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2017 Supreme(AP) 274

IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
SANJAY KUMAR AND GUDISEVA SHYAM PRASAD, JJ.
The Principal Commissioner of Income-tax-I, Visakhapatnam - Appellant
Versus
Smt. Baisetty Revathi - Respondent
I.T.T.A. NO. 684 OF 2016
Decided On : 13-07-2017

Advocates Appeared:
For the Appellant : Smt. M. Kiranmayee and Sri J.V. Prasad
For the Respondent: Sri R. Raghunandan and Sri T. Bala Mohan Reddy

Important Point—When proceedings are penal in nature resulting in imposition of penalty ranging from 100% to 300% of tax liability, charge must be unequivocal and unambiguous.

Headnote:Income-tax Act, 1961—Section 271(1)(c)—Penalty—Deletion—On principle, when penalty proceedings are sought to be initiated by revenue under Section 271(1)(c) of Act of 1961, specific ground which forms foundation therefor has to be spelt out in clear terms—Otherwise, assessee would not have proper opportunity to put forth his defence—When proceedings are penal in nature resulting in imposition of penalty ranging from 100% to 300% of tax liability, charge must be unequivocal and unambiguous—When charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, revenue must specify as to which one of two is sought to be pressed into service and cannot be permitted to club both by interjecting an or between the two—This ambiguity in show-cause notice is further compounded presently by confused finding of Assessing Officer that he was satisfied that assessee was guilty of both—Order under appeal does not brook interference on any ground—Appeal dismissed.
Result—Appeal dismissed.

JUDGMENT :

Sanjay Kumar, J.

1. This appeal by the revenue under Section 260A of the Income-tax Act, 1961 (for brevity, the Act of 1961), relating to the assessment year 2010-11, seeks to raise the following substantial questions of law for consideration:

1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in deleting the penalty levied u/s. 271(1)(c) of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in deleting the penalty levied u/s. 271(1)(c) by the Assessing officer without taking into consideration provisions of Section 271(1B) of Income-tax Act, 1961 and judicial pronouncement of Honble Supreme Court of India in the case of MAK Data Pvt. Ltd., Vs. CIT, 358 ITR 593, wherein, it was specifically held that the A.O has to satisfy whether penalty proceedings be initiated or not during the assessment proceedings and the A.O is not required to record his satisfaction in a particular manner or reduce it into writing?

2. Facts relevant for the purpose of this order are as under: The respondent-assessee derives income from house property apart from interest on bank deposits. She filed her tax return for the assessment year 2010-11 admitting a total loss of Rs.73,25,086/-. Assessment under Section 143(3) of the Act of 1961 was completed on 22.03.2013 making the following additions:

(i) Disallowance of interest on borrowed capital Rs.54,74,678/-

(ii) Addition u/s.68 towards unexplained cash credit deposit Rs.15,60,000/-

3. In the result, against the loss of Rs.73,25,086/- claimed by the assessee, the loss determined upon assessment stood at Rs.2,90,408/-. Under the head Income from House Property, the assessee had claimed interest on borrowed capital to the tune of Rs.1,69,62,265/-. The Assessing Officer found that the assessee had wrongly claimed higher deductions towards interest on borrowed capital without applying deduction on proportionate basis as was done by her in the preceding assessment year and as was agreed to by her for the assessment year 2006-07. Her interest claim of Rs.1,69,62,265/- was proportionately reduced and the disallowance worked out to Rs.53,14,278/-. It was also found that the assessee had claimed pre-construction interest of Rs.3,51,571/- and the same was also proportionately reduced. The total disallowance therefore worked out to Rs.54,74,678/-. Upon verification of the assesses bank account, it was found that there was a deposit of Rs.15,60,000/- on 31.03.2010 for which the assessee failed to produce verifiable or credible evidence of a source. The same was therefore treated as unexplained credit/deemed income as per the provisions of Section 68 of the Act of 1961 and assessed as such.

4. In consequence, the assessee was visited with a penalty notice under Section 271(1)(c) of the Act of 1961 on 22.03.2013. The assessee submitted letter dated 17.09.2013 citing the following reasons in support of her plea to drop the penalty proceedings:

1. Disallowance with regard to interest on borrowed capital was on agreed basis.

2. Regarding unexplained cash credit deposit, she was not in a position to establish the source with strict proof of evidence.

3. There is no positive establishment of concealment and she had accepted the additions made for want of strict proof of evidence and to buy peace with the department and also to avoid protracted litigation.

5. However, vide order dated 24.09.2013, the Deputy Commissioner of Income Tax, Circle-3(1), Visakhapatnam, rejected the assessees explanation and held her liable to pay the minimum penalty of Rs.20,71,750/- under Section 271(1)(c) of the Act of 1961 as she had concealed/furnished inaccurate particulars of income.

6. In appeal, the Commissioner of Income-tax (Appeals), Visakhapatnam, confirmed the penalty order. The only grounds urged by the assessee before the Commissioner were: (1) the penalty order passed by the AO was bad-in-law, (2) the AO had passed the penalty orde

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2017 Supreme(AP) 274

Important Point—When proceedings are penal in nature resulting in imposition of penalty ranging from 100% to 300% of tax liability, charge must be unequivocal and unambiguous.

Cases Referred (2)