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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Sanjay Garg & Shri Manish Borad
order : January 16, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 12.10.2022 of the Commissioner of Income Tax(Appeals), Kolkata-20 [hereinafter referred to as the ‘CIT(A)’] confirming the penalty levied by the Assessing Officer u/s 271AAB of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The assessee, in this appeal, has taken the following grounds of appeal:
1. That the Learned CIT(A)-20 was not justified in confirming penalty u/s 271AAB of the IT Act, 1961 at Rs.20,06,030/- by ignoring the fact that the appellant had made disclosure during the search to buy metal peace and avoid litigation and hence no penalty is to be levied u/s 271AAB. Assessment year: 2014-15 Greenex Chemicals Pvt. Ltd
2. That the Ld. A.O had not specified the clause at which penalty was intended to be levied. Thus, specific charge is not mentioned for which assessee was required to be show caused. In absence of mentioning of the specific charge issuance of penalty proceedings cannot be sustained.
That the appellant craves leave to add or alter or modify all or any grounds of appeal
at the hearing stage.”
3. A perusal of the above grounds of appeal would show that the assessee, in this case, had agitated the levy of penalty u/s 271AAB of the Act.
4. The brief facts of the case are that a search action was carried on 11.04.2013 in the premises of the assessee and during the search action, the assessee surrendered income of Rs.2,00,60,300/-. The Assessing Officer however levied the penalty @30% holding that the assessee did not pay the due taxes on the income disclosed rather the disclosed income was set off against the derivative loss.
5. In appeal, the ld. CIT(A) held that the search action of the Assessing Officer was not justified. However, he restricted the penalty to 10% holding that it was mandatorily leviable even the assessee fulfils all the required conditions as prescribed u/s 271AAB(1)(a) of the Act that the assessee surrenders income during the course of search action, substantiates the manner in which the undisclosed income was derived and further pays the due taxes and interest and furnishes the return of income. Though, all the conditions were duly complied by the assessee, the CIT(A) still confirmed the penalty @10%.
6. At the outset, the ld. counsel for the assessee has invited our attention to the provisions of section 271AAB of the Act to submit that the levy of penalty under the said provision is not mandatory as the wording of the section such as that “Assessing Officer may” to submit Assessment year: 2014-15 Greenex Chemicals Pvt. Ltd that the word ‘may’ give discretion. That the word ‘may’ suggests that the levy of penalty is not mandatory. He has further invited our attention to the impugned assessment order to submit that the Assessing Officer, in this case, did not initiate penalty u/s 271AAB of the Act, rather, he had initiated penalty u/s 271(1)(c) of the Act. The ld. counsel, in this respect, has referred to the concluding sentence of the Assessing Officer in the assessment order i.e. “penalty proceeding as per section 271(1)(c) of the I. T. Act is also initiated separately in this ground”. The ld. counsel has further invited our attention to the impugned penalty notice issued u/s 271AAB of the Act to submit that the said penalty notice was defective and that no penalty can be imposed on the basis of such defective notice. He has submitted that the Assessing Officer has not specified as to under what limb out of three limbs prescribing penalty at different rates was proposed to be levied. The ld. counsel, in this respect, has relied upon the following decisions of the Tribunal and High Court: 1. Mahaveer Prasad Agarwal vs. DCIT in dated 02.06.22 (Jaipur Trib.) 2. Ashok Bhatia vs. DCIT in ITA No.869/Ind/18 dated 05.2.20 (Indore Trib.) 3. Rashmi Jalan vs. ACIT in ITA No.326/Kol/20 dated 30.09.20 (Kolkata Trib.) 4. CIT vs. M/s SSA’s Emerald Medows in ITA No.380 of 2015 dated 23.11.2015 (Karnataka HC) 7. The ld. DR, on the other hand, relied upon the findings of the lower authorities. Assessment year: 2014-15 Greenex Chemicals Pvt. Ltd
8. We have considered the rival contentions and gone through the record. We find that the aforesaid issue raised by the assessee is duly covered by the decision of the Coordinate Bench of the Tribunal in the case of M/s. Vijayshree Autocom Ltd vs. DCIT in decided on 28.03.22, wherein, the Tribunal on the identical issue has deleted the penalty while relying upon the decision of the Hon'ble Madras High Court in the case PCIT vs. Shri R. Elangovan in Tax Case Appeal Nos. 770 & 771 and CMP No. 18581 of 2018 dt. 30/03/2021. The relevant part of the decision of the Coordinate Bench of Tribunal is reproduced as under:
