were vitiated.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the penalty, emphasizing the lack of specificity in the charge and the applicability of Explanation 5 to section 271(1)(c). The Revenue's appeal was dismissed, and the penalty imposed under section 271(1)(c) was deemed unsustainable in law.