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Facts
The assessee is in appeal against a penalty levied under Section 271AAB for Assessment Year 2019-20. The penalty was initiated after a search action where unrecorded income and cash loans were found, and the assessment was framed under Section 143(3).
Held
The Tribunal held that the penalty notice was defective as it failed to specify the exact limb of Section 271AAB under which the penalty was being levied. This denied the assessee a reasonable opportunity to present their case.
Key Issues
Whether the penalty levied under Section 271AAB is sustainable when the show-cause notice failed to specify the exact limb of the said section under which the penalty was proposed.
Sections Cited
271AAB, 143(3), 153A, 142(1), 274
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Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aggrieved by levy of certain penalty u/s 271AAB for Assessment Year (AY) 2019-20, the assessee is in further appeal before us. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), Chennai-20 [CIT(A)] on 25-05-2024 in the matter of impugned penalty of Rs.158.07 Lacs as levied by Ld. AO vide order dated 21-03-2022 in the matter of an assessment framed u/s 143(3) on 08-09-2021.
The Ld. AR advanced arguments on legal ground as well as on merits. Reliance has been placed on certain judicial decisions to support the same, the copies of which have been placed on record. The Ld. AR assailed the penalty on the ground that show-cause notice was defective since the same did not mention as to exact limb under which the impugned penalty was sought to be levied by Ld. AO. The alleged notice issued u/s 274 r.w.s. 271AAB was liable to be quashed on account of this technical defect only. Reference has been made to the decisions of Hon’ble High Court of Madras in the case of Pr. CIT vs. Shri R. Elangovan (TCA Nos.770 & 771 of 2018 dated 30-03-2021) as well as various other decisions of Tribunal deleting penalty on similar facts. The Ld. CIT-DR also advanced arguments in support of levy of penalty. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Penalty Proceedings 3.1 Pursuant to search action on the assessee u/s 153A on 06-03- 2019, an assessment was framed u/s 143(3) of the Act on 08-09-2021. This was year of search since the search happened before close of financial year 2018-19. During search, loose sheets and digital data was found on the basis of which it was alleged that the assessee advanced cash loans and earned interest thereon. The assessee also carried out unregistered chit business and earned unaccounted chit commission income. In response to notices u/s 153A / 142(1), The assessee filed return of income for Rs.267.54 Lacs and also furnished cash flow statements during the course of assessment proceedings. The Ld. AO, after due consideration thereof, accepted the returned income of the assessee but initiated penalty proceedings u/s 271AAB on account of undisclosed income. To levy the same, show cause notice was issued to the assessee on 18-02-2022 stating as under: - Whereas in the course of proceedings before me for the Assessment Year 2019-20, it appears to me that a search was conducted in your case and you were found to have undisclosed income. You are hereby requested to appear before me either personally or through a duly Authorised representative at 11.00 AM on 07/03/2022 and show cause why an order imposing a penalty on you should not be made under section 271AAB of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which shall be considered before any such order is made under section 271AAB of the Income Tax Act, 1961.
3.2 The assessee responded to the same vide its reply dated 07-03- 2022 and contended that penalty was not automatic. The returned income was accepted and the income disclosed therein would not constitute undisclosed income. However, considering the provisions of Sec.271AAB (IA) clauses (a) and (b), Ld. AO held that evidences of unrecorded commission income and cash loans were found. Finally, Ld. AO levied penalty of 60% in terms of clause (b) of Sec. 271AAB (1A) which worked out to be Rs.158.06 Lacs. 3.3 The assessee raised legal grounds as well as grounds on merits assailing the penalty during first appellate proceedings. It was also submitted that loose sheets as found during search had no evidentiary value and there was no incriminating material to support the same. The voluntary disclosure of income by the assessee would not attract penalty provisions. The income as returned by the assessee could not held to be undisclosed income. The penalty was not automatic and there was no incriminating material to support the same. However, these submissions did not find any favor with Ld. CIT(A) who confirmed the impugned penalty against which the assessee is in further appeal before us.
Our findings and Adjudication 4. From the facts, it emerges that the assessee has been searched before the closure of impugned financial year. The Ld. AO, going by the loose sheets and digital data as found during search, alleged earning of unaccounted commission and interest income by the assessee. In response to notice u/s 153A, the assessee offered returned income of Rs.267.54 which has duly been accepted by Ld. AO without any variations. However, the Ld. has initiated impugned penalty by invoking the provisions of Sec. 271AAB (1A), To levy the same, show-cause notice was issued to the assessee on 18-02-2022 proposing levy of impugned penalty on the assessee. However, upon perusal of this notice as extracted above, it could be seen that Ld. AO has failed to specify the specific limb of Sec.271AAB (1A) which was applicable to the case of the assessee. The statutory provisions governing penalty as contained in Sec.271AAB(1A) has specific clauses viz. clause (a) prescribing penalty of 30% subject to fulfillment of certain conditions and another clause (b) prescribing penalty of 60%. The Ld. AO has failed to mention the specific limb which was applicable to the case of the assessee. On these facts alone, impugned penalty could not be sustained in terms of decision of Hon’ble High Court of Madras in the case of Pr. CIT vs. Shri R. Elangovan (TCA Nos.770 & 771 of 2018 dated 30-03-2021). The Hon’ble Court confirming the order of Tribunal vacating penalty u/s 271AAB on identical facts, 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 the part of the Assessing Officer to specify as to under which clause in Section 271AAB 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.
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.
Similar is the decision of Indore Tribunal in the case of Shri Ashok Bhatia vs. DCIT (ITA No.869/Ind/2018 dated 05-02-2020) wherein the coordinate bench considered the provisions of Sec.271AAB and held that notice u/s 274 should be clear enough to convey the assessee about the charge which is to be levelled against him for levying the penalty for contravening the provisions of the act. It was incumbent for Ld. AO to specify the exact limb in the notice and the failure to do so would make the notice defective and hence, quashed. This decision has subsequently been followed by Hyderabad Tribunal in the case of Smt.
Pallem Reddy Sreelakshmi & ors. (ITA Nos.756/Hyd/2020 & ors. dated 04-01-2022). The decision of Kolkata Tribunal in Sushil Kumar Paul vs. ACIT (ITA No.2274/Kol/2019 dated 15-12-2022) has taken same view following the decision of Chennai Tribunal in R. Elangovan (ITA No.1199/Chny/2017 dated 05-04-2018). This decision of Chennai Tribunal stood confirmed by Hon’ble High Court of Madras as discussed above. Respectfully following the same, we would hold that impugned penalty based on defective notice, could not be sustained in the eyes of law and hence, deleted on this legal ground alone.
Since the penalty has been dealt and deleted on the preliminary legal grounds alone, other arguments of the assessee dealing with the merits of the levy of penalty have been rendered mere academic in nature.
The appeal stand allowed in terms of our above order. Order pronounced on 21st May, 2025 Sd/- Sd/- (MANU KUMAR GIRI) (MANOJ KUMAR AGGARWAL) �ाियक सद" / JUDICIAL MEMBER लेखा सद" / ACCOUNTANT MEMBER चे1ई Chennai; िदनांक Dated : 21-05-2025 DS आदेशकीJितिलिपअ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Assessee 2. ��थ�/Revenue 3. आयकरआयु:/CIT Chennai/Madurai/Coimbatore 4. िवभागीय�ितिनिध/DR 5. गाड?फाईल/GF