DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(2), CHENNAI, CHENNAI vs. ETHIRAJULU VAJRAVEL KUMARAN, CHENNAI

1. of orders of AO imposing penalties u/s.271(1)(c) / 270A / 271AA of the Act. The relevant Assessment Years are 2015-16, 2017-18, to 2021-22. The details of the respective appeals preferred by the Revenue are as under:- S.

There is a delay of 5 days in filing the above appeals. The AO has filed an affidavit in each of the appeals, stating therein the reasons for belated filing of these appeals. On perusal of the reasons stated in the affidavit, we are of the view that there is ‘sufficient cause’ and no latches can be attributed to the Department. Hence, we condone the delay of 5 days in filing these appeals and proceed to dispose off the same on merits.

A search and seizure operation u/s.132 of the Act was conducted in the case of M/s.Arunai Group & Others on 25.03.2021. The assessee was also subjected to search. During the course of the search, certain loose sheets in the form of non- judicial stamp papers were found and seized from the premises of the assessee. Among the seized documents was an undertaking executed on non-judicial stamp paper dated 11.07.2011, signed to 1655/Chny/2025 :- 4 -: by Shri Kalidas, a sculptor. In the said undertaking, Shri Kalidas confirmed his agreement to construct a temple tower for Shri Paramananda Trust at Mathur for a consideration of Rs.56,00,000/-. He further acknowledged the receipt of (i) Rs.30,00,000/-, (ii) Rs.10,00,000/-, and (iii) Rs.2,00,000/- in cash on 03.06.2014, and also consented to receive the balance of Rs.10,50,000/- at a later date. Additionally, vide a plain paper document dated 24.09.2014, he acknowledged having received another Rs.5,00,000/- in cash.

Based on the aforesaid seized documents, the AO initiated proceedings u/s.153A of the Act for the A.Y. 2015-16 by issuing notice dated 10.12.2021. In compliance, the assessee filed return of income on 07.03.2022 declaring total income of Rs.3,68,15,120/-, which included an additional income of Rs.3,25,88,900/- offered as under: S. No Particulars Amount (Rs.) 1 Interest and cover amount on the basis of day book 29,37,500 impounded during the course of survey from the premises of M/s. Life Line Auto Finance. 2 Income voluntarily offered without any incriminating 2,96,51,400 material seized in the course of search Total 3,25,88,900 to 1655/Chny/2025 :- 5 -: 7. The AO thereafter issued notice u/s.143(2) of the Act on 09.03.2022, followed by several notices u/s.142(1) of the Act. During the course of assessment proceedings, the AO observed that the temple had been constructed at a cost of Rs.56,00,000/- and that Shri Kalidas, the sculptor, had confirmed the receipt of Rs.47,00,000/-. The AO issued a show cause notice requiring the assessee to explain why the said expenditure of Rs.56,00,000/- should not be treated as undisclosed income for the A.Y. 2015-16.

The assessee, in reply to the show cause notice issued by the AO submitted that no incriminating material, documents, or valuable articles evidencing any undisclosed income relatable to A.Y.2015-16 were found or seized during the course of the search and seizure operation conducted u/s.132 of the Act at the premises of the assessee.

With regard to the proposed addition of Rs.56,00,000/-, the assessee contended that the said addition was made solely on the basis of certain seized material which neither pertained to nor belonged to the assessee. It was further submitted that the impugned transactions were not referable to the relevant assessment year, i.e., A.Y. 2015-16. Accordingly, the assessee requested the AO to keep the penalty proceedings initiated to 1655/Chny/2025 :- 7 -: u/s.271(1)(c) of the Act be kept in abeyance, inasmuch as the very quantum addition is sub judice before the first appellate authority.

The assessee further submitted that the returned income of Rs.3,68,15,120/-, as declared in the return of income furnished u/s.153A of the Act, was accepted by the AO without any variation or addition. Consequently, in respect of the said returned income, there was no occasion for initiation of penalty proceedings u/s.271(1)(c) of the Act.

It was also submitted by the assessee that the deeming provisions contained in Explanation 5A to section 271(1)(c) of the Act were not applicable to the facts of the present case. The assessee submitted that during the course of search proceedings, he was neither found to be the owner of any money, bullion, jewellery or other valuable article or thing, nor was there any detection of undisclosed income based on entries in books of account, documents or transactions, which had been admitted in any statement recorded u/s.132(4) of the Act as representing undisclosed income of any previous year. to 1655/Chny/2025 :- 8 -: 14. The assessee, relying upon various judicial pronouncements, contended that for invoking Explanation 5A to section 271(1)(c) of the Act, it is a condition precedent that incriminating material or documents must be unearthed during the course of search, and that such material must form the very foundation of the assessment framed u/s.153A of the Act. It was stated that in the absence of any such incriminating material discovered during the course of search at the premises of the assessee, the deeming provisions of Explanation 5A were not attracted. In light of aforesaid submission, the assessee requested the AO to drop the penalty proceedings initiated u/s.271(1)(c) of the Act.

The assessee further submitted that the provisions of Explanation 5A to section 271(1)(c) of the Act are attracted only where income is admitted on the basis of incriminating material unearthed during the course of a search under the Act. The assessee submitted that in the present case, the additional income of Rs.3,25,88,900/- was offered voluntarily and not on account of any incriminating material discovered during the course of a search, and therefore, the deeming fiction of concealment under Explanation 5A is not applicable. It was further submitted that once the returned income has been accepted by the AO, there can be no concealment with respect to such income. Accordingly, the assessee contended that the penalty imposed u/s.271(1)(c) of the Act is not sustainable in law.

On the basis of the aforesaid findings, the CIT(A) proceeded to delete the penalty of Rs.1,11,89,533/- levied by the AO u/s.271(1)(c) of the Act. The relevant observations of the CIT(A) in deleting the penalty levied by the AO are as under: “6.2.6 As evident in the assessment order, it can be seen that the AO in the assessment order had no occasion to record any findings about the deliberate concealment of income by the Appellant warranting to initiate penalty proceedings u/s 271 (1) (c) of the Act. The AO in the assessment order while initiating penalty proceedings has merely observed “penalty proceedings u/s 271 (1) (c) will be initiated for concealment of particulars of income.”

Aggrieved by the order of the CIT(A) in deleting the penalty of Rs.1,11,89,533/- imposed by the AO u/s.271(1)(c) of the Act, the Revenue is in appeal before us, raising the following grounds of appeal: 1. “The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

The Ld. AR also placed reliance upon various judicial precedents considered by the CIT(A) to argue that post-search penalty u/s.271(1)(c) of the Act is governed by Explanation 5A thereto. However, such explanation is attracted only when the additional income disclosed is directly linked to incriminating to 1655/Chny/2025 :- 20 -: material unearthed during the course of search. In the present case, the additional income of Rs.3,25,88,900/- offered by the assessee comprised of (i) Rs.29,37,500/- offered pursuant to a statement recorded during survey in the case of M/s. Life Line Auto Finance; and (ii) the balance sum of Rs.2,96,51,400/- voluntarily offered by the assessee, unconnected with any incriminating material. Thus, it was submitted that the disclosure was not attributable to any incriminating material found during search, and consequently Explanation 5A to section 271(1)(c) is inapplicable. Thus, the Ld.AR submitted that the CIT(A) was therefore justified in deleting the penalty levied by the AO.

