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Facts
During a survey under Section 133A, unrecorded cash receipts of Rs. 3,51,10,500/- were found, which partners voluntarily offered as additional income but the assessee did not declare in its return. The AO assessed this income and levied a penalty of Rs. 1,08,45,900/- under Section 271(1)(c), which was upheld by the CIT(A). The assessee contended that the AO failed to distinguish between concealment and inaccurate particulars and did not consider their replies and objections.
Held
The Tribunal observed that the AO and CIT(A) failed to consider the assessee's written submissions objecting to the penalty. To ensure a fair hearing, the Tribunal set aside the matter to the AO, directing a fresh examination of the issue after considering all submissions and providing a reasonable opportunity to the assessee.
Key Issues
Whether the penalty under Section 271(1)(c) was validly imposed without clearly specifying the charge (concealment vs. inaccurate particulars) and without adequately considering the assessee's objections and submissions by the lower authorities.
Sections Cited
133A, 143(1), 143(2), 142(1), 143(3), 271(1)(c), 274
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Income Tax Appellate Tribunal, MUMBAI “A” BENCH: MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
O R D E R PER VIKRAM SINGH YADAV, A.M :
This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-51, Mumbai [„Ld.CIT(A)‟], dated 16-04-2025, pertaining to Assessment Year (AY) 2012-13, wherein the assessee has taken the following grounds of appeal:
“1. The Ld. Commissioner of Income Tax (Appeals) ["Ld. CIT(A)"] erred in upholding the levy of penalty of ₹1,08,45,900/- under Section 271(1)(c) of the Income-tax Act, 1961, without appreciating that the Ld. AO while initiating the said penalty in the assessment order as well as in the notice u/s 271(1)(c) of the IT Act, 1961 has merely mentioned all the grounds of penalty, without adjudicating whether it is a case of concealment or furnishing of inaccurate particulars of Income.
2. The Ld. CIT(A) erred in upholding the levy of penalty of ₹1,08,45,900/-under Section 271(1)(c) of the Income-tax Act, 1961, without appreciating that the AO had levied the penalty stating that no reply has been filed when the Appellant had already filed a reply dated 07.10.2016 objecting to the levy of penalty u/s 271(1)(c) of the IT Act, 1961.
3. The Ld. CIT(A) erred in upholding the levy of penalty of ₹1,08,45,900/-under Section 271(1)(c) of the Income-tax Act, 1961, without adjudicating or considering the final reply submitted online by the Appellant on 21.02.2024.
4. The Ld. CIT(A) erred in not appreciating the fact that the Ld. AO has not decided as to whether the penalty u/s 271(1)(c) of the IT Act, 1961 is for concealment or for filing inaccurate particulars of Income as can be seen from para 6 of the Penalty order.
The Ld. CIT(A) failed to appreciate that the amount of ₹3,51,00,000/-constituted advances from prospective customers, duly recorded in a diary seized during survey proceedings on 22.02.2012, i.e., before the end of the financial year and that the Appellant had, during the survey itself, voluntarily informed that the said sum shall be recorded in the books of accounts for the financial year ending 31.03.2012- evidencing transparency and absence of mens rea.
6. The Ld. CIT(A) erred in not appreciating the fact that the Appellant followed the project completion method and that the profit is to be arrived at on completion of the project when the amount of Rs. 3,51,10,500/- being advances received from prospective customers as appearing in the books of accounts of the Appellant was to be offered to tax, thereby proving that there is no deliberate concealment of income nor furnishing of inaccurate particulars thereof by the Appellant.
7. That the Ld. CIT(A) has erred in concluding that the Appellant failed to discharge its burden of proof under Explanation 1 to Section 271(1)(c), without considering that the Appellant had furnished a bona fide explanation, supported by contemporaneous evidence, and the absence of any contrary finding by the Assessing Officer.
8. That the penalty proceedings under Section 271(1)(c) are quasi-criminal in nature, and in the absence of any material to establish contumacious conduct, deliberate falsity, or intention to mislead the tax authorities, the confirmation of penalty is bad in law and liable to be quashed.
9. That the CIT(A) has failed to consider the settled legal position that penalty cannot be sustained where the addition itself arises from a debatable or controversial treatment of business advances, especially when such sums were recorded during survey and not discovered during assessment.
10. That in the facts and circumstances of the case, the learned CIT(A) ought to have exercised judicial discretion in favour of the Appellant, particularly in light of the voluntary disclosure, substantial advance tax paid, and the absence of any concealment detected independently by the Revenue. 11.The Appellant craves leave to add, alter, amend or withdraw any of the grounds at or before the time of hearing.”
