2020 (2) TMI 1033 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee himself declared additional income in the ROI filed u/s 153A - HELD THAT - Explanation 5A to section 271(1)(c) is deeming fiction which cannot be extended beyond the scope of the said provision. It is clear from the Explanation 5A that once any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions but the assessee has not declared the said income in the return of income filed prior to the date of search, then even if such income is declared in the return of income filed post search, the assessee would be deemed to have concealed the particulars of his income or furnished inaccurate particulars of income. Only when the conditions prescribed under Explanation 5A and particularly the income disclosed by the assessee representing the money, bullion, jewellery or other valuable article or thing or income based on any entry in any books of account or other record, the same would attract the said Explanation 5A and assessee cannot escape from the mischief of the penalty provision under section 271(1)(c) merely because the said income is declared in the return of income filed after search. In the case in hand, the AO has even not made any reference to any incriminating material so as to bring the income declared by the assessee in the return of income filed in response to notice under section 153A in the ambit of the Explanation 5A to section 271(1)(c) of the Act. Accordingly, when the AO has failed to even make any reference to any incriminating material representing the undisclosed material or the income declared by the assessee, the Explanation 5A to section 271(1)(c) would not be applied in the case of the assessee. Hence in the facts and circumstances of the case, we do not find any reason to interfere with the impugned order of the ld. CIT (A). - Decided against revenue

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the IT Act.
2. Validity of initiation of penalty proceedings under section 271(1)(c).
3. Merits of the additions made by the AO and the corresponding penalties.

Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the IT Act:
The revenue challenged the deletion of penalties imposed under section 271(1)(c) for the assessment years 2010-11 to 2012-13 by the CIT (A). The penalties were levied for concealment of income or furnishing inaccurate particulars of income. The Tribunal noted that the CIT (A) deleted the penalties on the ground of invalid initiation of penalty proceedings, as the AO did not specify the exact charge in the show cause notice issued under section 274 read with section 271 of the IT Act. The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO must specify whether the penalty is for concealment of income or for furnishing inaccurate particulars of income.

2. Validity of Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal examined the show cause notices issued by the AO and found them to be vague and non-specific. The notices mentioned various defaults without striking off the irrelevant parts, indicating a lack of application of mind by the AO. The Tribunal cited the Hon'ble Jurisdictional High Court's decision in Sheveta Construction Co. Pvt. Ltd. vs. ITO, which mandates that the AO must specify the exact charge for which the penalty proceedings are initiated. The Tribunal concluded that the show cause notices suffered from illegality and were not merely irregular.

3. Merits of the Additions Made by the AO and the Corresponding Penalties:
The Tribunal reviewed the merits of the additions made by the AO and the corresponding penalties. It noted that in the quantum appeals, the Tribunal had either deleted the additions made by the AO or set them aside for fresh adjudication. Specifically:
- The addition on account of undisclosed interest income was deleted as no evidence was found during the search to support the AO's estimation.
- The addition on account of cash deposits in the bank accounts of employees was deleted as the AO failed to provide evidence linking the deposits to the assessee.
- The disallowance of expenses was set aside for fresh adjudication as the AO did not verify whether the expenses recorded in the seized material were also claimed in the regular books of account.

Given these findings, the Tribunal concluded that the penalties levied by the AO were not sustainable. The Tribunal also addressed the AO's reliance on Explanation 5A to section 271(1)(c), which applies to undisclosed income found during a search. The Tribunal noted that the AO did not refer to any incriminating material to support the application of Explanation 5A, and therefore, it could not be applied in the assessee's case.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT (A)'s decision to delete the penalties imposed under section 271(1)(c) of the IT Act. The Tribunal emphasized the importance of specifying the exact charge in the show cause notice and found that the AO's failure to do so rendered the penalty proceedings invalid.

← Previous Next →