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Facts
During a search and seizure operation, the assessee company declared undisclosed income of Rs. 2,45,58,000/-. The Assessing Officer (AO) initiated penalty proceedings under Section 271AAB(1A) of the Income Tax Act, 1961. The CIT(A) deleted the penalty on technical grounds, stating the show cause notice was vague.
Held
The Tribunal held that the show cause notice was not vague and the penalty proceedings were correctly initiated under Section 271AAB(1A). Relying on the High Court and Supreme Court decisions in Sandeep Chandak's case, the Tribunal set aside the CIT(A)'s order.
Key Issues
Whether the show cause notice for initiating penalty proceedings under Section 271AAB(1A) was vague, and whether the penalty proceedings were correctly initiated.
Sections Cited
132, 143(3), 153A, 271AAB, 271AAB(1A), 271(1)(c), 274
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Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: MS.ASHTA CHANDRA & DR.DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Revenue directed against the order of ld.Commissioner of Income Tax(Appeals), Pune-12, Pune u/sec.250 of the Income Tax Act, 1961; dated 09.03.2024 for the A.Y.2019-20. The Revenue has raised the following grounds of appeal : “1. On the facts and in the circumstances of the case, Ld. CIT(A) erred in law and in facts by deleting the penalty u/s 271AAB of the I.T. Act, 1961 without appreciating the fact that during the course of Search & Seizure proceedings, the Director of the company had declared the undisclosed income of Rs. 2,45,58,000/- for the assessment year under consideration and the same was offered in its return of income.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and in facts by deleting the penalty u/s 271AAB of the I.T. Act, 1961 without appreciating the fact that in the show cause notices issued by the AO for initiation of penalty proceedings u/s 281AAB of the I.T. Act, 1961, it was clearly mentioned by then AO that "there is undisclosed income for the specified previous year as defined in section 271AAB of the IT Act, 1961."
3. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law and in facts by deleting the penalty u/s 271AAB of the I.T.Act, 1961 without appreciating the fact that the undisclosed income unearthed as a result of search only. Had the search not taken place, the undisclosed income would have escaped taxation.
4. Any other ground that may be raised during the course of appellate proceedings.” Submission of ld.DR:
2. The ld.DR for the Revenue relied on the order of Assessing Officer. Ld.DR took us through the assessment order to demonstrate that Assessing Officer(AO) has recorded proper satisfaction in the assessment order for penalty. Therefore, ld.DR submitted that ld.CIT(A) has erred in stating that AO has not recorded satisfaction. Ld.DR took us through the Section 271AAB(1A) of the Act and explained that AO has invoked Section 271AAB(1A) of the Act. The Section 271AAB(1A) is very clear. AO has discussed regarding the statement recorded during the search. Therefore, there is no merit in the contention of 2 the ld.CIT(A) that AO has not specified the Limb of the penalty. Ld.DR submitted that ld.CIT(A) has erred in relying on various case laws which pertain to Section 271(1)(c) of the Act, which had various Limbs, whereas Section 271AAB(1A) do not have any such. Therefore, ld.CIT(A) erred. Ld.DR relied on the decision of Hon’ble High Court in PCIT Vs. Sandeep Chandak [2018] 405 ITR 648 (All) dated 27.11.2017 which has been confirmed by the Hon’ble Supreme Court vide order dated 23.04.2018. Ld.DR filed copies of these orders. Ld.DR also relied on the decision of ITAT Jaipur in the case of Rajendra Kumar Gupta vs DCIT ITA 359/JP/2017. Ld.DR filed copy of the said decision.
Submission of ld.AR : 3. The ld.AR for the assessee vehemently supported order of the ld.CIT(A). Ld.AR filed a two paper books, one containing compilation of case laws and anotherfactual paper book. Ld.AR invited our attention to notice under section 271AAB(1A) of the Act, dated 05.06.2021 which is at page 8 of the paper book. Ld.AR submitted that no specific limb has been mentioned by the Assessing Officer. Therefore, ld.AR submitted that ld.CIT(A) was right in deleting the penalty. Ld.AR also tried to distinguish 3 Hon’ble Bombay High Court’s decision in the case of Veena Estate Pvt. Ltd., Vs. CIT [2024] 461 ITR 483 (Bom).