Briefly the facts of the case are that a survey u/s. 133A of the Income Tax Act, 1961 („the Act‟) was conducted at the business premises of the assessee on 22-03-2012. During the course of survey, a pocket diary was found in which certain cash receipts were noted amounting to Rs. 3,51,10,500/- which were not found recorded in the Books of Account of the assessee-firm. One of the partners, Shri Suresh P. Baid was confronted with the same and he voluntarily disclosed the amount of Rs. 3,51,10,500/- as additional income for AY. 2012-13 in his statement recorded on oath on 22-03-2012. The said declaration was also confirmed by the other partner Shri Sanket S. Baid. Subsequently, the assessee e- filed its return of income on 29-09-2012, declaring total income at Rs. NIL. The return was processed u/s. 143(1) of the Act and thereafter, statutory notices u/s. 143(2) and 142(1) of the Act were issued along with show cause as to why the additional income so disclosed during the course of survey was not declared in the return of income. In response to the show cause, there was no reply nor any one attended to the assessment proceedings. Thereafter, the AO proceeded and held that since the assessee has no answer, the additional income disclosed from the survey is accepted to be added to its income for the assessment year under consideration. Taking into consideration the statement of both the partners of the assessee-firm, the AO assessed the income at Rs. 3,51,10,500/- and assessment order was passed u/s. 143(3) of the Act, dt. 16-03-2015. Separately, the penalty proceedings u/s. 271(1)(c) of the Act were initiated for filing the inaccurate particulars and concealing of income and notice u/s. 271(1)(c) r.w.s. 274 of the Act was issued on 16-03-2015.
The assessee thereafter carried the matter in appeal before the Ld. CIT(A), however, vide letter dt. 28-03-2016, the assessee had sought withdrawal of its appeal and accordingly the Ld.CIT(A) vide his order dt. 06-04-2016, dismissed the appeal of the assessee being infructuous. Therefore, as far as quantum proceedings are concerned, the same attained finality.
Thereafter, the AO issued another show cause u/s. 274 r.w.s. 271(1)(c) of the Act on 07-03-2018 and in response, it has been stated by the AO that neither the assessee nor its representative attended or filed any details or submissions. Thereafter, the AO proceeded and levied penalty u/s. 271(1)(c) of the Act amounting to Rs. 1,08,45,900/-, which, on appeal, has been sustained by the Ld.CIT(A) and against the said finding, the assessee is in appeal before us.
5. During the course of hearing, the Ld.AR submitted that the penalty order passed u/s. 271(1)(c) of the Act is factually erroneous for the reason that the AO has incorrectly recorded that the assessee has neither attended the proceedings nor filed any written submissions in response to the show cause notice. It was submitted that the assessee has filed written submissions dt. 07-10-2016, clearly objecting to the levy of penalty and a copy of the said letter has been placed on record. It was submitted that the said fact was also specifically brought to the attention of the Ld. CIT(A) through the assessee‟s submissions filed online on 21-02-2024 and even the Ld.CIT(A) has failed to consider the assessee‟s specific objection concerning the denial of opportunity and the factual misstatement in the penalty order. It was further submitted that the Ld.CIT(A) has upheld the levy of penalty without adjudicating the final reply submitted online by the assessee on 21-02-2024. A copy of which has also been placed on record.
It was further submitted that the penalty levied u/s. 271(1)(c) of the Act is untenable in law and deserves to be quashed ab initio on the ground that the very basis of initiation and imposition of the penalty is inherently defective and contrary to settled principles of law. It was submitted that a close reading of the assessment order reveals that the AO himself was uncertain as to whether the assessee had concealed particulars of income or furnished inaccurate particulars of income and this uncertainty is manifest from the contradictory findings recorded by the AO at different stages of the proceedings and our reference was drawn to paragraph No. 5 of the assessment order, wherein the AO records a finding that the assessee has concealed income to the extent of Rs.3,51,10,500/- and thereafter in paragraph No. 6 of the assessment order, the AO notes that penalty proceedings u/s. 271(1)(c) of the Act are being initiated for filing inaccurate particulars of income. Further, our reference was drawn to the penalty order dt. 26-03-2018, wherein the AO concludes in paragraphs No. 6 and 8 that the assessee has furnished inaccurate particulars of income, without reconciling or withdrawing the earlier finding of concealment. It was submitted that where the AO is himself unsure of the precise default committed by the assessee, whether it is concealment of income or furnishing inaccurate particulars of income, then the very foundation of penalty proceedings is vitiated and in support, reliance was placed on the decision of the Hon‟ble Delhi High Court in the case of Pr.CIT vs. Unitech Reality Pvt. Ltd., dt. 05-04-2024 and decision of the Co-ordinate Bench of the Tribunal in the case of Malla Appalaraju vs. ITO in dt. 28-05-2024.