In rejoinder, the Ld.DR fairly conceded that although the assessee has offered additional income in the return filed u/s.153A of the Act, such disclosure is not on account of any incriminating material found for the year under consideration. Further, the Ld.DR also candidly admitted that no grounds are raised by the Revenue challenging the CIT(A) findings that penalty notice dated 27.03.2022 is invalid in law.

We have heard rival submissions and perused the material on record. We note that a search and seizure operation u/s.132 of to 1655/Chny/2025 :- 21 -: the Act was conducted at the premises of the assessee on 25.03.2021. Consequent thereto, notice u/s.153A of the Act was issued by the AO on 10.12.2021. In compliance, the assessee filed his return of income on 07.03.2022, admitting a total income of Rs.3,68,15,120/- u/s.153A of the Act, which included an additional income of Rs.3,25,88,900/-. The AO, while completing the assessment, accepted the additional income so declared by the assessee. However, the AO proceeded to levy penalty u/s.271(1)(c) of the Act amounting to Rs.1,11,89,533/-, being 100% of the tax allegedly sought to be evaded on the said additional income. The AO’s reasoning was that the additional income would not have been offered but for the search action, thereby attracting the deeming fiction of concealment of income u/s.271(1)(c) of the Act.

On appeal, the CIT(A) deleted the penalty, holding that the additional income voluntarily disclosed by the assessee was not relatable to any incriminating material discovered during the course of the search proceedings. The CIT(A) further observed that the deeming provisions contained in Explanation 5A to section 271(1)(c) of the Act were not applicable to the assessee’s case, as no incriminating material was found at the assessee’s to 1655/Chny/2025 :- 22 -: premises. In addition, the CIT(A) held that the show-cause notice issued by the AO u/s.274 r.w.s 271(1)(c) of the Act, dated 27.03.2022, was issued subsequent to the completion of the assessment proceedings and, therefore, was legally untenable.

The issue that arises for our adjudication is whether the CIT(A) was justified in deleting the penalty of Rs.1,11,89,533/- levied by the AO u/s.271(1)(c) of the Act. The assessee pursuant to a search u/s.132 of the Act offered an additional sum of Rs.3,25,88,900/- in the return of income furnished u/s.153A of the Act. The said sum has been duly accepted by the AO in completing the assessment. Admittedly, the aforesaid additional income offered by the assessee was not attributable to, nor did it emanate from, any incriminating material unearthed during the course of search operations carried out at the assessee’s premises. The AO, however, has recorded that the disclosure of such additional income in the return filed u/s.153A of the Act was occasioned by the factum of the search itself, and therefore, in his opinion, the disclosure could not be regarded as voluntary. On this basis, the AO inferred that the assessee had concealed income within the meaning of Section 271(1)(c) of the Act. to 1655/Chny/2025 :- 23 -: 33. It is a settled position, supported by numerous judicial pronouncements, that the mere fact of an assessee offering a higher income in a return filed u/s.153A of the Act when compared to the return originally filed u/s.139 of the Act does not, in itself, constitute concealment of income so as to justify the imposition of penalty u/s.271(1)(c) of the Act. In the absence of any specific incriminating evidence unearthed during the search pointing towards suppression or concealment, the higher disclosure by itself cannot be construed as a deliberate act of concealment.

The scheme of assessment u/s.153A of the Act is governed by a non obstante clause, which, inter alia, overrides the provisions of Section 139 of the Act. Consequently, the return filed u/s.153A of the Act is to be treated, for all practical and legal purposes, as the return of income furnished u/s.139 of the Act. Thus, once the assessee furnishes a return in compliance with Section 153A, such return supplants and substitutes the original return filed u/s.139 of the Act, rendering the latter non est in the eyes of law. For the purposes of determining concealment or furnishing of inaccurate particulars of income u/s.271(1)(c) of the Act, the return filed u/s.153A of the Act must be taken into to 1655/Chny/2025 :- 24 -: consideration, if the additional income disclosed in the said return of income is not based on any incriminating material found during the course of search.

In the present case, since the assessee has duly disclosed the additional income of Rs. 3,25,88,900/- in the return filed u/s.153A of the Act, and the said return has been accepted by the AO without any variation, there arises no occasion to allege concealment vis-à-vis the earlier return filed under Section 139 of the Act. The concealment, if any, has to be assessed only with reference to the return filed under Section 153A, and in the facts of the instant case, there exists no concealment in such return, since the said additional income was not on the basis of any incriminating material found for the impugned assessment year during the course of search at the premises of the assessee. Accordingly, we are of the considered view that the penalty sought to be imposed u/s.271(1)(c) of the Act is unwarranted and unsustainable in law. Therefore, we hold that the CIT(A) has rightly deleted the penalty imposed by the AO u/s.271(1)(c) of the Act.

Our above view is supported by the judgment of the Hon’ble Delhi High Court in the case of PCIT v. Neeraj Jindal to 1655/Chny/2025 :- 25 -: reported in [2017] 393 ITR 1 (Delhi). In the said judgment, the Hon’ble Court categorically held that where an assessee has furnished a revised return of income subsequent to the conduct of a search, and such revised return has been duly accepted by the AO, the mere fact that the revised return reflects a higher income than what was originally declared does not, by itself, warrant the automatic levy of penalty u/s.271(1)(c) of the Act. The relevant extract of the judgment is reproduced hereunder for ready reference: “16. Thus, despite the fact that there is no requirement of proving mens rea specifically, it is clear that the word "conceal" inherently carries with it the requirement of establishing that there was a conscious act or omission on the part of the assessee to hide his true income. This was also the conclusion of the Supreme Court in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218. In a later decision in Union of India v. Dharmendra Textile Processors [2008] 13 SCC 369, the Supreme Court overruled its decision in Dilip N. Shroff (supra). Thereafter, in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) the Court clarified that Dilip N. Shroff (supra) stood overruled only to the extent that it imposed the requirement of mens rea in Section 271(1)(c); however, no fault was found with the meaning of "conceal" laid down in Dilip N. Shroff's case (supra). Thus, as the law stands, the word "conceal" in Section 271(1)(c), would require the A.O. to prove that specifically there was some conduct on part of the assessee which would show that the assessee consciously intended to hide his income.

