ITAT Rules: Rs. 1.03 Crore Penalty Unsustainable; Rs. 10,565 Penalty for Concealment of Rental Income Upheld.

The ITAT partially allowed the appeal, ruling that the penalty of Rs. 1,03,86,055 on the surrendered income of Rs. 3 crores was unsustainable due to lack of concealment or inaccurate particulars in the return. The penalty related to the addition of Rs. 10,565 for short rental income was upheld, as it constituted clear concealment.

---

---

Issues Involved:
1. Validity of the penalty order under section 271(1)(c) of the IT Act.
2. Confirmation of penalty imposed under section 271(1)(c) for the amount of Rs. 1,03,86,055.
3. Vagueness of the show cause notice under section 274 and the consequent penalty order.
4. Additional grounds of appeal.

Detailed Analysis:

1. Validity of the Penalty Order under Section 271(1)(c):
The assessee challenged the penalty order dated 23rd July 2019, arguing it was bad in law and lacked jurisdiction. The penalty was imposed under section 271(1)(c) of the IT Act for the assessment year 2016-17. The primary contention was that the penalty was levied without specifying whether it was for "concealment of particulars of income" or "furnishing inaccurate particulars of income," making the order vague and contrary to judicial principles.

2. Confirmation of Penalty Imposed under Section 271(1)(c) for Rs. 1,03,86,055:
The assessee, an individual deriving income from business and profession, had a survey conducted under section 133A of the IT Act on 4th March 2016, where a diary indicating advances worth Rs. 3 crores was found. The assessee admitted this amount as undisclosed income and included it in the return filed on 17th October 2016. The AO accepted the returned income, except for an addition of Rs. 10,565 for short rental income, and initiated penalty proceedings for the surrendered income of Rs. 3 crores and the addition of Rs. 10,565. The AO imposed a penalty of Rs. 1,03,86,055, which was upheld by the CIT (A).

The assessee argued that since the income was declared in the return filed under section 139(1) and no addition was made by the AO, it could not be considered as furnishing inaccurate particulars or concealing income. The assessee also contended that Explanation 5A to section 271(1)(c) was not applicable as it pertains to search and seizure actions under section 132, not surveys under section 133A.

The Tribunal noted that the AO's reliance on Explanation 5A was misplaced as it applies only to search and seizure actions. Since there was no difference between the returned and assessed income concerning the Rs. 3 crores, it did not amount to concealment or furnishing inaccurate particulars. The Tribunal referred to the Delhi High Court's decision in CIT vs. S.A.S. Pharmaceuticals, which held that penalty under section 271(1)(c) requires actual concealment or non-disclosure in the return of income.

3. Vagueness of the Show Cause Notice under Section 274 and the Consequent Penalty Order:
The assessee argued that the show cause notice issued under section 274 was vague as it did not specify the exact charge—whether it was for concealment of income or furnishing inaccurate particulars. The Tribunal found merit in this argument, noting that such vagueness goes against judicial principles and renders the penalty order unsustainable.

4. Additional Grounds of Appeal:
The assessee sought the Tribunal's indulgence to add, amend, or alter grounds of appeal before the hearing date. However, this issue was not elaborated upon in the judgment.

Conclusion:
The Tribunal concluded that the penalty of Rs. 1,03,86,055 levied on the surrendered income of Rs. 3 crores was not sustainable as there was no concealment or furnishing of inaccurate particulars in the return filed. However, the penalty concerning the addition of Rs. 10,565 for short rental income was upheld as it constituted clear concealment. The appeal was partly allowed, deleting the penalty on the Rs. 3 crores but maintaining it for the Rs. 10,565 addition.

---