2016 (12) TMI 441 - AT - Income Tax

Penalty u/s 271(1)( c) - additional income surrender by assessee - Held that - As noted from the record that the AO had initiated penalty proceedings for concealment of income or for furnishing inaccurate particulars of income. In the notice also, the AO has not specified for which specific reason the penalty proceedings has been initiated whether it is for concealment of income or for furnishing inaccurate particulars of income. Ultimately, the AO levied the penalty for concealment of income. As decided in CIT & Anr vs. Manjunatha Cotton & Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT the practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. Thus penalty deleted - Decided in favour of assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) for concealment of income.
2. Validity of penalty proceedings initiated without specifying the limb (concealment of income or furnishing inaccurate particulars).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) for Concealment of Income:
The assessee, an individual deriving income from interest, business, and profession, filed returns declaring income of ?1,51,100 for the assessment year 2004-05. A search on 27-08-2008 led to the discovery of undisclosed income of ?4,53,819, which the assessee included in the return filed under Section 153A. The assessment was completed with a total income of ?6,18,980, including the undisclosed income. The Assessing Officer (AO) initiated penalty proceedings under Section 271(1)(c) for concealment of income, resulting in a penalty of ?1,36,145. The CIT(A) confirmed the penalty, citing that the additional income was not voluntarily disclosed but was due to incriminating evidence found during the search. The CIT(A) relied on Explanation 5A to Section 271(1)(c), making the penalty mandatory for additional income declared in returns filed under Section 153A.

2. Validity of Penalty Proceedings Initiated Without Specifying the Limb:
The assessee argued that the penalty proceedings were initiated without specifying whether the penalty was for concealment of income or furnishing inaccurate particulars, rendering the proceedings invalid. The AO's notice under Section 274 read with Section 271 did not specify the exact limb, which is crucial for the assessee to understand the grounds of penalty. The ITAT cited the Karnataka High Court's judgment in CIT vs. Manjunatha Cotton & Ginning Factory, which held that vague notices offend natural justice principles, making such penalty proceedings invalid. The ITAT also referred to its own decision in Shankar Lal Khandelwal vs. DCIT, where it was held that non-specific notices under Section 274 are not legally tenable. As the AO's notice was ambiguous, the ITAT concluded that the penalty proceedings were invalid and directed the deletion of the penalty.

Conclusion:
The ITAT allowed the appeals for both assessment years 2004-05 and 2005-06, directing the deletion of penalties imposed under Section 271(1)(c). The decision was based on the procedural defect of non-specific notices, which violated the principles of natural justice.