The ratio of the above judgment of the Hon’ble Delhi High Court has been accepted by the Hon’ble Madras High Court in the case of R.P.Darrmalingam v. ACIT in CRL.O.P.No.28572 of 2018 and Crl.M.P.No.16630 of 2018 dated 09.11.2023, wherein their Lordships have observed as under: to 1655/Chny/2025 :- 29 -: “14. The learned counsel appearing for the petitioner also cited the judgment of the Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax-19 Vs. Neeraj Jindal reported in (2017) 79 taxmann.com 96(Delhi), in which it is held that once the assessee files a revised return under Section 153A, for all other provisions of the Act, the revised return will be treated as the original return filed under Section 139. Further held that when the assessment officer has accepted the revised return filed by the assessee under Section 153A, no occasion arises to refer to the previous return filed under Section 139 of the Act for all purposes, including for the purpose of levying penalty under Section 271(1)(c) of the Act, the return that has to be looked at is the one filed under Section 153A. In fact, the second proviso to Section 153A(1) provides that "assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate." Therefore, Section 153A is in the nature of a second chance given to the assessee, which incidentally gives him an opportunity to make good omission, if any, in the original return. Once the assessment officer accepts the revised return filed under Section 153A, the original return under Section 139 abates and becomes non-est. Now, it is trite to say that the "concealment" has to be seen with reference to the return that it is filed by the assessee. Thus, for the purpose of levying penalty under Section 271(1)(c), what has to be seen is whether there is any concealment in the return filed by the assessee under Section 153A, and not vis-a vis the original return under Section 139.

We also concur with the finding of the CIT(A) that the judgment of the Hon’ble Kerala High Court in P. Rajaswamy v. CIT reported in 323 ITR 527, as relied upon by the AO, pertains to a period prior to the insertion of Explanation 5A to section 271(1)(c) of the Act, which came into effect from 01.06.2007. Accordingly, the said judgment has no application to the present case of the assessee, since the penalty proceedings arising out of search operations subsequent to the aforesaid date are squarely governed by Explanation 5A.

Therefore, we are of the considered view that even the provisions of Explanation 5A to Section 271(1)(c) of the Act are not attracted to the present case of the assessee. This is for the reason that the additional income has been offered by the assessee voluntarily, and such disclosure is not founded upon or traceable to any incriminating material discovered or seized during the course of search proceedings. It is a well-settled principle, fortified by several pronouncements of the Coordinate Benches of this Tribunal, that the deeming fiction embedded in to 1655/Chny/2025 :- 32 -: Explanation 5A to Section 271(1)(c) of the Act can be invoked only when the addition or disclosure of income is directly relatable to incriminating evidence unearthed during the course of search. In the absence of such incriminating material, the provisions of Explanation 5A cannot be pressed into service for the imposition of penalty u/s.271(1)(c) of the Act. Thus, in view of the judicial precedents and the legislative scheme, it follows that in the present case, where the assessee’s voluntary disclosure of additional income is not supported by any seized or incriminating document, the penalty provisions u/s.271(1)(c) of the Act stand inapplicable. In support of this proposition, we place reliance on the following judicial pronouncements. i) The Jaipur Bench of this Tribunal in Ajay Traders v. DCIT [ITA No.296/JP/2014 dated 06.05.2016] has held as under: “4.3. We have heard rival contentions and perused the material on record. It is undisputed fact that during the course of search, no incriminating documents were found and seized. The assessee surrendered the additional income under section 132(4) at Rs. 15 lacs and requested not to impose penalty u/s 271(1)(c) of the IT Act. The ld. AO imposed the penalty by invoking the Explanation 5A to section 271(1)(c) of the Act, which has been confirmed by ld. CIT (A) by considering the judgment of Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. (supra). But for imposing the penalty under Explanation 5A on the basis of statement recorded during the course of search, it is necessary to be found incriminating documents and is to be considered at the time of assessment framed under section 153A of the Act. The issue has been considered by various High Courts as well as by ITAT as relied to 1655/Chny/2025 :- 33 -: upon by the assessee, which are squarely applicable to the case of the assessee. As no incriminating documents were found during the course of search, therefore, Explanation 5A to section 271(1)(c) is not applicable. Accordingly, we delete the penalty confirmed by ld. CIT (A).” ii). The Mumbai Bench of this Tribunal in Financial Technologies (I) Ltd v. ACIT, [2015] 61 taxmann.com 406 (Mum) has held as under:

In view of the aforesaid judicial precedents, and further taking into consideration the fact that the assessee, in compliance with the notice issued u/s.153A of the Act, had offered an additional income of Rs.3,25,88,900/- and since such additional income was not offered on the basis of any incriminating material to 1655/Chny/2025 :- 34 -: found during the course of search conducted at the premises of the assessee but rather represents a voluntary disclosure by the assessee, we find no reason to interfere with the findings of the CIT(A) in deleting the penalty of Rs.1,11,89,533/- levied by the AO u/s.271(1)(c) of the Act for the A.Y.2015-16.

Since we have affirmed the order of the CIT(A) on multiple substantive grounds, we are of the considered view that the technical issue relating to the issuance of the show cause notice u/s.274 r.w.s 271(1)(c) of the Act, subsequent to the date of the assessment order, is merely of academic relevance. Accordingly, we refrain from rendering any finding thereon.

Furthermore, it is pertinent to observe that the Revenue has failed to raise a specific ground of appeal

If the assessee is not able to controvert the charge of under reporting, the under reporting gets confirmed.

Once the charge of underreporting is confirmed, then the AO has to establish whether the underreporting is in consequence of any of the clauses (a) to (f) of Section 270A(9) of misreporting. If Yes, under which clause (limb) the assessee has misreported the income? to 1655/Chny/2025 :- 42 -:

Aggrieved of the above order of the CIT(A) in deleting the penalty levied u/s.270A of the Act, the Revenue is in appeal before us raising the following grounds of appeal: 1. “The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

The Ld.DR submitted that the additional income disclosed by the assessee during the course of post-search proceedings, and further admitted by way of inclusion in the Return of Income to 1655/Chny/2025 :- 44 -: filed u/s.153A of the Act, is an admitted fact and remains undisputed. In such circumstances, the Ld.DR contended that irrespective of whether such income was declared voluntarily by the assessee in any return of income filed subsequent to the date of search, the legal consequence u/s.270A of the Act is that the assessee has misreported his income. Further, the Ld.DR placing reliance upon the judgment of the Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. v. CIT [2013] 38 taxmann.com 448 (SC) submitted that penalty proceedings are not dependent on the voluntary disclosure of income and that penalty is leviable notwithstanding the voluntary admission of concealed income by the assessee. Placing further reliance on the findings recorded in the penalty order, the Ld.DR vehemently contended that the AO has correctly and lawfully invoked the provisions of Section 270A(9) of the Act to levy penalty on account of underreporting of income consequent to misreporting. It was further argued that the Ld.CIT(A) has erred in law and on facts in deleting the penalty, without properly appreciating the nature of misreporting. In light of the above submissions, the Ld.DR prayed that the impugned order of the CIT(A) deleting the penalty be set aside, and the penalty levied by the AO u/s.270A of the Act be restored and confirmed in toto. to 1655/Chny/2025 :- 45 -: 50. Per contra, the Ld.AR placed strong reliance upon the order of the CIT(A) and submitted that the said order is a reasoned and well-founded order. It was argued that the CIT(A), after duly considering and following various judicial precedents, has rightly deleted the penalty levied by the AO u/s.270A of the Act. According to the ld.AR, the act of the CIT(A) in deleting the penalty by relying upon binding judicial precedents cannot, by any stretch, be regarded as erroneous. Accordingly, the ld.AR urged that the order of the CIT(A) deserves to be sustained.

