MUKESH PRASAD GUPTA,KOLKATA vs. D.C.I.T., CC - 3(3), KOLKATA

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ITA 14/KOL/2026Status: DisposedITAT Kolkata10 July 2026AY 2016-20176 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty notice issued by the AO was defective as it was in a standard format without specifying the relevant limb of Section 271AAB under which the penalty was proposed. This deprived the assessee of a proper opportunity to respond.

What were the facts?

During a search operation, the assessee disclosed additional income. The Assessing Officer (AO) imposed a penalty under Section 271AAB of the Income Tax Act, which was upheld by the CIT(A). The assessee appealed this decision.

What were the issues?

Whether a penalty imposed under Section 271AAB is valid if the penalty notice is vague and does not specify the limb of the section under which the penalty is proposed.

Which sections of the Income-tax Act were involved?

Section 271AAB,Section 132(4),Section 139(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH: KOLKATA

Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey]

आयकर अपील�य अ�धकरण, कोलकाता पीठ “सी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA �ी राजेश कुमार, लेखा सट�य एवं �ी �द�प कुमार चौबे, �या�यक सद�य के सम� [Before Shri Rajesh Kumar, Accountant Member & Shri Pradip Kumar Choubey, Judicial Member] I.T.A. No. 14/Kol/2026 Assessment Year: 2016-17 Shri Mukesh Prasad Gupta Vs. DCIT, Central Circle-3(3), Kolkata

(PAN: AHIPG 2481 L) ( अपीलाथ� ) Respondent / ��यथ� Appellant / Date of Hearing / सुनवाई 16.06.2026 क� �त�थ Date of Pronouncement/ 10.07.2026 आदेश उ�घोषणा क� �त�थ For the Appellant/ Shri Rajeeva Kumar, AR �नधा�रती क� ओर से For the Respondent/ Shri Sandip Sarkar, Sr. DR राज�व क� ओर से

ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-21, Kolkata (hereinafter referred to as the “Ld. CIT(A)”] dated 06.11.2025 for the AY 2016-17. 2. The only issue raised by the assessee is against the order of Ld. CIT(A) upholding the order of AO imposing penalty of Rs. 40,01,530/- u/s 271AAB of the Act comprising two amounts i) a penalty of Rs. 32,49,235/- @ 10% on disclosed income of Rs. 3,24,92,350/- and ii) a further penalty of Rs. 7,52,235/- @ 30% on the

2 I.T.A. No.14/Kol/2026 Assessment Year: 2016-17 Mukesh Prasad Gupta disclosed income of Rs. 25,07,650/- u/s 132(4) of the Act during the course of search operation.

3.

Facts in brief are that a search action u/s 132 was conducted on the assessee group on 22.09.2015 and subsequent dates. The assessee was also covered under the said search. During the course of search, some incriminating materials were seized from the residence of the assessee and statement u/s 132(4) was also recorded on 08.11.2015. The assessee is a key person of the group and was confronted with the seized documents. The assessee accordingly after taking into account the said material, disclosed additional income of Rs. 20 crores, the details whereof, is given in the disclosure petition. The assessee stated that ₹ 18.50 crores were disclosed in the individual capacity in the name of Shri Lokenath Prasad Gupta and 3.50 crores in the name of Mukesh Prasad Gupta. The assessee is engaged in the business of trading in Atta, Maida etc. The assessee disclosed the said amount in the return u/s 139(1) for AY 2016-17 and paid necessary tax thereon. During the course of assessment proceedings, the AO accepted the returned income. The assessee during the course of assessment proceedings, filed the disclosure petition in which the income was bifurcated into two ways: i) trading profit of Atta, Maida, Flour, wheat etc. 3,24,92,350/- which is available at page 5 of assessment order and similarly ii) additional income disclosed of initial capital employed of Rs. 25 Lacs and miscellaneous income of Rs. 7,650/-. The AO issued show cause notice u/s 271AAB and gave show cause as to why the penalty should not be imposed on the said disclosure. The AO after taking into reply of the assessee, which was rejected, calculated the penalty in two parts as under:

penalty @10% on the amount of Rs. 3,94,92,350/- Rs. 39,49,235/-

Penalty @ 30% on the amount of Rs. 25,07,650/- Rs. 7,52,295/-

Total amount of penalty (R/o) Rs. 47,01,530/-

3 I.T.A. No.14/Kol/2026 Assessment Year: 2016-17 Mukesh Prasad Gupta 4. The assessee preferred an appeal before the Ld. CIT(A). However, the appeal of the assessee was dismissed by simply affirming the order of AO.

