2019 (9) TMI 911 - AT - Income Tax

Levy of penalty u/s 271B - Books of accounts not audited - bonafide belief - addition the turnover of the assessee has increased the prescribed limit of ₹ 1.00 Crore applicable for the assessment year 2014-15 - HELD THAT - Assessee was under the bonafide belief that the Books of accounts need not be audited and filed the Return of income. We find the explanations of the Ld.AR are realistic and duly supported with the financial statements which cannot be over looked. Further, the assessee is Regular in filing the Return of income and has been paying the taxes. The Reasonable cause explained by the assessee u/s 273B of the IT Act, that the assessee has maintained Books of accounts and based on Books of accounts, income and expenditure has been prepared and filed the return of income. In the Assessment proceedings, the AO found the credits in other Bank accounts which were not disclosed and the assessee has accepted the addition. Assessee has a Reasonable cause and the action of the assessee is not wanton. Considering the facts, circumstances and the legal provisions that the penalty provisions are not automatic and the AO has to weigh the circumstances further on the turnover and demonstrated with financial statements. Accordingly, we set aside the order of CIT(A) and direct the AO to delete the penalty and allow the grounds of appeal of the assessee. Levying penalty u/s 271(1)(C) - assessee has challenged the issue of notice u/s 274 - defective notice - HELD THAT - It was imperative for the AO to strike off irrelevant limb so as to make the assessee aware as to what is the charge made against him and so that he can respond accordingly. Further, the Hon ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT observed that the levy of penalty has to be clear as to the limb under which it is being levied - where the AO proposes to invoke the first limb being the concealment then, notice has to be appropriately marked. Further, the Hon ble High Court has held that the standard proforma of notice u/s 274 of the Act, without striking of the relevant clauses would lead to inference of non-application of mind by the AO. In the present case, the AO is not sure whether he was to proceed on the basis that the assessee has concealed the particulars of his income or furnished inaccurate particulars of income. Also see M/S SSA'S EMERALD MEADOWS 2016 (8) TMI 1145 - SC ORDER - Decided in favour of assessee

Summary

Issues:
1. Challenge of penalty under section 271B of the IT Act.
2. Challenge of penalty under section 271(1)(C) of the IT Act and validity of the notice.

Issue 1: Challenge of penalty under section 271B of the IT Act

The appellant, a Civil Contractor, challenged the penalty imposed under section 271B of the IT Act for failure to get the books of accounts audited. The Assessing Officer (AO) estimated the income due to discrepancies in the disclosed contract receipts and unaccounted credits in the bank account. The appellant contended that the turnover did not exceed the audit limit when the return was filed, and argued that the penalty was unjustified. The Tribunal found the appellant's explanations supported by financial statements, and the failure to audit books was due to a genuine belief based on the turnover at the time of filing. The Tribunal emphasized that penalty provisions are not automatic and ruled in favor of the appellant, directing the AO to delete the penalty.

Issue 2: Challenge of penalty under section 271(1)(C) of the IT Act and validity of the notice

The appellant contested the penalty imposed under section 271(1)(C) of the IT Act, arguing that the notice did not specify the grounds for penalty regarding concealment of income or furnishing inaccurate particulars. The AO levied the penalty without providing clear reasons, leading to ambiguity in the charge against the appellant. Citing legal precedents, including a judgment by the Hon'ble High Court of Karnataka, the Tribunal held that the penalty order lacked clarity and suffered from non-application of mind. Following established legal principles, the Tribunal set aside the penalty order and canceled the penalty levied under section 271(1)(C) of the IT Act. The appeal on this issue was allowed in favor of the appellant.

In conclusion, the Appellate Tribunal ITAT Bangalore ruled in favor of the appellant in both appeals, directing the deletion of penalties imposed under sections 271B and 271(1)(C) of the IT Act. The Tribunal emphasized the importance of clear and specific notices in penalty proceedings and highlighted the need for the Assessing Officer to demonstrate proper application of mind before levying penalties. The judgments provide valuable insights into the interpretation and application of penalty provisions under the IT Act, ensuring fairness and adherence to legal principles in tax assessments.