The Ld.AR further submitted that the CIT(A) has deleted the penalty on the legal ground holding that the preliminary as well as the final show cause notices issued by the AO are defective, as they fail to specify the precise charge/default in terms of section 270A(2)/(9) of the Act. It was further contended that the Revenue, in its memorandum of appeal, has not raised any ground challenging the aforesaid legal finding of the CIT(A). In such circumstances, according to the ld.AR, the present appeals preferred by the Revenue are rendered infructuous and liable to be dismissed in limine. to 1655/Chny/2025 :- 46 -: 52. The Ld.AR further contended that, in terms of the provisions of Section 270A(1) of the Act, penalty proceedings u/s.270A of the Act can be initiated only “during the course of any proceedings” under the Act. It was argued that such initiation necessarily implies that the penalty show-cause notice u/s.274 r.w.s Section 270A of the Act ought to be issued and served simultaneously with the assessment order. According to the Ld.AR, any penalty show-cause notice issued subsequent to the passing of the assessment order cannot be regarded as a valid notice in the eyes of law, and consequently, no penalty can be sustained on the strength of such invalid initiation.

In support of the above argument, Ld.AR placed reliance on the judgment of the Hon’ble Delhi High Court in CIT v. Rajinder Kumar Somani [1980] 125 ITR 756 (Del), as well as on the decision of the Coordinate Bench of this Tribunal in Srinivasan Chandrasekara Chandilya v. ACIT [ITA Nos. 1478– 1487/Chny/2024], order dated 30.08.2024.

Adverting to the facts of the present case, the ld.AR pointed out that the assessment orders for the assessment years under consideration were passed on 24.03.2022, whereas the first to 1655/Chny/2025 :- 47 -: penalty show-cause notice u/s.274 r.w.s 270A of the Act was issued only on 27.03.2022, i.e., three days subsequent to the completion of the assessment. It was therefore emphasized that, as the initiation of penalty proceedings occurred after the conclusion of assessment proceedings, the statutory requirement of initiation “during the course of any proceedings” was not satisfied. Accordingly, the ld. AR submitted that the penalty proceedings are invalid in law and no penalty can survive against the assessee.

The ld.AR submitted that the first show cause notice issued by the AO on 27.03.2022 specified the charge for levy of penalty as “under-reporting of income” within the meaning of Section 270A of the Act. However, in the subsequent and final show cause notice dated 15.09.2022, which was issued merely 13 days prior to the passing of the penalty order, the AO materially altered the charge by stating the proposed default as “under-reporting of income in consequence of misreporting”, and thereafter proceeded to levy penalty on the said modified charge. It was contended by the Ld.AR that the jurisdiction to initiate penalty proceedings emanates only from the first show cause notice, and it is the charge specified therein which governs the scope of to 1655/Chny/2025 :- 48 -: penalty proceedings. Any subsequent modification of such charge, as attempted by the AO in the final notice, is legally untenable and cannot confer jurisdiction upon the AO to levy penalty for a ground distinct from what was originally initiated.

The ld.AR further submitted that the initial notice dated 27.03.2022 initiated penalty proceedings exclusively for under- reporting of income. However, the penalty has ultimately been levied on the ground of misreporting of income, which is a qualitatively different default u/s.270A of the Act and carries substantially higher consequences. This, according to the Ld.AR, vitiates the entire proceedings, as the assessee was never put to notice regarding the specific charge of misreporting at the stage of initiation. Such a course of action, where the penalty is initiated on one charge and levied on another, renders the show cause notice defective and invalid in law.

Consequently, it was submitted that the first show cause notice dated 27.03.2022, issued u/s.274 r.w.s 270A of the Act, being defective and lacking in jurisdiction, invalidates the entire penalty proceedings, and therefore the penalty order ultimately to 1655/Chny/2025 :- 49 -: passed by the AO u/s.270A of the Act is liable to be quashed as null and void.

In support of the aforesaid propositions, the ld.AR placed reliance upon the decisions of the coordinate benches of this Tribunal in Landcraft Developers (Pvt.) Ltd. v. ACIT [ITA No. 1062/Del/2019, order dated 08.01.2024], and Shri Samiappagounder Dharmaraj v. Addl. CIT [ITA No. 1415/Chny/2023, order dated 29.05.2024], wherein it has been consistently held that the charge specified in the initial show cause notice alone is relevant for conferring jurisdiction upon the AO, and any subsequent modification or substitution of the charge cannot sustain the penalty proceedings.

The Ld.AR further contended that even the final show cause notice dated 15.09.2022 suffers from a fundamental defect, inasmuch as it fails to specify the particular limb or clause of Section 270A(9) of the Act under which the penalty proceedings were sought to be initiated. It was argued that the omission to mention the relevant clause renders the notice inherently vague, invalid, and bad in law. Consequently, any penalty imposed to 1655/Chny/2025 :- 50 -: pursuant to such a defective notice cannot be sustained in the eyes of law.

The Ld.AR emphasized that Section 270A(9) of the Act enumerates six distinct circumstances/limbs wherein misreporting of income attracts penal consequences. The AO, being statutorily bound, is under a legal obligation to clearly indicate in the notice the precise clause of sub-section (9) sought to be invoked. In the present case, however, the notice is wholly ambiguous and fails to apprise the assessee of the specific allegation of misreporting.

It was further submitted that the vagueness of the notice has caused serious prejudice to the assessee, as he was left in a state of uncertainty and confusion, unable to discern the exact default alleged and, consequently, deprived of an effective opportunity to defend himself. In other words, the assessee was kept in the dark as to the precise charge that necessitated a reply, thereby vitiating the very foundation of the penalty proceedings.

In light of the above, the Ld. AR submitted that the CIT(A) has correctly appreciated the legal infirmity and rightly deleted to 1655/Chny/2025 :- 51 -: the penalty levied by the AO u/s.270A of the Act on the basis of an invalid and unsustainable show cause notice. Accordingly, the ld. AR prayed that the appeals filed by the Revenue be dismissed and the order of the Ld. CIT(A) be upheld in toto.

