2020 (5) TMI 462 - AT - Income Tax

Penalty u/s 271 (1) (c) - credit card expenditure incurred through the credit card of the assessee for the purpose of business of another company, partly disallowed in the hands of that company, added in the hands of the assessee as perquisites - Addition made in the hands of the assessee as perquisites based on the disallowance made of expenses claimed by one of the companies, which was controlled by the sons of the assessee - HELD THAT - The assessee has disclosed complete details that these are the expenditure, which has been incurred by the assessee through his credit card; these expenses have been paid by one of the company as those expenses were pertaining to that company. Directors of that company examined during the course of search stated that this expenditure belonged to that particular company. The company claims such expenditure as allowable expenditure in its return of income, which travelled up to the level of the Commissioner of income tax appeals, who allows the appeal of that company and deleted the substantial part of the expenditure holding that they were for the purpose of the business of that company. In all these facts, the assessee has not concealed any particulars of his income. This was the statement of the assessee during the course of search also. This is confirmed by the directors of the company who were the relatives of the assessee. In view of this we do not find any merit in levy of the penalty on the assessee. There is another facet of the issue also. During the course of assessment proceedings where the assessment has been made, while making an addition, the learned assessing officer has not recorded any satisfaction whether the assessee has concealed his income or has furnished inaccurate particulars of income. At the time of levy of the penalty in the penalty order the assessing officer in para number 2 has categorically held that a show cause notice was issued on 30/3/2014 wherein the assessee was called upon to explain that it has concealed the particulars of its true income and furnished inaccurate particulars of its income in terms of explanation 271 (1) (C) of the income tax act 1961. In the same order in para number 4, while issuing the other show cause notice for levy of penalty on 16/2/2016, the twin challenges were shown to the assessee for the explanation. As per para number 6 of the penalty order, the learned assessing officer has categorically held that assessee has concealed his income. CIT A has also confirmed the penalty for concealment of income. Thus from the above facts it is clear that none of the twin challenges were specifically confronted to the assessee at the time of assessment order, at the time of issuing two different notices for levy of the penalty. Penalty was levied on one of the charges i.e. of concealment of income. The purpose of the issue of notice is to put forth specific charge before the assessee for his explanation. It cannot be allowed that no specific charges are made against the assessee and at the time of passing of the penalty order penalty is levied on one of those charges. This issue is squarely covered in favour of the assessee by the decision of Sahara India Life Insurances Co Ltd 2019 (8) TMI 409 - DELHI HIGH COURT is so held that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Therefore, also, the penalty levied by the learned assessing officer and confirmed by the learned CIT A cannot be upheld. In the result, we direct the learned assessing officer to delete the penalty imposed under section 271 (1)( c) of the act. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act on credit card expenditure incurred for the business of another company.

Analysis:
1. Late Shri Jaswant Singh Madhok's Case:
- The appeal challenged the penalty imposed under section 271(1)(c) by the learned CIT(A).
- The facts revealed that the credit card expenses incurred by the assessee were partly disallowed in the hands of another company, resulting in the addition of the same amount as perquisites in the assessee's income.
- The assessing officer initiated penalty proceedings without specifying if the assessee furnished inaccurate particulars or concealed income.
- The disallowance made in the other company's hands was later substantially reduced, indicating that the expenses were not solely for personal benefit.
- The tribunal found no evidence of concealment by the assessee and highlighted the lack of an established employer-employee relationship between the assessee and the company paying the credit card bills.
- The tribunal emphasized that the penalty cannot be levied solely based on the disallowance of expenses in the other company's hands without proving concealment or inaccurate particulars by the assessee.
- Citing a Delhi High Court decision, the tribunal ruled that penalty cannot be upheld if specific charges were not confronted to the assessee during the assessment proceedings.

2. Smt. Sumohita Kaur's Case:
- Similar to the previous case, the appeal challenged the penalty imposed under section 271(1)(c) by the learned CIT(A).
- The facts mirrored the earlier case, where the credit card expenditure disallowed in the other company's hands was added to the assessee's income as perquisites.
- The tribunal directed the assessing officer to delete the penalty levied on the assessee, citing similar reasons as in the previous case.

Conclusion:
Both appeals were allowed, and the penalties imposed on the assesses were directed to be deleted. The tribunal emphasized the importance of establishing concealment or inaccurate particulars before levying penalties under section 271(1)(c) of the Income Tax Act.