2018 (3) TMI 1676 - AT - Income Tax

Appeals dismissed in Income Tax penalty case, Tribunal upholds Rs. 7,66,320 levy.

The Tribunal dismissed the appeals, upholding the validity of penalty proceedings under section 271(1)(c) of the Income Tax Act. It affirmed the ... Validity of notice under section 274 read with section 271(1)(c) - Principles of natural justice in penalty proceedings - Application of Explanation 5A to section 271(1)(c) - Deeming of concealment where income is declared after search under section 153AValidity of notice under section 274 read with section 271(1)(c) - Principles of natural justice in penalty proceedings - Whether the penalty notice issued in standard proforma without striking irrelevant clauses violated principles of natural justice and was invalid. - HELD THAT: - The Tribunal applied the reasoning in Manjunatha Cotton & Ginning Factory and related authorities, observing that a notice under section 274 must make the charge against the assessee clear so that he can adequately meet it. Where the notice refers to an earlier order that clearly records the satisfaction of the authority as to the ground for penalty, such reference is sufficient. In the present case the notice expressly alleged that the assessee had 'concealed the particulars of his income and furnished inaccurate particulars of income' and the assessee received and replied to the notice and availed the opportunity to be heard. The Tribunal found that the charge was thus unambiguously brought to the assessee's notice and there was no prejudice to his right of defence; the facts were distinguishable from cases where the printed proforma merely listed alternative grounds without indicating which was relied upon. Accordingly the alleged procedural infirmity was rejected and the additional ground was dismissed. [Paras 15]Notice held valid; no violation of principles of natural justice; additional ground dismissed.Application of Explanation 5A to section 271(1)(c) - Deeming of concealment where income is declared after search under section 153A - Whether Explanation 5A applied to the facts and supported levy of penalty under section 271(1)(c) despite the return filed under section 153A being accepted and absence of separate incriminating documents seized. - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the search was conducted after 1.6.2007, bringing Explanation 5A into play. Explanation 5A deems income declared in a return filed on or after the date of search (where such income was not declared in the original return for a previous year ending before the date of search) to be concealment or furnishing of inaccurate particulars for purposes of section 271(1)(c). The assessee had surrendered Rs. 28 lakhs during the search, never retracted that surrender, and subsequently declared that amount in the return filed in response to section 153A; the AO accepted the source of investment as such surrendered income. The Tribunal held that the surrender and subsequent assessment demonstrated that the assessee was found to be owner of assets acquired from undisclosed income during the search, satisfying the condition in Explanation 5A even though no separate incriminating material (distinct documents or valuables) was recorded as seized. Prior decisions cited by the assessee were distinguished as not applying in the post-1.6.2007 Explanation 5A context. On these findings the Tribunal upheld the levy of penalty under section 271(1)(c). [Paras 19, 22, 23, 24]Explanation 5A held applicable; assessee deemed to have concealed income; penalty under section 271(1)(c) upheld and appeals dismissed.Final Conclusion: The Tribunal dismissed the appeals: the penalty notice was validly framed and the deeming fiction in Explanation 5A applied to the assessee's post-search declaration of undisclosed income under section 153A, thereby sustaining the penalty under section 271(1)(c) for assessment years 2010-11 and 2011-12. Issues Involved:1. Validity of penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.2. Applicability of Explanation 5A to section 271(1)(c) of the Income Tax Act, 1961.3. Requirement for specific charges in penalty notice under section 274 read with section 271(1)(c).Issue-wise Detailed Analysis:1. Validity of Penalty Proceedings Initiated Under Section 271(1)(c):The assessee argued that the penalty proceedings initiated via notice under section 274 read with section 271(1)(c) were invalid and bad in law because the notice was issued in a standard proforma without striking off the irrelevant portions, thus violating the principles of natural justice. The Tribunal referenced the Hon'ble Supreme Court judgment in National Thermal Power Co. Ltd. Vs. CIT, which allows the admission of additional grounds involving points of law without requiring further investigation of facts. The Tribunal admitted the additional grounds for adjudication.2. Applicability of Explanation 5A to Section 271(1)(c):The Tribunal upheld the applicability of Explanation 5A to section 271(1)(c), which applies to searches initiated on or after June 1, 2007. The Explanation deems the assessee to have concealed particulars of income if the income declared after search was not declared in the original return filed before the search. The Tribunal noted that the assessee had surrendered Rs. 28 lacs during the search, which was not declared in the original return. The Tribunal found no merit in the assessee's contention that no incriminating material was found during the search, as the surrender itself indicated undisclosed income invested in assets. The Tribunal agreed with the CIT(A)'s interpretation and upheld the levy of penalty under Explanation 5A.3. Requirement for Specific Charges in Penalty Notice:The Tribunal examined whether the penalty notice under section 274 read with section 271(1)(c) was valid. The assessee contended that the notice was invalid as it did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal referenced the Hon'ble Karnataka High Court's judgment in Manjunatha Cotton & Ginning Factory, which mandates that the notice must clearly spell out the charge against the assessee. The Tribunal found that the notice issued to the assessee mentioned both charges (concealment and furnishing inaccurate particulars) and provided the assessee with an opportunity to defend against these charges. Therefore, the Tribunal held that there was no infirmity in the notice and dismissed the additional ground of appeal.Conclusion:The Tribunal dismissed the appeals of the assessee, upholding the validity of the penalty proceedings and the applicability of Explanation 5A to section 271(1)(c). The Tribunal found no violation of natural justice in the penalty notice and confirmed the levy of penalty of Rs. 7,66,320/- under section 271(1)(c) of the Income Tax Act, 1961.