We have carefully considered the rival submissions and perused the material on record. The solitary issue for our adjudication is whether the ld.CIT(A) was justified in deleting the penalty imposed by the AO u/s.270A of the Act for the impugned assessment years. Before proceeding to adjudicate upon the issue under consideration, it is observed that the judgment of the Hon’ble Supreme Court in MAK Data Pvt. Ltd. v. CIT [2013] 38 taxmann.com 448 (SC) does not hold applicability to the facts and circumstances of the present case. This is for the reason that, in respect of the impugned assessment years, no incriminating material has been brought on record which could have constituted the basis for the assessee’s offer of additional income.

It is an admitted position that the assessee had, in the course of proceedings consequent to search, offered additional income in the returns of income filed u/s.153A of the Act. The said additional income was duly accepted by the AO while to 1655/Chny/2025 :- 52 -: completing the assessments without making any variation to the returned income. Subsequent thereto, the AO initiated penalty proceedings u/s.270A of the Act stating under-reporting of income, and issued a preliminary show cause notice to the assessee in this regard. However, in the final show cause notice, the AO altered the charge and proposed to levy penalty not merely for under-reporting, but for under-reporting in consequence of misreporting, and accordingly proceeded to levy penalty at 200%, holding that the additional income declared by the assessee in the returns filed pursuant to search constituted “misreporting” within the meaning of section 270A of the Act.

In appeal, the CIT(A) held that the additional income voluntarily offered by the assessee in the return filed u/s.153A of the Act, and which stood accepted by the AO without modification, cannot, by any stretch, be characterized as “misreporting of income.” Consequently, the ld. CIT(A) observed that no penalty u/s.270A of the Act was exigible on such disclosure. The CIT(A) further recorded that the show cause notice issued by the AO was vitiated in law, inasmuch as it was vague and defective, having failed to clearly specify the exact charge for which penalty was sought to be levied. In view of the to 1655/Chny/2025 :- 53 -: aforesaid defects, as well as on merits, the CIT(A) proceeded to delete the penalty levied by the AO u/s.270A of the Act.

It is a settled proposition of law that initiation of penalty proceedings must be in strict conformity with the statutory mandate prescribed u/s.274 of the Act. The procedural safeguard embodied in Section 274 of the Act is not a mere formality but a mandatory requirement, intended to secure compliance with the principles of natural justice. It obligates the competent authority to afford the assessee a fair and reasonable opportunity to present his case and to demonstrate why penalty ought not to be imposed. In this context, the issuance of a proper and legally sustainable notice u/s.274 of the Act is sine qua non for the valid assumption of jurisdiction to impose penalty. A proper or legally valid notice necessarily connotes that the assessee must be clearly apprised of the precise default, contravention, or charge forming the foundation of the proposed penalty proceedings. Failure to specify the relevant charge or default reflects non- application of mind on the part of the authority and thereby vitiates the very initiation of penalty proceedings. to 1655/Chny/2025 :- 54 -: 67. A show cause notice couched in omnibus or vague terms, without delineating the specific charge defeats the purpose of Section 274 of the Act. Such a notice does not enable the assessee to effectively exercise his right of defence, thereby violating the principle of audi alteram partem. Consequently, the imposition of penalty on the basis of such a defective notice is rendered unsustainable in law. Judicial pronouncements of the Hon’ble Courts have consistently held that where the notice issued u/s.274 of the Act is vague, ambiguous, or fails to strike at the specific charge, the proceedings stand vitiated and the notice itself must be held to be invalid in law. Thus, it follows that the foundation of any valid penalty proceeding rests on the issuance of a clear, unambiguous, and legally tenable notice that sets forth the exact nature of the alleged default.

Now let us examine the final show cause notice issued by the AO on 15.09.2022 which is extracted below for ready reference: to 1655/Chny/2025 :- 55 -:

On a careful perusal of the above show cause notice, it is evident that the show-cause notice issued by the AO suffers from a fundamental defect inasmuch as it is vague, uncertain, and lacking in the requisite particulars. The penalty proposed therein is stated to be u/s.270A of the Act, specifically on the ground of “underreporting of income in consequence of misreporting of income” as contemplated under sub-section (9) of section 270A of the Act. It is trite law that where a statute provides for the imposition of a penal liability, the person against whom such liability is sought to be enforced must be informed with clarity and certainty regarding the precise nature of the allegation. The show- to 1655/Chny/2025 :- 56 -: cause notice is the foundation of the penalty proceedings; therefore, the AO is duty-bound to specify with exactitude the charge alleged against the assessee so that the assessee may effectively meet and rebut the same. A vague or omnibus notice, which merely reproduces the language of the provision without indicating the specific default committed, cannot be sustained in law.

In the present case, the impugned notice does not delineate which particular limb or clause of section 270A(9) of the Act is attracted. Sub-section (9) of section 270A of the Act enumerates various instances that amount to “misreporting of income,” such as misrepresentation or suppression of facts, failure to record investments, recording of false entries, or claim of expenditure not substantiated, etc. Each of these instances constitutes a distinct and independent ground, carrying serious penal consequences. It was incumbent upon the AO to state in clear and unambiguous terms which of these specific defaults was being attributed to the assessee, along with the manner in which the ingredients of the alleged default stood satisfied in the facts of the case. The failure to so specify renders the notice fundamentally defective. It deprives the assessee of a fair and reasonable to 1655/Chny/2025 :- 57 -: opportunity to defend himself, thereby vitiating the entire penalty proceedings. The requirement of issuing a valid and precise notice is not a mere procedural formality but goes to the very root of jurisdiction for levy of penalty. A defective notice cannot confer valid jurisdiction upon the AO to impose penalty.

We find that the Hon’ble Delhi High Court in the case of Prem Brothers Infrastructure LLP v. NFAC & Anr in W.P.(C) 7092/2022 dated 31.05.2022 has observed as under:-

Further, the Hon’ble Delhi High Court in Schneider Electric South East Asia (HQ) PTE Ltd. Vs. ACIT, International Taxation Circle 3(1)(2), New Delhi and Ors. W.P.(C) No. 5111/2022 vide judgment dated 28.03.2022 observed as under:- “6. Having perused the impugned order dated 9th March, 2022, this Court is of the view that the Respondents’ action of denying the benefit of to 1655/Chny/2025 :- 58 -: immunity on the ground that the penalty was initiated under Section 270A of the Act for misreporting of income is not only erroneous but also arbitrary and bereft of any reason as in the penalty notice the Respondents have failed to specify the limb - "underreporting" or "misreporting" of income, under which the penalty proceedings had been initiated.