“6. After hearing the rival parties and perusing the material available on record including the notice issued u/s 271AAB r.w.s. 274 of the Act dt. 31/03/2016, we find that the notice has been issue in a mechanical manner without specifying one of the three clauses uses under which the penalty was proposed to be levied. The ld. A/R before us challenged the very initiation of penalty proceedings u/s 271AAB as invalid and void ab initio on the ground that the initiation is itself by an invalid notice issued by the Assessing Officer. The ld. A/R submitted that the issuing a mechanical notice without application of mind is a substantive and patent error of law which goes to the root of the matter and is not curable at a later stage. The ld. A/R, therefore, prayed that the order of the ld. CIT(A) confirming the penalty deduction to the extent of 10% may kindly be set aside and the penalty order passed by the Assessing Officer u/s 271AAB may kindly be quashed as the very foundation is suffering from vices invalid notice. The ld. A/R in defence of his arguments relied heavily on the decision of the Hon'ble Madras High Court in the case PCIT vs. Shri R. Elangovan in Tax Case Appeal Nos. 770 & 771 and CMP No. 18581 of 2018 dt. 30/03/2021. The ld. D/R, on the other hand, relied heavily on the order of the ld. CIT(A) by stating that the provisions provision of Section 271(1)(c) of the Act are quite different from provisions of Section 271AAB as the two penal sections deal with distinct and different issues altogether. The ld. D/R submitted before us that the provisions of Section 271(1)(c) of the Act deals with the imposition of penalty on the particular charge whereas the provisions u/s 271AAB deal with the quantum of penalty. The ld. D/R, Assessment year: 2014-15 Greenex Chemicals Pvt. Ltd therefore, submitted that the order of the ld. CIT(A) may kindly be sustained.
We have perused the decision cited before us in the case of PCIT vs. Shri R. Elangovan (supra) and find that under similar facts the Hon'ble court has quashed the penalty order on the ground that it is based upon invalid penalty notice issued u/s 271AAB of the Act. The operative part is extracted below: “14. In our considered view, the Tribunal is fully right in vacating the penalty on the ground that the notice was defective. The provisions of the Act have clearly laid down the procedure to be followed and adhered to while imposing the penalty. The proposal for such penalty proceedings was separately initiated upon completion of assessment and there may be cases where the assessee would not even contest the order of assessment. But, that would not preclude the assessee from challenging the penalty proceedings, as penalty proceedings are independent and the procedure required to be followed cannot be dispensed with.
As rightly pointed out by the learned counsel appearing for the assessee, Section 271AAB of the Act, which deals with penalty consists of three contingencies. Therefore, the Assessing Officer should point out to the assessee as to under which of the three clauses, he chooses to proceed against the assessee so as to enable the assessee to give an effective reply. Since the same has not been mentioned, the assessee has been denied reasonable opportunity to put forth their submissions. The Tribunal, in paragraph 5 of the impugned order, has verbatim reproduced the penalty notice and we find that the notice is absolutely vague and none of the irrelevant portions had been struck off nor the relevant portions had been marked or indicated. Hence, the Tribunal is right in observing that the penalty could not have been levied based on such defective notice and more particularly, when the assessee has been strenuously canvassing the jurisdictional issue from the inception.
In so far as the decision of the Allahabad High Court in the case of Sandeep Chandak is concerned, the factual position is slightly different. This decision is for the principle that where the assessee, in the course of search, makes a statement, in which, he admits the undisclosed income and specifies the manner, in which, such income has been derived, then the provisions of Section 271AAB of the Act would automatically get attracted. There can be no quarrel over this proposition. But, once the provisions get attracted, it is incumbent on the part of the Assessing Officer to specify as to under Assessment year: 2014-15 Greenex Chemicals Pvt. Ltd which clause in Section 271AAB(1) of the Act, he intends to proceed against the assessee. In the instant case, in the absence of such material in the penalty notice, it has to be held that the notice is defective.
The decisions of the Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory and SSA's Emerald Emerald Meadows and the decision of this Court in the case of Babuji Jacob clearly support our above conclusion. For all the above reasons, we find no grounds to interfere with the common order passed by the Tribunal.
As the facts of the case before us are materially the same, we, therefore respectfully following the judgment of the Hon'ble Madras High Court in the case of PCIT vs. Shri R. Elangovan (supra) hold that the penalty order passed by the Assessing Officer is invalid and is accordingly quashed. The appeals of the assessee are allowed on legal issue.
10. The other issues raised on merits by the assessee are rendered academic in nature and, therefore, dismissed as such and are left open to be decided in future if need arises for the same.
In the result, both the appeals of the assessee are allowed.”
9. Since, the issue raised in this appeal is duly covered by the decision of M/s. Vijayshree Autocom Ltd (supra), therefore, respectfully following the same, we delete the impugned penalty.
In the result, the appeal of the assessee is hereby allowed. Kolkata, the 16th January, 2023.