Penalty u/s 271(1)(c) invalid for assessment made in search cases u/s 158BC of the Income Tax Act – ITAT

Penalty u/s 271(1)(c) invalid for assessment made in search cases u/s 158BC of the Income Tax Act. Penalty proceedings initiated and completed under wrong sections invalid-ITAT

ABCAUS Case Law Citation:
ABCAUS 2040 (2017) (08) ITAT

Assessment Year :  Block Period 1987-88 to 1997-98.

Brief Facts of the Case:

Consequent to a search and seizure operation, a notice was issued u/s 158BC of the Income Tax Act, 1961 (the Act). In response to the notice, the appellant assessee declared NIL income whereas assessment was completed by the Assessing Officer (AO) on a total income of Rs. 5.37 Crs.

Later, the ITAT deleted some of the additions and remanded the matter to the A.O. with regard to two additions and accordingly assessment was completed u/s 143(3) r.w.s 158BC r.w.s 254 of the Act wherein addition of Rs. 2,20,000/- was confirmed.

Since the assessee could not account for the above two payments, the same were considered as ‘concealment of particulars of income’ and AO levied penalty u/s 271(1)(c) of the Act.

The assessee challenged the order of the AO before CIT(A) by contending that the penalty was levied without affording any opportunity to explain the case and even the order was not served on the assessee. It was also contended that penalty was not leviable u/s 271(1)(c) since the assessment was completed u/s 158BC of the Act. Therefore the order passed is void ab initio since AO did not invoke the provisions of section 158BFA(2) of the Act.

The CIT(A) however confirmed the penalty levied by the AO without looking into the legal issue as to whether section 271(1)(c) proceedings could be initiated in respect of an assessment made u/s 158BC of the Act.

Aggrieved by the order of CIT(A), the assessee was in appeal before the Tribunal.

Contention of the Appellant Assessee:

It was contended that the penalty proceedings are quasi criminal in nature and they have to be initiated as mandated by the provisions of the Act whereas in the instant case penalty was said to be imposed by issuing a notice u/s 271(1)(c) of the Act and in fact the order was also passed u/s 271(1)(c) of the Act which was void ab initio since the law permits the Assessing Officer to initiate  proceedings, if any, only u/s 158BFA of the Act.

Contentions of the Respondent Revenue:

It was submitted that mere invocation of wrong provision should not be a criteria to decide the matter so long as the object of the Assessing Officer was to prove as there is concealment of particulars of income. Mentioning of section 271(1)(c) was only a technical error.

Observations made by the Tribunal:

The ITAT observed that It is well settled that a specific provision under the Act overrides a general provision prescribed for the regular assessments.

The procedure for block assessments for search cases are prescribed under Chapter-14B of the Act which also refers to levy of interest and penalty in certain cases and in the process section 158BFA(2) refers to levy of penalty in respect of the undisclosed income determined by the A.O. u/s 158BC of the Act.

The ITAT observed that the Assessing Officer neither initiated the penalty proceedings under the aforementioned section nor completed the process under the said section therefore it could not be treated as a valid initiation / completion of proceedings.

Held:

The initiation of penalty proceedings was held bad in law, the order passed by the AO was quashed the order of CIT(A) was also set aside and the penalty levied u/s 271(1)(c)  was cancelled.