We find that the similar issue had come up for consideration before the co-ordinate bench of this Tribunal in Prakashchand Jain v. DCIT in dated 07.03.2025, wherein following the another decision of the co-ordinate bench of this Tribunal in Enrica Enterprises Pvt. Ltd. in & 1167/Chny/2023 dated 06.06.2024, it was held as under:- to 1655/Chny/2025 :- 59 -: “9. According to us, the assessee should be informed in the show-cause notice with certainty and accuracy of the exact nature of the fault alleged against him. In this case, it has been noted that the impugned notice issued by the Assessing Officer is silent about which limb/clause of sub- section (9) of section 270A of the Act has been attracted in the facts of the case so as to deserve levy of penalty, and how the ingredients of sub- section (9) of section 270A are satisfied. Therefore, the show-cause notice proposing penalty is found to be vague and does not meet the requirement of law to legally impose penalty. Consequently, the levy of penalty is fragile in the eyes of law and is held to be ab initio bad in law.”

Respectfully following the precedent laid down by the Hon’ble Delhi High Court in Prem Brothers Infrastructure LLP v. PCIT and Schneider Electric South East Asia (HQ) PTE Ltd v. DCIT, as well as the coordinate bench decisions of this Tribunal in Prakashchand Jain v. ACIT and Enrica Enterprises Pvt. Ltd. v. ACIT, we are of the considered view that the show cause notice dated 15.09.2022 issued by the AO u/s.274 r.w.s 270A of the Act, is ex facie vague and suffers from a fundamental infirmity in law inasmuch as it fails to clearly and specifically delineate the precise charge for which penalty proceedings were initiated. A notice which does not indicate the specific limb or ground under which penalty is proposed to be levied is not only violative of the principles of natural justice but also renders the entire penalty proceedings void ab initio. In the absence of such specificity, the assessee is deprived of an effective opportunity to rebut the to 1655/Chny/2025 :- 60 -: charge, thereby vitiating the proceedings. Consequently, the said notice cannot be sustained in law and is hereby quashed. As a corollary, the penalty orders passed by the AO u/s.270A of the Act for the AYs 2017-18 to 2020-21, being consequential in nature, are unsustainable in the eyes of law and are also liable to be set aside. We further note that the CIT(A), having appreciated the aforesaid legal position, has rightly deleted the penalty levied by the AO u/s.270A of the Act for the impugned assessment years. We find no error, infirmity, or perversity in the order so passed by the CIT(A). It is further observed that the omission on the part of the Revenue to raise any specific grounds of appeal assailing the order of the CIT(A) in deleting the penalty on account of defective notices renders the Revenue’s entire appeal infructuous. Accordingly, we see no reason to interfere with the order of the CIT(A). In the result, the grounds of appeal raised by the Revenue for the AYs 2017-18 to 2020-21 are devoid of merit and are dismissed. Consequently, all the four appeals of the Revenue in to 1654/Chny/2025 stands dismissed.

The brief facts of the case are that the assessee filed his return of income for the impugned assessment year on 10.03.2022, declaring a total income of Rs.4,24,28,640/-. Pursuant to the search and seizure action conducted in the case of the assessee on 25.03.2021, the assessment for the year under consideration was mandatorily selected for scrutiny. Accordingly, notice u/s.143(2) of the Act was issued on 10.03.2022. Subsequently, notices u/s.142(1) of the Act were issued by the AO. In response to which the assessee duly furnished the requisite information and details as called for.

During the course of the search proceedings, a Sale Agreement dated 29.06.2020, pertaining to the proposed sale of an immovable property, was recovered. In terms of the said agreement, the assessee had undertaken to transfer a property situated at Thirukoilur for a total consideration of Rs.1,83,01,500/-, out of which a sum of Rs.1,00,00,000/- was received in cash from the purchaser, as duly acknowledged therein. to 1655/Chny/2025 :- 62 -: 78. Subsequently, in the course of post-search proceedings, the assessee, in a sworn statement recorded on 20.07.2021, admitted that the property was conveyed for the originally agreed consideration of Rs.1,83,01,500/-. However, for the purposes of registration, the sale consideration was recorded at Rs.21,03,000/- under two separate instruments, thereby resulting in a gain of Rs.1,62,00,000/-. The assessee further admitted to offering the said gain as additional income for the A.Y.2021-22.

In consonance with the aforesaid admission, the assessee declared capital gains of Rs.1,67,41,574/- in the return of income filed for the relevant assessment year, which has been duly accepted by the AO while completing the assessment.

Further, it was observed during the course of search proceedings that M/s.Arunai Medical College had received donations aggregating to Rs.2,32,50,000/- from its employees and known people during the assessment year under consideration. In this connection, sworn depositions were recorded from Shri P. Suresh Kumar, Purchase Manager, and Smt. Vasanthi, Cashier, wherein they deposed that the management had provided cash to employees and other associated persons of to 1655/Chny/2025 :- 63 -: the group, who, in turn, remitted the amounts to the Trust through cheques and/or other banking channels. Further, a sworn statement was recorded from the assessee on 20.07.2021, wherein the assessee is stated to have admitted to arranging the aforesaid funds and also agreed to offer the same to taxation.

Subsequently, during the course of assessment proceedings, the assessee contended that the statement of Shri P. Suresh Kumar had been made under stress and coercion. It was further submitted that the staff members had voluntarily contributed the said donations. The assessee, in his capacity as Vice Chairman, had facilitated the mobilization of such contributions towards the noble cause of supporting the institution. The assessee further submitted before the AO that the aforesaid contributions were genuine donations made by the staff of the Medical College. However, in order to extend co-operation and with a view to buy peace of mind, the assessee voluntarily offered the said sum of Rs.2,32,50,000/- to tax in the return of income filed for the relevant assessment year. Upon due consideration, the AO found the explanation of the assessee to be acceptable and accordingly completed the assessment on that basis. to 1655/Chny/2025 :- 64 -: 82. The AO observed, upon analysis of the forensic extraction of the mobile phone of Shri Sathiaseelan, that certain WhatsApp communications existed between Shri Zubair of M/s JBA and Shri Sathiaseelan. These communications evidenced cash payments made to M/s JBA in respect of materials supplied for the construction of M/s Arunai Medical College. In his sworn statement, Shri Sathiaseelan admitted the veracity of the contents of the messages but disclaimed knowledge of further particulars.

When confronted with this material, the assessee was called upon to offer an explanation. In his statement dated 20.07.2021, the assessee admitted to having made cash payments amounting to Rs.19,19,500/- and Rs.50,00,000/-, respectively. He further stated that the said payments were effected out of an advance of Rs.1,00,00,000/-, which had been received in cash towards the proposed sale of immovable property.

The AO was of the view that although the assessee had sought to attribute payments aggregating to Rs.69,19,500/- towards M/s JBA from the said advance of Rs.1,00,00,000/-, the assessee had failed to explain the source of further cash to 1655/Chny/2025 :- 65 -: transactions of Rs.32,23,000/- (dated 08.05.2020) and Rs.9,95,315/- (dated 19.06.2020), both recorded against M/s JBA. Consequently, the assessee was issued a show cause notice requiring him to explain the source of the aforesaid sum of Rs.42,18,315/- (i.e., Rs.32,23,000/- + Rs.9,95,315/-).

