2017 (8) TMI 560 - AT - Income Tax

Income Tax Penalty Overturned Due to Lack of Evidence and Invalid Notice

The Tribunal found that the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 21,76,000/- was unjustified due to lack ... Levy of penalty u/s 271 (1) (c) - concealment of income or furnishing inaccurate particulars of income - defective notice - Held that:- AO has to give a notice as to whether he proposes to levy a penalty for “concealment of income” or “furnishing inaccurate particulars of income”. He cannot have both the conditions and if it so he has to say so in the notice and record the finding in the penalty order. Hence, we do not see any merit into the argument of the Ld. Departmental Representatives. As in the said notice Ld. AO has not clearly mentioned the limb, on the basis of which, penalty was proposed to be imposed. Ld. AO has simply issued a pre-printed notice without striking off the unnecessary portions of the notice. If the Ld. AO was of the view that the assessee has concealed the income by furnishing inaccurate particulars of income then he should have deleted or not mentioned the other limb for imposition of penalty i.e. concealing the particulars of income. The above act of the Ld. AO clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind. - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the notice issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961Facts and Background:The appeal was filed by the assessee against the order of the CIT(A), Central, Jaipur, which confirmed the penalty of Rs. 21,76,000/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for concealing particulars of income amounting to Rs. 64,63,010/-.Arguments by the Assessee:1. The assessee derived income from supervision of construction work and other sources and filed a return declaring an income of Rs. 2,04,270/-. The assessment was completed at Rs. 68,53,970/-.2. The AO initiated penalty proceedings based on the statement of the assessee and SLK, who was involved in a real estate project. The statement indicated that the assessee had invested Rs. 56,50,000/- in cash in the project.3. The assessee retracted his statement and argued that no corroborative documentary evidence was available to confirm the investment. The partnership deed was unsigned, and the ledger account was submitted by SLK after the search.4. The assessee contended that the penalty proceedings require a higher degree of precision and that the oral admissions, which were later retracted, had no evidentiary value.Arguments by the Revenue:The Departmental Representative opposed the submissions and supported the order of the authorities below, arguing that the penalty was validly imposed based on the statements and evidence available.Tribunal's Findings:1. The Tribunal noted that the penalty proceedings are independent of quantum proceedings and require conclusive evidence of the assessee's intent to conceal income.2. The Tribunal observed that the statements of SLK and the assessee were inconsistent and lacked corroborative documentary evidence.3. The Tribunal emphasized that the penalty can only be imposed when there is no doubt about the assessee's intent to conceal income, which was not the case here.Conclusion on Issue 1:The Tribunal found that the penalty imposed by the AO and confirmed by the CIT(A) was not justified due to the lack of conclusive evidence and the inconsistencies in the statements. Therefore, the penalty of Rs. 21,76,000/- was deleted.Issue 2: Validity of the Notice Issued under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961Arguments by the Assessee:1. The assessee argued that the notice issued under Section 274 read with Section 271(1)(c) was invalid as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars of income.2. The assessee relied on various judicial precedents, including the judgment of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory and the Hon'ble Rajasthan High Court in the case of Sheveta Construction Company Pvt. Ltd., which held that the notice must clearly specify the limb under which the penalty is proposed.Arguments by the Revenue:The Departmental Representative argued that any technical defect in the notice should not be a ground for quashing the penalty order.Tribunal's Findings:1. The Tribunal noted that the notice issued by the AO was a pre-typed format that did not specify the exact charge against the assessee.2. The Tribunal referred to the judgment of the Hon'ble Rajasthan High Court in the case of Sheveta Construction Company Pvt. Ltd., which held that the AO must specify whether the penalty is for concealment of income or furnishing inaccurate particulars.3. The Tribunal found that the notice was issued in a mechanical manner without application of mind, rendering it invalid.Conclusion on Issue 2:The Tribunal held that the notice issued under Section 274 read with Section 271(1)(c) was invalid due to the lack of specificity and application of mind. Consequently, the penalty imposed in pursuance of the invalid notice was quashed.Final Order:The Tribunal allowed the appeal of the assessee, quashing the penalty of Rs. 21,76,000/- imposed under Section 271(1)(c) of the Income Tax Act, 1961.Order Pronounced:The order was pronounced in the open court on Thursday, the 27th day of July 2017.