2019 (10) TMI 284 - AT - Income Tax

Penalty u/s 271(1) (C) - omission on the part of the assessee to return the rental income - HELD THAT - As carefully gone through the notice issued u/s. 274 r.w.s. 271 of the Act the Assessing Officer has not struck out the irrelevant portion of the notice. In other words he has not specified whether he is levying penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. As held in the case of CIT Anr. vs. M/s. SSA s Emerald Meadows 2015 (11) TMI 1620 - KARNATAKA HIGH COURT that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is to be bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. This view was confirmed by the Supreme Court in the same case, i.e., CIT Anr. vs. M/s. SSA s Emerald Meadows 2016 (8) TMI 1145 - SC ORDER In view of the above discussion, we are inclined to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Failure to disclose property income.
3. Addition of unexplained deposits in bank accounts.
4. Whether the omissions were accidental or wilful concealment.
5. Impact of the death of the family member handling tax affairs on the ability to explain transactions.
6. Validity of penalty notices issued under Section 274 of the Income Tax Act, 1961.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in both cases was the levy of penalties under Section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The assessing officer concluded that the omissions and unexplained deposits amounted to concealment of income. The CIT(A) upheld this view, stating that the appellants, being adults, were responsible for their actions.

2. Failure to Disclose Property Income:
In the case of Smt. Thankamani Varadarajulu, the assessing officer added rental income that was not declared by the appellant. The appellant argued that the omission was accidental and due to the death of her husband, who handled tax matters. The CIT(A) rejected this explanation, emphasizing the appellant's responsibility as an independent adult.

3. Addition of Unexplained Deposits in Bank Accounts:
For Smt. Thankamani Varadarajulu, unexplained deposits in her bank account led to an addition of ?1,54,542/-. She contended that her late husband managed her accounts, and she could not explain the deposits due to his death. Similarly, Smt. Anita Nagendran faced an addition of ?2,01,860/- for unexplained deposits. She argued that her father, who managed her accounts, had passed away, making it difficult to explain the deposits.

4. Whether the Omissions were Accidental or Wilful Concealment:
Both appellants claimed that the omissions were accidental and not intentional concealment. They argued that the additions were agreed to for peace and finality, not because they represented undisclosed income. The CIT(A) dismissed these arguments, stating that the appellants were responsible for their actions as adults.

5. Impact of the Death of the Family Member Handling Tax Affairs on the Ability to Explain Transactions:
The appellants highlighted the impact of the death of the family member who handled their tax affairs. They argued that this led to their inability to explain the transactions properly. The CIT(A) did not accept this reasoning, emphasizing the appellants' responsibility to manage their tax matters.

6. Validity of Penalty Notices Issued under Section 274 of the Income Tax Act, 1961:
The appellants challenged the validity of the penalty notices issued under Section 274, arguing that they did not specify the exact default (concealment of income or furnishing inaccurate particulars). The Tribunal found merit in this argument, citing judgments that invalidated penalty notices for not specifying the default.

Conclusion:
The Tribunal concluded that the penalty proceedings were void ab initio due to the invalidity of the penalty notices under Section 274. The notices did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. This defect rendered the penalty proceedings invalid, leading to the allowance of the appeals. The Tribunal did not address other grounds of appeal, as the penalty proceedings were quashed. The appeals of the assessees were allowed, and the penalties were cancelled.

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