In reply, the assessee, contended before the AO that the said sum of Rs.42,18,315/- was met out of his personal sources of income. However, the AO, not being satisfied with the explanation furnished, held that the said amount represented unexplained and undisclosed income of the assessee. Accordingly, the AO added the sum of Rs.42,18,315/- to the returned income of the assessee.

Thus, the assessment of the assessee for the impugned assessment year was completed by the AO u/s.143(3) of the Act on 24.03.2022, assessing the total income at Rs.4,66,46,955/- including the addition of Rs.42,18,315/- made on account of undisclosed income in respect of cash payments made to M/s. JBA. Consequently, the AO initiated penalty proceedings u/s.271AAB(1A) of the Act by issuing show cause notice u/s.274 r.w.s 271AAB of the Act on 27.03.2022. to 1655/Chny/2025 :- 66 -: 87. The AO show caused the assessee requiring to explain as to why penalty u/s.271AAB(1A) of the Act should not be levied in respect of the undisclosed income amounting to Rs.4,42,15,889/-, which formed part of the assessed income.

In response, the assessee submitted that the penalty proceedings be kept in abeyance, as the quantum appeal was pending adjudication before the CIT(A). Consequently, the AO refrained from levying penalty on the addition of Rs.42,18,315/- made in the assessment proceedings, since the same was a subject matter of appeal before the CIT(A). However, the AO observed that the balance sum of Rs.3,99,97,574/- [i.e.,Rs.4,42,15,889/- minus Rs.42,18,315/-], which was offered by the assessee and included in the return of income, was not under dispute. The AO further held that such income would not have been offered by the assessee but for the search and seizure operation conducted on 25.03.2021.

The AO noted that the assessee had not admitted the aforesaid undisclosed income of Rs.3,99,97,574/- in the statement recorded u/s.132(4) of the Act during the course of search, but had admitted the same only during post-search to 1655/Chny/2025 :- 67 -: proceedings. Accordingly, the AO concluded that the conditions stipulated under clause (a) of Section 271AAB(1A) were not satisfied, thereby attracting clause (b) thereof, which prescribes levy of penalty at the rate of 60% of the undisclosed income.

In view of the above, the AO passed the impugned penalty order u/s.271AAB(1A) of the Act, vide order dated 22.09.2022, levying penalty of Rs.2,39,98,544/-, being 60% of the undisclosed income of Rs.3,99,97,574/-.

Aggrieved of the above order levying penalty u/s.271AAB(1A) of the Act, assessee preferred appeal before the CIT(A). The assessee, in the course of appellate proceedings before the CIT(A), contended that the show cause notice dated 27.03.2022 issued by the AO u/s.271 r.w.s 271AAB of the Act was invalid, inasmuch as the said notice failed to specify the precise limb of section 271AAB under which the penalty proceedings were proposed to be initiated. It was therefore urged that the said show cause notice was defective and consequently, the penalty order passed by the AO u/s.271AAB(1A) of the Act was liable to be quashed. to 1655/Chny/2025 :- 68 -: 92. The assessee further submitted that the penalty notice was issued on 27.03.2022, whereas the assessment order had already been passed on 24.03.2022. Since the initiation of penalty proceedings u/s.271AAB of the Act was not made in the course of the assessment proceedings, but subsequent thereto, the assessee contended that the penalty notice itself was invalid and the penalty order passed in pursuance thereof was without jurisdiction and bad in law.

On merits, the assessee submitted that the condition precedent for levy of penalty u/s.271AAB(1A) of the Act is that the income offered by the assessee must fall within the definition of “undisclosed income” as provided in clause (c) of section 271AAB of the Act. According to the assessee, the basis for determining such “undisclosed income” is the maintenance of books of account and the entries recorded therein. The assessee, however, was neither maintaining books of account nor was statutorily obliged to maintain such books of account for the A.Y.2021-22, including as on the date of the search. In these circumstances, it was argued that the income offered could not be characterized as “undisclosed income” within the meaning of section 271AAB of the Act, which is a sine qua non for invoking to 1655/Chny/2025 :- 69 -: penalty u/s.271AAB(1A) of the Act. Consequently, the levy of penalty by the AO was unjustified and unsustainable in law.

In light of the above, the assessee prayed before the CIT(A) for deletion of the penalty amounting to Rs.2,39,98,544/- levied by the AO u/s.271AAB(1A) of the Act.

Upon consideration of the submissions by the assessee, the CIT(A), vide order dated 13.03.2025, deleted the penalty imposed by the AO under section 271AAB(1A) of the Act. The relevant finding of CIT(A) reads as follows:- “. . . . 6.3.5 On examination of the ground and the relevant written submission made it can be seen that the notice issued for the imposition of penalty is vague and does not specify the exact clause or sub-clause of Section 271AAB under which the penalty is sought to be levied. It is a fundamental requirement that when initiating penalty proceedings, the notice must clearly specify the charge under the relevant provisions of the law to ensure the assessee is aware of the specific violation or conduct that is being penalized. As per the provisions of section 274(1) of the Act, the assessee must be given a reasonable opportunity to respond to the charge levelled against him. However, the notice in this case does not identify the particular clause of Section 271AAB of the Act that the appellant is being charged with, nor does it provide any context about the alleged undisclosed income. This results in the violation of the principles of natural justice, as the assessee is not apprised of the exact grounds on which the penalty is being levied, depriving him of the opportunity to put forth an effective defence.

“The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

The Ld.DR, strongly relied on the penalty order passed by the AO. It was contended by Ld.DR that the undisclosed income declared by the assessee was solely consequent to the search proceedings and would not have been voluntarily disclosed otherwise. It was accordingly submitted that the AO had rightly invoked and imposed penalty u/s.271AAB(1A) of the Act. The to 1655/Chny/2025 :- 76 -: Ld.DR, therefore, prayed that the order of the Ld.CIT(A) be set aside and the penalty order passed by the AO be restored.

