2016 (12) TMI 1077 - AT - Income Tax

Levy of penalty under section 271(1)(c) - recording of satisfaction - declaration of income in revised return filed - Held that - We find merit in the stand of assessee in this regard, wherein Explanation 5A to section 271(1)(c) of the Act categorically provides that the same is applicable in case of searches. However, the Statute is silent about the additional income offered by the persons in the revised return of income filed pursuant to Survey proceedings. The additional income was declared during the Survey and if offered by the person in the revised return of income filed thereafter, then the same does not partake the nature of additional income taken note in Explanation 5A to section 271(1)(c) of the Act. Even if it is established that the additional income is on account of concealment of income but while recording satisfaction for initiating penalty proceedings, the Assessing Officer should explicitly mentions as to whether penalty is being initiated for concealment or income or for furnishing of inaccurate particulars of income. In the absence of the same, notice issued in such circumstances, which also is not clear as to which limb of section 271(1)(c) of the Act is attracted, stands vitiated and the penalty order passed consequent to such notice is invalid in law. Accordingly, we delete the penalty levied under section 271(1)(c) of the Act in the case of assessee. - Decided in favour of assessee

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty proceedings initiated under section 271(1)(c) of the Act.
3. Applicability of Explanation 5A to section 271(1)(c) of the Act.
4. Recording of satisfaction by the Assessing Officer.
5. Validity of notice issued under section 274 r.w.s. 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Act:
The primary issue in these appeals is the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. The assessee contended that the penalty was unjustified as the additional income was declared in the return filed under section 153A of the Act, and there were no additions made to the income. The Assessing Officer (AO) noted that the additional income was declared based on incriminating documents found during the search, and hence, the penalty was levied for concealment of income.

2. Validity of Penalty Proceedings Initiated under Section 271(1)(c) of the Act:
The assessee argued that the satisfaction recorded by the AO was vague and did not specify the charge, whether it was for concealment of income or furnishing inaccurate particulars of income. The Tribunal observed that the satisfaction recorded by the AO was not clear, and the notice issued under section 274 was also vague, leading to a lack of proper opportunity for the assessee to defend itself. The Tribunal relied on various judicial precedents, including the Hon’ble Karnataka High Court in CIT Vs. SSA’s Emerald Meadows, to conclude that such vagueness invalidated the penalty proceedings.

3. Applicability of Explanation 5A to Section 271(1)(c) of the Act:
The assessee contended that Explanation 5A to section 271(1)(c) of the Act, which applies to cases of search, was not applicable as the additional income was declared pursuant to a survey and not a search. The Tribunal found merit in this argument, stating that the additional income declared during the survey does not fall under the purview of Explanation 5A, which specifically pertains to searches. The Tribunal referred to the decision of the Hon’ble Delhi High Court in CIT Vs. SAS Pharmaceuticals to support this view.

4. Recording of Satisfaction by the Assessing Officer:
The Tribunal noted that the satisfaction recorded by the AO was vague and did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income. The Tribunal emphasized that the AO must explicitly record satisfaction and specify the charge under which the penalty is being initiated. The Tribunal cited the Hon’ble Karnataka High Court in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory, which held that the AO must clearly state the grounds for penalty to provide the assessee a fair opportunity to defend itself.

5. Validity of Notice Issued under Section 274 r.w.s. 271(1)(c) of the Act:
The Tribunal observed that the notice issued under section 274 was vague and did not specify the exact charge against the assessee. This vagueness led to a violation of the principles of natural justice as the assessee was not made aware of the exact charge it had to face. The Tribunal held that such a notice is invalid, and consequently, the penalty proceedings based on such notice are vitiated. The Tribunal relied on the decision of the Hon’ble Supreme Court in CIT Vs. SSA’s Emerald Meadows, which upheld the invalidity of penalty proceedings initiated with vague notices.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the penalty proceedings under section 271(1)(c) of the Act were invalid due to vague satisfaction recorded by the AO and the issuance of vague notices. The Tribunal also held that Explanation 5A to section 271(1)(c) of the Act was not applicable to the additional income declared during the survey. The penalty orders were quashed, and the penalties were deleted.

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