INCOME TAX ACT, 1961

Section 271(1)(c), Expln. 5A Section 153A

Penalty under section 271(1)(c) - Applicability of Explanation 5A to section 271(1)(c) - In response to notice under section 153A assessee surrendered certain income in ROI -

The assessee had declared the surrendered income in the return of income filed in response to notice issued under section 153A. AO while completing the assessment under section 143(3) read with section 153A made the additions to the total income declared by the assessee on account of undisclosed interest income, on account of disallowance of expenses and on account of deposits made in the bank accounts of the employees of the assessee. In the quantum proceedings, the CIT(A) partly deleted the additions. Tribunal also deleted the additions made by the AO. Against income surrendered by the assessee and offered to tax in the returns of income, the AO had applied Explanation 5A to section 271(1)(c). Assessee challenged the levy of penalty before the CIT(A) and raised a ground of validity of initiation of penalty as the AO had not specified the default against which the penalty proceedings were initiated by the AO. The CIT(A) deleted the penalty levied by the AO for all these years on this legal issue of validity of initiation of penalty proceedings. Held: It is mandatory requirement that the AO had to specify the default/charge whether he propose to initiate the proceedings for concealment of income or furnishing inaccurate particulars of income. In the present case the AO had even not made any reference to any incriminating material so as to bring the income declared by the assessee in the return of income filed in response to notice under section 153A in the ambit of the Explanation 5A to section 271(1)(c). Accordingly when the AO had failed to even make any reference to any incriminating material representing the undisclosed material or the income surrendered and declared in ROI on notice issued under section 153A by the assessee, the Explanation 5A to section 271(1)(c) would not be applied in the case of the assessee.

Relied:Sheveta Construction Co. Pvt. Ltd. v. ITO in DB IT Appeal No. 534/2008, and HPCL Mittal Energy Ltd. v. Asstt. CIT (2018) 169 DTR (Asr-Trib) 1 : 2018 TaxPub(DT) 4920 (Asr-Trib). Distinguished:Sundaram Finance Ltd. v. Asstt. CIT (2018) 403 ITR 407 (Mad : 2018 TaxPub(DT) 2565 (Mad-HC) and Vijay Aggarwal v. Dy. CIT (2019) 109 Taxmann.com 175 (Del-Trib.).

REFERRED : ITO v. Shri Rajan Kalimuthu ITA No. 2900/Chny/2018 : 2019 TaxPub(DT) 3908 (Chen-Trib) and CIT v. Manjunatha Cotton and Ginning Factory, (2013) 359 ITR 565 (Karn) : 2014 TaxPub(DT) 202 (Karn-HC).

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