Per contra, the Ld.AR raised a preliminary objection contending that the present appeal preferred by the Revenue is rendered infructuous, and any further adjudication thereon would be an exercise in futility. It was submitted that the Revenue has failed to assail the specific finding of the CIT(A) whereby the appeal of the assessee had been allowed on the fundamental legal ground relating to the defective show cause notice dated 27.03.2022, issued by the AO u/s.274 r.w.s 271AAB(1A) of the Act. The Ld.AR further submitted that the CIT(A), after due appreciation of facts and in reliance upon various binding judicial precedents, has deleted the penalty levied by the AO u/s.271AAB(1A) of the Act. The said appellate order, according to the ld. AR, is well-reasoned, legally sustainable, and free from perversity or patent error. The ld.AR prayed that the order passed by the ld.CIT(A) deleting the penalty of Rs.2,39,98,544/- imposed u/s.271AAB(1A) of the Act be upheld, and that the appeal of the Revenue be dismissed. to 1655/Chny/2025 :- 77 -: 99. We have heard rival submissions and perused the material on record. The total income declared by the assessee includes a sum of Rs.3,99,97,574/-, comprising of (i) Rs.1,67,41,574/- representing long-term capital gains arising from the sale of property disclosed by the assessee on the basis of a sale agreement unearthed during the course of search proceedings, and (ii) Rs.2,32,50,000/- being a sum voluntarily offered by the assessee on account of donations received by M/s.Arunai Medical College, where the assessee is serving as Vice Chairman. The AO treated the aforesaid amount of Rs.3,99,97,574/- as “undisclosed income” of the assessee for the purposes of imposition of penalty u/s.271AAB(1A)(b) of the Act. Consequently, the AO levied a penalty of Rs.2,39,98,544/-, being 60% of the said income, u/s.271AAB(1A) of the Act. On appeal, the CIT(A) deleted the penalty, inter alia, on the grounds that the show cause notice dated 27.03.2022 issued u/s.274 r.w.s 271AAB of the Act failed to specify the relevant limb of section 271AAB(1A), rendering the notice legally defective. Further, the CIT(A) held that a mere voluntary disclosure of income does not automatically qualify as “undisclosed income” so as to attract the rigours of penalty u/s.271AAB(1A) of the Act. Aggrieved of the order of the CIT(A), the Revenue is in appeal before us. The solitary issue that arises to 1655/Chny/2025 :- 78 -: for our consideration is whether the CIT(A) was justified in deleting the penalty of Rs.2,39,98,544/- levied by the AO u/s.271AAB(1A) of the Act.

We find the provisions of section 271AAB(1A) read as under:- “(1A) The Assessing Officer [or the Commissioner (Appeals)] may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).”

We find that the show cause notice issued u/s.274 r.w.s. 271AAB of the Act dated 27.03.2022 issued by the AO is as under:- to 1655/Chny/2025 :- 79 -:

A careful examination of the impugned notice reveals that the AO has failed to specify the particular limb of Section 271AAB(1A) of the Act, which is sought to be invoked against the assessee. The legal issue that therefore arises for our consideration is whether, in the absence of such specification, the penalty notice issued u/s.271AAB(1A) of the Act is rendered invalid, and consequently, whether the subsequent proceedings based thereon also stand vitiated. to 1655/Chny/2025 :- 80 -: 103. We note that an identical question came up for consideration before the Hon’ble Madras High Court in PCIT v. Shri R. Elangovan [Tax Case Appeal Nos. 770 & 771 of 2018 and CMP No. 18581 of 2018], decided on 30.03.2021, wherein the Hon’ble High Court held as under:- “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 to 1655/Chny/2025 :- 81 -: 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.

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.

We observe that the provisions contained in Section 271AAB(1A) of the Act are structured into two distinct limbs. As per the said sub-section, the imposition of penalty is contemplated either under clause (a) or clause (b). Clause (a) prescribes a penalty at the rate of 30% of the undisclosed income, subject to the fulfilment of specific statutory conditions enumerated therein. Conversely, clause (b) provides for a more stringent penalty at the rate of 60% of the undisclosed income, which becomes applicable in the event of non-fulfilment of the conditions stipulated under clause (a). It necessarily follows that the AO, while initiating penalty proceedings u/s.271AAB(1A) of the Act, is legally bound to clearly specify, in the show-cause notice, the precise limb i.e., whether clause (a) or clause (b), under which the proposed penalty is sought to be levied. Such to 1655/Chny/2025 :- 82 -: specification is essential, as the consequences of each clause differ both in terms of rate and the underlying conditions of applicability.

In the present case, however, the AO has failed to discharge this mandatory obligation, inasmuch as the show-cause notice dated 27.03.2022 issued to the assessee does not delineate whether the penalty is proposed under clause (a) or under clause (b) of Section 271AAB(1A) of the Act. This omission, in our considered view, renders the penalty proceedings fundamentally defective.

We draw support from the judgment of the Hon’ble Madras High Court in PCIT v. Shri R. Elangovan (supra), wherein it was held that the failure of the AO to specify the relevant limb of the penal provision vitiates the entire penalty proceedings. The Revenue failed to bring on record any contrary judgments from the Hon’ble Madras High Court on the issue and accordingly the same is binding on the Revenue.

We further place reliance upon the binding precedents rendered by the Co-ordinate Benches of this Hon’ble Tribunal, to 1655/Chny/2025 :- 83 -: wherein it has been consistently held that the failure of the AO to specify, in the show-cause notice issued u/s.271AAB(1)/(1A) of the Act, the precise limb, clause, or sub-provision under which penalty proceedings are proposed to be initiated, vitiates the very foundation of such notice. It has been categorically laid down in the below mentioned judicial pronouncements that a notice bereft of such specification suffers from incurable infirmity, as it deprives the assessee of a fair and reasonable opportunity to meet the charge. Consequently, any penalty order passed pursuant thereto stands rendered unsustainable in law, liable to be quashed as invalid and void ab initio. i. Rahul Jain v. DCIT [ITA No.1219/CHANDI/2024 dated 18.08.2025] ii. PCIT v. Industrial Safety Products Private Limited 2023 (7) TMI 241 – Hon’ble Calcutta High Court iii. Giriraj Enterprises v. DCIT [ITA No.427/PUN/2025 dated 24.07.2025] iv. St. Joseph’s Educational Trust v. DCIT [2025] 175 taxmann.com 284 (Chennai - Trib) v. Krishnappa Gowder Kalyanasundaram v. DCIT [ITA No.1678/Chny/2024 dated 21.05.2025] vi. Prakash Asphalting & Toll Highways (India) Limited v. ACIT [ITA No.720/Ind/2024 dated 24.02.2025] vii. Suresh Kumar v. ACIT [ITA No.1880/Del/2023 dated 31.01.2025] viii. Smt. Sonia Singla, Legal Heir of Late Shree Rajeev Singla v. ACIT [ITA No.1202/Del/2024 dated 30.12.2024]

In view of the aforesaid reasoning and relying on judicial pronouncements cited supra, we hold that the penalty order dated to 1655/Chny/2025 :- 84 -: 22.09.2022 passed by the AO u/s.271AAB(1A) of the Act, imposing a penalty of Rs.2,39,98,544/-, is legally unsustainable and stands vitiated on account of the defective show cause notice dated 27.03.2022 issued by the AO. The CIT(A) has, therefore, rightly deleted the said penalty. We find no infirmity in the impugned order passed by the CIT(A) and accordingly, the same is upheld. Consequently, the grounds of appeal raised by the Revenue are dismissed. Furthermore, as rightly submitted by the ld.AR, the failure of the Revenue to raise specific grounds challenging the findings of the CIT(A) in deleting the penalty on legal grounds renders the entire appellate exercise futile and infructuous. Therefore, the appeal of the Revenue in stands dismissed.

In the result, all the six appeals of the Revenue are dismissed.