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2021 (4) TMI 586 - AT - Income TaxPenalty u/s 271(1)(c) - failure on the part of legal heir of the deceased assessee to explain the source of part of the deposits - penalty levied for furnishing inaccurate particulars of income or for concealing particulars of income - as argued Assessing Officer has not initiated the penalty proceedings for a definite default or a correct charge against the assessee - HELD THAT - Assessing Officer has recorded the satisfaction by citing a definite charged against assessee for concealment of particulars of income. In the show cause notice issued u/s 274 r.w.s. 271 dated 31.12.2010 the Assessing Officer has initiated penalty proceedings on the charge you have concealed the particulars of your income or furnished inaccurate particulars of such income . It is clear from the show cause notice that the Assessing Officer not specified the charge for which the penalty proceedings were initiated. Even the Assessing Officer was not sure about default/ charge at the time of issuing the show cause notice. Finally, the Assessing Officer has levied the penalty u/s 271(1)(c) by recording his finding that the assessee has filed inaccurate particulars and concealed income. The Assessing Officer has levied the penalty on both charges i.e. inaccurate particulars of income and concealment of income. In the bank account, the Assessing Officer made the addition. Hence, the addition was not made because of the reason that the assessee has concealed the particulars of income but it is only because of the reason that the legal representative/the widow of the deceased assessee could not explain the source of part of the deposits made in the bank account by deceased assessee. The Assessing Officer has accepted the contract receipt and garment business receipt and therefore, it cannot be ruled out that the deposit which could not be explained by the widow of the deceased assessee may be available as cash opening balance as the assessee was doing the business. Therefore, merely because the legal representative of the assessee failed to explain the deposits in the bank account would not ipso facto lead to the conclusion that it represents an undisclosed income or concealed income. The particulars regarding deposits as well as the contract receipt and business receipt were all explained and available with the Assessing Officer and therefore it is not a case of concealment of particulars of income but it may be a case of furnishing inaccurate particulars of income. Assessing Officer has recorded the satisfaction for initiation of penalty on incorrect charge and the penalty was also levied for an incorrect charge of inaccurate particulars of income and concealment of particulars of income which is not possible in the case of the assessee when the addition was made in respect of only one issue i.e. the source of deposit in the bank account. Thus initiation of penalty by the Assessing Officer without specifying the charge in the show cause notice and finally levying the penalty u/s 271(1)(c) against the incorrect charge renders the impugned order by the Assessing Officer as not sustainable in law and liable to be quashed. Even on the merits of levy of penalty it is pertinent to note that the assessee has furnished all relevant details which were verified and examined by the Assessing Officer and the addition was made by the Assessing Officer due to the reason that the legal heir of the deceased assessee could not explain the part of the deposits made in the bank accounts. The mere failure on the part of the assessee/legal representative to explain the deposits in the bank accounts would not ipso facto lead to the conclusion that the assessee has either furnished inaccurate particulars of income or concealed the particulars of income. The explanation during the assessment proceedings by the legal representative of the deceased assessee is bona-fide as provided in Explanation 1(B) to section 271(1)(c) - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty order passed under section 271(1)(c) due to the death of the assessee. 2. Failure of the Assessing Officer to specify the exact charge for the penalty. 3. Levy of penalty for both inaccurate particulars and concealment of income. 4. Pendency of the quantum appeal before the ITAT. 5. Lack of opportunity given by the CIT(A) to the assessee. 6. General validity of the penalty order on facts and law. Issue-wise Detailed Analysis: 1. Validity of the Penalty Order Passed Under Section 271(1)(c) Due to the Death of the Assessee: The assessee expired on 28.04.2010, after filing his return of income on 26.05.2008. The penalty proceedings were initiated posthumously, with the legal representative (the wife of the deceased) participating in the assessment proceedings. The legal representative was unable to explain the source of deposits due to lack of knowledge about the deceased's financial transactions. 2. Failure of the Assessing Officer to Specify the Exact Charge for the Penalty: The Assessing Officer initiated penalty proceedings without specifying whether the penalty was for "furnishing inaccurate particulars of income" or "concealing particulars of income." The show cause notice issued under section 274 of the Income Tax Act did not specify the exact charge, making the initiation of the penalty proceedings invalid. This was supported by various judicial precedents, including: - Shri Kamalendra Bhadur Mishra v. DCIT - Taneja Rice & Dall Mills v. ACIT-II - HPCL Mittal Energy Ltd. v. Addl. CIT 3. Levy of Penalty for Both Inaccurate Particulars and Concealment of Income: The Assessing Officer levied the penalty under section 271(1)(c) for both "furnishing inaccurate particulars" and "concealing income." However, the bank account and other details were disclosed in the return of income, and the addition was due to the legal representative's inability to explain the deposits. The Tribunal held that the penalty could not be levied for both charges simultaneously, especially when the addition was due to unexplained deposits rather than concealment of income. 4. Pendency of the Quantum Appeal Before the ITAT: The penalty order was passed during the pendency of the quantum appeal before the ITAT, which was eventually set aside. This raised questions about the validity of the penalty order. 5. Lack of Opportunity Given by the CIT(A) to the Assessee: The CIT(A) did not provide an opportunity for the legal representative to depose in the case, which was a procedural lapse affecting the fairness of the proceedings. 6. General Validity of the Penalty Order on Facts and Law: The Tribunal noted that the Assessing Officer accepted the contract and business receipts but made an addition for unexplained deposits. The failure to explain the deposits by the legal representative did not constitute concealment of income. The Tribunal emphasized that the penalty proceedings require a clear and specific charge, and the failure to do so renders the penalty order invalid. Conclusion: The Tribunal quashed the penalty order for being unsustainable in law due to the lack of a specific charge in the show cause notice and the incorrect basis for levying the penalty. The appeal of the assessee was allowed, and the penalty was deleted.
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