Further, reliance was placed on the following decisions:
a. Padma Ram Bharali vs. CIT, 110 ITR 54 (Gau.) b. CIT vs. Jyoti Ltd. [2013] 34 taxmann. com 65 c. New Sorathia Engg. Co. vs. CIT [2006] 282 ITR 642 (GUJ) d. Kansara Bearings Ltd vs. ACIT [2013] Hon'ble ITAT, Jodhpur. e. DCIT vs. B.J.D. Paper products [2012] 17 taxmann.com 11 (Luck.)
It was submitted that all the above decisions underscore a fundamental legal principle that the AO must clearly and unequivocally specify the exact charge u/s. 271(1)(c) of the Act, whether the penalty is being levied for „concealment of income‟ or for „furnishing of inaccurate particulars of income‟.
It was further submitted that penalty which has been initiated for concealment of income in the assessment order cannot be levied subsequently for filing inaccurate particulars of income and, therefore, penalty order is void ab initio and deserves to be set aside.
It was further submitted that as the law is well settled that the penalty proceedings are separate and distinct from the assessment proceedings and merely the fact that the additions were made in the assessment order does not justify the automatic levy of penalty and the AO has to record the specific finding as to why he is of the opinion that the penalty is leviable. It was submitted that in the instant case, it may be noted that the AO has concluded the penalty proceedings in a single paragraph, stating that he is of the opinion that the assessee has knowingly and deliberately made false claim of furnishing of inaccurate particulars of income. It was submitted that how the AO formed such an opinion, is not evident from the reading of the order so passed by the AO, which shows clearly non-application of mind by the AO and the fact that he has summarily relied on the findings in the assessment order without independently recording his findings as to the levy of penalty. It was accordingly submitted that the penalty so levied and confirmed by the Ld.CIT(A) be directed to be deleted.
Per contra, the Ld. DR is heard, who has relied on the order passed by the AO as well as that of the Ld.CIT(A). It was submitted that it was a case of survey wherein a diary was found, containing the cash receipts of Rs. Rs. 3,51,10,500/- and which were not recorded in the Books of Account. It was submitted that both the partners of the assessee-firm have clearly admitted in their statement recorded during the course of survey that they will offer this income to tax while filing the returns of income. However, when the return of income was examined by the AO, no such additional income was offered by the assessee and thereafter, the AO again gave an opportunity and issued show cause and there was no compliance and the addition was made in the hands of the assessee-firm. It was further submitted that the assessee has since withdrawn its appeal filed before the Ld.CIT(A) and as far as the quantum proceedings are concerned, the same have attained finality and addition has been confirmed. As far as levy of penalty u/s. 271(1)(c) of the Act is concerned, it was submitted that specific show cause was issued to the assessee and again there was non- compliance on the part of the assessee and thereafter, the AO has proceeded and levied penalty u/s. 271(1)(c) of the Act wherein the AO has held that it is a fit case for levy of penalty as assessee had furnished inaccurate particulars of income and which has been rightly confirmed by the Ld.CIT(A).
We have heard the rival contentions and perused the material available on record. In light of initial contention advanced by the ld AR that inspite of assessee responding to the show-cause by way of written submissions dt. 07-10-2016, objecting to the levy of penalty, the AO has failed to take the same into consideration and proceeded with levy of penalty, and also the fact that the Ld.CIT(A) has upheld the levy of penalty without taking into consideration the submissions filed by assessee on 21- 02-2024, we are of the considered opinion that the assessee deserve another opportunity wherein its submissions and objections can be considered and disposed off by way of a speaking order. In light of the same, we deem it appropriate to set-aside the matter to the file of the AO to examine the matter a fresh after taking into consideration the submissions so filed by the assessee and decide the matter as per law after providing reasonable opportunity to the assessee. In light of the same, rest all contentions so raised by the ld AR on behalf of the assessee are left open and not adjudicated upon.
In the result, the appeal of the assessee is allowed for statistical purposes.