2017 (8) TMI 412 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - furnishing of inaccurate particulars of income - additional income offered during the course of survey - satisfaction of the authority that there is a concealment - Held that - We noticed that in the assessment order u/s 143(3), the AO has not indicated any discrepancy in the book entry nor observed any hint of income being concealed or assessee furnished inaccurate particulars. AO has accepted the return of income filed by the assessee. Since AO accepted the return of income filed by the assessee and computed the assessment u/s 143(3) and not found any discrepancy in the details filed by the assessee, now the AO cannot bring any issues in the penalty proceedings after accepting financial statements and return of income filed by the assessee. The assessee neither concealed any particulars of income nor furnished inaccurate particulars in the return of income filed , which was duly accepted and assessment was completed. Hence, penalty cannot be levied in this case. In Manjunatha Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) observed that the condition precedent for levying the penalty is the satisfaction of the authority that there is a concealment of the particulars of the income or inaccurate particulars are furnished to avoid payment of tax. Where the assessee offers an explanation and substantiate the explanation, the question of imposing penalty would not arise. Even in cases where he fails to substantiate the explanation but if he proves that the explanation offered is a bonafide one and all the facts relating to the same and material to the computation of his total income has been disclosed by him, then, in law, a discretion is vested with the authority not to impose penalty. If the assessee offers explanation but fails to substantiate the same, but if he proves that explanation offered is bonafide but is not Sufficient to substantiate the explanation and discloses all material for the computation of his total income, the question of imposing penalty would not arise. Issue of improper show cause notice - Held that - Notice issued by Assessing Officer u/s 274 read with section 271(1)(c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. Therefore, on this aspect also, the penalty order does not withstand. Assessee appeal allowed.

Issues Involved:
1. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Validity of the show cause notice issued under Section 274 read with Section 271.
3. Determination of whether the additional income declared was voluntary or due to survey operations.

Issue-wise Detailed Analysis:

1. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act:
The primary issue revolves around the Assessing Officer (AO) initiating penalty proceedings under Section 271(1)(c) on the grounds that the assessee furnished inaccurate particulars of income. The AO argued that the additional income declared by the assessee was a direct result of the survey operations and not a voluntary act to buy peace of mind. The AO observed that the nature of the additional income was based on credit balances in the assessee's books, which were written off post-survey. The AO concluded that the additional income had a direct nexus with the income computed as per the books and had implications on the statement of affairs, thus justifying the penalty.

However, the Tribunal noted that the AO, in the assessment order under Section 143(3), accepted the return of income filed by the assessee without indicating any discrepancies in the book entries or observing any hint of concealed income or inaccurate particulars. The Tribunal emphasized that since the AO accepted the return and completed the assessment without finding discrepancies, the AO could not subsequently raise issues in the penalty proceedings. The Tribunal concluded that the assessee neither concealed particulars of income nor furnished inaccurate particulars, thereby invalidating the penalty.

2. Validity of the show cause notice issued under Section 274 read with Section 271:
The Tribunal examined whether the show cause notice issued by the AO was specific in mentioning whether the penalty was for concealment of particulars of income or for furnishing inaccurate particulars. The Tribunal referred to the case of CIT Vs. Manjunatha Cotton & Ginning Factory, where the Karnataka High Court held that the condition precedent for levying penalty is the satisfaction of the authority that there is a concealment of particulars of income or inaccurate particulars are furnished. The Tribunal found that the AO did not specify the limb under which the penalty proceedings were initiated, making the notice defective.

The Tribunal also cited the Supreme Court's decision in CIT Vs. SSA’s Emerald Meadows, which upheld that a notice not specifying the exact charge (concealment or furnishing inaccurate particulars) is bad in law. Consequently, the Tribunal found the penalty order invalid on this ground as well.

3. Determination of whether the additional income declared was voluntary or due to survey operations:
The Tribunal considered the assessee's argument that the additional income was declared to buy peace with the department and due to the company's difficulty in obtaining confirmations from investors. The Tribunal referred to the case of CIT Vs. Suresh Chandra Mittal, where the Madhya Pradesh High Court held that if the revised return is regularized by the Revenue and no objection is taken by the assessing authority, the declaration of income to avoid litigation can be considered bona fide.

The Tribunal also referred to the Supreme Court's decision in MAK Data (P.) Ltd. Vs. CIT, which emphasized that the burden is on the assessee to provide a cogent and reliable explanation for the difference between reported and assessed income. If the explanation is bona fide and all facts are disclosed, the penalty may not be imposed. The Tribunal found that the assessee provided a reasonable explanation and disclosed all relevant facts, thereby discharging the onus.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not justified as the assessee neither concealed particulars of income nor furnished inaccurate particulars. The show cause notice was also found to be defective for not specifying the exact charge. The Tribunal directed the AO to delete the penalty imposed on the assessee. The same conclusion was applied to the cases of Amit Agarwal and Akash Kumar Agarwal, resulting in the deletion of penalties in those cases as well. All three appeals were allowed.

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