2021 (3) TMI 1052 - AT - Income Tax

Penalty Appeals Allowed due to Procedural Lapses

Ashish Mittal Versus DCIT Central Circle-7 New Delhi, Sh. Akshay Gupta Versus DCIT Central Circle-7 New Delhi, Kunal Gupta Versus DCIT Central Circle-7 New Delhi And Ayush Gupta Versus DCIT Central Circle-7 New Delhi

Ashish Mittal Versus DCIT Central Circle-7 New Delhi, Sh. Akshay Gupta Versus DCIT Central Circle-7 New Delhi, Kunal Gupta Versus DCIT Central Circle-7 ... Issues Involved:1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.2. Levy of penalty under Section 271AAB of the Income Tax Act.3. Validity of penalty notices and procedural compliance.4. Voluntary disclosure and its impact on penalty imposition.Detailed Analysis:1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:The primary issue revolves around the confirmation of penalties under Section 271(1)(c) for various assessment years. The penalties were imposed due to additional income disclosed by the assessee in returns filed under Section 153A following a search operation. The Assessing Officer (AO) initiated penalty proceedings, alleging concealment of income and furnishing inaccurate particulars.The Tribunal noted that the AO failed to specify the exact limb under Section 271(1)(c) for which the penalty was imposed, rendering the penalty notices vague and non-compliant with legal requirements. The Tribunal emphasized that the AO must clearly state whether the penalty is for concealment of income or furnishing inaccurate particulars, as per judicial precedents like CIT vs. SSA’s Emerald Meadows and CIT v. Manjunatha Cotton & Ginning Factory.The Tribunal found that the AO's satisfaction regarding the concealment of income was inadequately recorded in the assessment order. The penalty orders also lacked specific reasoning for the alleged concealment, leading to the conclusion that the penalties were not sustainable.2. Levy of Penalty under Section 271AAB of the Income Tax Act:For the assessment year 2016-17, penalties were imposed under Section 271AAB, which deals with undisclosed income detected during a search operation. The AO concluded that the assessee had undisclosed income and imposed a penalty at the rate of 20% on the surrendered income.The Tribunal observed that the assessee had admitted the undisclosed income and paid taxes thereon. The AO's penalty notice was found to be vague and not in compliance with the statutory provisions. The Tribunal held that the penalties under Section 271AAB could not be sustained due to procedural lapses and the assessee's voluntary disclosure.3. Validity of Penalty Notices and Procedural Compliance:A significant portion of the judgment dealt with the validity of penalty notices. The Tribunal reiterated that penalty notices must clearly specify the grounds for penalty—whether for concealment of income or furnishing inaccurate particulars. The lack of specificity in the notices was deemed a violation of natural justice and procedural requirements.The Tribunal referred to various judicial precedents, including the Hon’ble Supreme Court's decision in SSA’s Emerald Meadows and the Hon’ble Delhi High Court's decision in Pr. CIT Vs. M/s. Sahara India Life Insurance Company Ltd., to underscore the importance of clear and specific penalty notices.4. Voluntary Disclosure and Its Impact on Penalty Imposition:The Tribunal also addressed the issue of voluntary disclosure. It was argued that the assessee's disclosure of additional income post-search was voluntary and should not attract penalties. The Tribunal, however, noted that voluntary disclosure does not automatically exempt an assessee from penalties if the disclosure is made after detection by the AO.The Tribunal cited the Hon’ble Supreme Court's decision in Mak Data Pvt. Ltd. v. CIT, which held that voluntary disclosure does not preclude penalty imposition if the disclosure is made after detection of undisclosed income. Despite this, the Tribunal found that the AO's procedural lapses and vague penalty notices rendered the penalties unsustainable.Conclusion:The Tribunal allowed the appeals filed by the assessee for all assessment years, holding that the penalties imposed under Sections 271(1)(c) and 271AAB were not sustainable due to procedural lapses, vague penalty notices, and inadequate satisfaction recorded by the AO. The Tribunal emphasized the need for clear and specific penalty notices and adherence to procedural requirements, thereby setting aside the penalties.