2020 (2) TMI 76 - AT - Income Tax

Penalty u/s 271AAB - assessee did not furnish Tax Audit Report for these years as required u/s 44AB - HELD THAT - Hon ble Karnataka High Court rendered in the case of CIT vs. Babu Reddy 2010 (3) TMI 918 - KARNATAKA HIGH COURT are squarely applicable in the present case in which it was held that since no format of books of accounts were prescribed under the Rules for Civil Contracts, Penalty u/s 271A is not justified - because learned DR of the revenue could not point out any difference in facts. Therefore, respectfully following the same, we delete the penalty u/s 271B in all these six years. Penalty imposed by the AO u/s 271 (1) (c) - assessee mainly argued on this aspect that the penalty orders are bad in law because no specific allegation is made in the penalty notices issued u/s 274 r.w.s. 271 as to whether the charge is about concealment of income or furnishing of inaccurate particulars of income - HELD THAT - We find that the Judgment of Hon ble Karnataka High Court rendered in the case of CIT vs. Manjunath Cotton Ginning Factory 2013 (7) TMI 620 - KARNATAKA HIGH COURT is squarely applicable in the present case because learned DR of the revenue could not point out any difference in facts. We find that in each of the notices issued by the AO under section 274, the AO is alleging that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. Hence it is seen that the allegation is vague. Notice u/s 274 should specifically state the grounds mentioned in section 271 (1) (c ) i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income and clause q) specifically states that Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. Clause r) specifically states that the assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee Penalty imposed by the AO u/s 271 AAB - existence of undisclosed income - Neither in the assessment order nor in the penalty order, this fact is pointed out by the AO that any statement was recorded u/s 132 (4) and some undisclosed income is admitted by the assessee in the same and the assessee has specified the manner in which such income has been derived. There was no undisclosed income found because to arrive at undisclosed income, Gross Profit as worked out by the AO in Para 9.1 of the Penalty Order after reducing only cost of land and Development cost but without reducing other expenses is not justified and there was a loss of ₹ 99,594/- after considering the expenses and this loss is accepted by the AO also except disallowance of ₹ 548,335/- and ₹ 265,000/- on account of disallowance of the assessee s claim of Improvement Cost and Business Expenses respectively and for such disallowance, separate penalty of ₹ 358,987/- was imposed by the AO u/s 271 (1) (c) of I T Act to the extent of 100% of tax sought to be evaded as per the AO and hence, such disallowance is not a subject matter of penalty u/s 271 AAB. Before such disallowance, there is loss as claimed by the assessee after considering all expenses and hence, there is no undisclosed income in the present case for which, penalty u/s 271AAB can be imposed. - Appeals of the assessee are allowed

Issues Involved:
1. Penalty imposed under Section 271B of the IT Act, 1961.
2. Penalty imposed under Section 271(1)(c) of the IT Act, 1961.
3. Penalty imposed under Section 271AAB of the IT Act, 1961.

Detailed Analysis:

1. Penalty Imposed Under Section 271B:
The first issue pertains to the penalty imposed by the Assessing Officer (AO) under Section 271B of the Income Tax Act, 1961, for the assessment years 2009-10 to 2014-15. The penalty was imposed because the assessee did not furnish the Tax Audit Report as required under Section 44AB of the IT Act. The penalties ranged from ?30,000 to ?150,000 for different assessment years.

The assessee argued that as a civil contractor following the Project Completion Method, there was no turnover in these years, and hence, no requirement to maintain books of accounts or furnish a tax audit report. The assessee relied on the tribunal order in the case of K.V. Ramachandran vs. DCIT and the judgment of the Karnataka High Court in CIT vs. Babu Reddy, which held that since no specific format of books of accounts was prescribed for civil contractors, penalties under Section 271A and consequently under Section 271B were not justified.

The tribunal found that the cited orders and judgments were applicable as the revenue could not point out any difference in facts. Therefore, the tribunal deleted the penalty under Section 271B for all six years.

2. Penalty Imposed Under Section 271(1)(c):
The second issue involves the penalty imposed by the AO under Section 271(1)(c) of the IT Act for the same assessment years. The assessee contended that the penalty orders were invalid because the penalty notices issued under Section 274 read with Section 271 did not specify whether the charge was for concealment of income or furnishing inaccurate particulars of income. The assessee relied on the Karnataka High Court's judgment in CIT vs. Manjunath Cotton & Ginning Factory, which held that vague allegations in penalty notices are not sufficient for imposing penalties.

The tribunal found that the notices were indeed vague, as they did not specifically state the grounds for the penalty. The tribunal reproduced the conclusions from the Manjunath Cotton & Ginning Factory judgment, emphasizing that the notice must clearly state the grounds for the penalty and that sending a printed form with all grounds mentioned does not satisfy the legal requirement. Consequently, the tribunal deleted the penalty under Section 271(1)(c) for all six years.

3. Penalty Imposed Under Section 271AAB:
The third issue concerns the penalty imposed under Section 271AAB for the assessment year 2013-14. The AO imposed a penalty of ?584,640, stating that the case fell under clause (a) of sub-section (1) of Section 271AAB, which requires the assessee to admit undisclosed income in a statement under Section 132(4) and specify the manner in which such income was derived.

The tribunal noted that neither the assessment order nor the penalty order mentioned any statement recorded under Section 132(4) admitting undisclosed income. Additionally, the assessee argued that the due date for filing the return under Section 139(1) had not expired on the date of the search, and therefore, there could not be an allegation of undisclosed income. The tribunal found merit in this argument, noting that the AO had accepted the assessee's loss claim except for certain disallowances, which were subject to a separate penalty under Section 271(1)(c). Since there was no undisclosed income, the tribunal deleted the penalty under Section 271AAB.

Conclusion:
In conclusion, the tribunal allowed all 13 appeals of the assessee, deleting the penalties imposed under Sections 271B, 271(1)(c), and 271AAB of the IT Act for the respective assessment years.

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