5.

We have heard the rival contentions and perused the material on record. We find that undisputedly the assessee had made disclosure of income during the course of search. The disclosure made into two parts: i) in respect of trading of profit on sale of Atta, maida and ii) in respect of initial capital employed for doing business with some miscellaneous income. The said income was duly disclosed in the return of income and due taxes were paid. However, the AO imposed penalty @10% and 30% respectively. On the two disclosures :i) @10% on the amount of penalty disclosed and ii)@30% on the amount of initial capital employed and miscellaneous income. We find merit in the submission of the Ld. Counsel for the assessee that the notice has been issued for imposing penalty in a standard format without specifying the relevant limb of section in which the penalty is proposed to be levied which is extracted below:

4 I.T.A. No.14/Kol/2026 Assessment Year: 2016-17 Mukesh Prasad Gupta

6.

The Ld. A.R therefore prayed that the said notice issued by the AO is invalid as to the same has been issued without specifying the relevant sub-section under which the penalty was proposed to be levied and thus the same is issued in a mechanical manner without application of mind. The Ld. A.R argued that the said notice is invalid and also the consequent penalty imposed was also bad in law. In defense of argument the Ld. A.R relied on the decision of Hon’ble Madras High Court in the case of PCIT -1, Coimbatore vs. Shri R. Elangovan in Tax case Appeal Nos. 770 & 771 of 2018 & CMP No. 8581 of 2018 dated 30.03.2021wherein it has held as under:

“13. Per contra, Mr.N.V.Narayanan, learned counsel appearing for the respondent – assessee would submit that the notice issued prior to initiation of penalty proceedings did not specify as to under which limb of Section 271AAB of the Act, the Assessing Officer proposed to levy penalty, that this defect goes to the root of the matter and vitiates the entire proceedings and that the Tribunal was right in allowing the assessee's cross objection. In

5 I.T.A. No.14/Kol/2026 Assessment Year: 2016-17 Mukesh Prasad Gupta support of his contention, the learned counsel for the assessee has placed reliance on the decisions of the Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory [reported in (2013) 359 ITR 565] and in the case of CIT Vs. SSA's Emerald Meadows [(2016) 73 Taxmann. Com 241] and also the decision of this Court, to which, one of us (TSSJ) was a party, in the case of BabujiJacob Vs. ITO, Non Corporate Ward 1(2), Chennai [reported in (2021) 124 Taxmann.com 363]. 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. 15. 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. 16. 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 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. 17. The decisions of the Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory and SSA's 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. 18. Accordingly, the above tax case appeals are dismissed confirming the common impugned order passed by the Tribunal. No costs. Consequently, the connected CMP is also dismissed.” 7. In our considered opinion the notice is issued in standard format mechanically without application of mind by the AO thereby depriving the assessee to respond to the notice issue on the limb on which the penalty was proposed to be imposed. The said notice is invalid and penalty imposed on the basis of said notice is invalid too and can not be sustained. Since facts before us are materially same as decided by the

6 I.T.A. No.14/Kol/2026 Assessment Year: 2016-17 Mukesh Prasad Gupta Hon’ble Madras High Court, we ,therefore , respectfully following the ratio laid in the above decision quash the penalty notice as well as penalty order passed by the AO. In the result, the appeal of the assessee is allowed. 8.

Order is pronounced in the open court on 10th July, 2026.

Sd/- Sd/- (Pradip Kumar Choubey /�द�प कुमार चौबे) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 10th July, 2026 SM, Sr. PS

Copy of the order forwarded to: 1. Appellant- Mukesh Prasad Gupta, 13C, Arif Road, Kolkata-700067. 2. Respondent – DCIT, Central Circle-3(3), Kolkata 3. Ld. CIT(A)- 21, Kolkata 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata

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