2024 (12) TMI 105 - AT - Income Tax

Penalty proceeding u/s 271(1)(c) - unaccounted money addition as assessee company was beneficiary by way of taking accommodation entry through layering of funds through accounts of other companies during the financial year - concealment of income versus furnishing inaccurate particulars of income - HELD THAT - In the present case while we go over the order of the Ld. AO it appears to us that penalty notice u/s 274 r.w.s. 271(1)(c) of the Act dated 31.12.2019 was issued for initiating the same for concealment of particulars of income though the penalty order u/s 271(1)(c) of the Act was passed on 15.09.2021. However, Ld. CIT(A) in appellate proceeding against the said penalty order passed his appellate order on 18.06.2024 for the reason furnishing inaccurate particulars of income. It is clear that Ld. CIT(A) did not commence fresh penalty notice under the limb of furnishing inaccurate particulars of income by issuing fresh show cause notice. We find that the assessee has clearly stated that the assessee agreed to offer the income only to buy peace and avoid protracted litigation. As we have already discussed in deciding the issue placed in the additional ground, we find that penalty order u/s 271(1)(c) of the Act having been initiated by the Ld. AO on one ground i.e. concealment. However, Ld. CIT(A) has initiated on the other ground i.e. inaccurate particulars of income that goes to prove that the penalty proceeding is without jurisdiction and bad in law. The penalty u/s 271(1)(c) of the Act is hereby directed to be deleted. Assessee appeal allowed.

Summary

Issues Involved:

1. Legality of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the penalty imposed for concealment of income versus furnishing inaccurate particulars of income.
3. The impact of the assessee's non-appeal against the quantum addition on penalty proceedings.

Detailed Analysis:

1. Legality of the Penalty Proceedings under Section 271(1)(c):

The primary issue concerns whether the penalty proceedings initiated under Section 271(1)(c) were legally justified. The assessee contested the imposition of the penalty, arguing that the initiation of penalty proceedings was flawed. The counsel for the assessee emphasized that the penalty under Section 271(1)(c) can only be applied when there is either concealment of particulars of income or furnishing of inaccurate particulars of income. The counsel argued that the Assessing Officer (AO) failed to specify the exact charge in the notice issued, which is a requirement for the imposition of penalty. The Tribunal agreed with the assessee's contention, referencing the case of CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory, which highlighted the necessity for the AO to clearly specify the grounds for penalty in the notice, ensuring the assessee is informed of the exact charge to contest it effectively.

2. Validity of the Penalty for Concealment vs. Furnishing Inaccurate Particulars:

The second issue revolves around the inconsistency between the grounds for penalty initiation and the final order. The penalty was initially initiated for concealment of income, but the Commissioner of Income-tax (Appeals) [CIT(A)] confirmed it on the grounds of furnishing inaccurate particulars. The Tribunal found this discrepancy problematic, as the initiation of penalty proceedings must align with the final grounds for penalty imposition. The Tribunal cited multiple judgments, including the decision in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory, which established that penalty proceedings must be confined to the grounds initially stated, and any deviation in the final order renders the penalty unsustainable. The Tribunal concluded that the penalty proceedings were without jurisdiction and legally flawed due to this inconsistency.

3. Impact of Non-Appeal Against Quantum Addition:

The third issue addressed whether the assessee's decision not to appeal against the quantum addition of Rs. 15 Lakh impacted the penalty proceedings. The assessee argued that the non-appeal was a strategic decision to avoid prolonged litigation and not an admission of concealment. The Tribunal supported this view, noting that the decision to not contest the quantum addition does not automatically imply concealment of income. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings, and the absence of an appeal should not be construed as an admission of guilt. Citing relevant case law, the Tribunal reiterated that penalties are not automatic and must be based on clear, specific grounds, which were lacking in this case.

Conclusion:

The Tribunal found that the initiation and confirmation of penalty proceedings under Section 271(1)(c) were legally flawed due to the lack of specificity in the penalty notice and the inconsistency between the initiation and confirmation grounds. Consequently, the Tribunal set aside the penalty order and directed the deletion of the penalty amount of Rs. 4,63,500/-. The appeal filed by the assessee was allowed, underscoring the importance of precise legal procedures in penalty imposition.