3.1 Case laws relied by ld.AR as under : PCIT v. Shri R. Elangovan - [Tax Case Appeal No. 770 & 771 of 2018, Order dated 30.03.2021 (Madras - HC)] PCIT v. Industrial Safety Products (P.) Ltd. taxmann.com 433 (Cal - HC)] [(2023) 154 PCIT v. Unitech Reliable Projects (P.) Ltd taxmann.com 495 (Delhi)] [(2023) 153; Affirmed in: PCIT v. Unitech Reliable Projects (P.) Ltd. [(2024) 166 taxmann.com 135 (SC)] Jaina Marketing & Associates v. DCIT [(2024) 162 taxmann.com 439 (Delhi - Trib)] M/s. Enrica Enterprises Pvt. Ltd. v. DCIT [I.Τ.Α. No. 1168/ Chny/2023, Order dated 06.03.2024, (Chennai - Trib)] Shri Ashok Bhatia v. DCIT - [I.T.A. No.869/Ind/2018, Order dated 05.02.2020] Findings &Analysis : 4. We have heard both the parties and perused the records. In this case, a search under section 132 of the Income Tax Act, took place on 21.08.2018. Assessee is a private limited company engaged in the business of developing of housing projects, hotels and sports clubs. During the search under section 132 of the Act, some loose papers and documents were seized as Annexure-A. As per the documents in Annexure-A, it is alleged that Assessee has received on-money of Rs.1,37,73,000/- from customers. Ld.AR in 4 the paper book has submitted copies of the impugned Annexure-A at page no.42 to 51 of the paper book. We have perused these documents. At page no.45 of the paper book, there is a photo copy of the page which is Numbered as ‘2’. There is a title ‘FLORA PHASE-1’. Then, there are various names of the individuals, against these names ‘RH’ number is mentioned and two amounts are mentioned. In the statement, recorded under section 132(4) of the Act during the search, the Director of Assessee Company Mr.JugalkishoreTapadia in reply to Question No.12 submitted as under : “Sir we confirm that the amount of Rs.1,37,73,000/- has been received by us, over and above the agreement to sale value, for provision of additional amenities in the above mentioned project to the respective customers. The expenses for the same have already been booked by us in our regular books of accounts. Hence, on account of profit of the said Row houses and the above mentioned amounts received towards provision of additional amenities, we offer an amount of Rs.2,45,58,000/- (Rs.1,37,73,000/- as additional amount received + Rs.1,07,85,000/- being 30% of the total sale consideration of the Row houses totalling to Rs.3,59,50,000/- ) as the additional income of M/s.Tapadia Constructions Ltd. for A.Y.2019-20. We offering the profitability of these 12 Row houses as we have handed over their possession to the respective customers for taking up the interior work.” 4.1 We have perused the statement u/sec.132(4) of the Act. In earlier answers, the Director Mr.JugalkishoreTapadia admitted that 5 entries made in Annexure-A are pertaining to the project ‘FLORA PHASE-1’ which is Row House Project. Then, Mr.JugalkishoreTapadia admitted the additional income. The assessee filed Return of Income on 02.10.2019. Assessee’s case was selected for scrutiny and assessment order under section 143(3) r.w.s. 153A of the Act passed on 04.06.2021. Accordingly, in the assessment order the Assessing Officer has recorded the following : “In the said return filed, the assessee company has shown ‘Additional Undisclosed Income’ under the head business income on account of cash received from the customers as on money at Rs.1,37,73,000/- and Rs.1,07,85,000/- is declared on account of 30% profit on sale consideration of 12 Row Houses totaling to Rs.3,59,50,000/-. During the course of Search & Seizure action at the office premise of the assessee company, a statement of one of the director of the company namely shri Jugalkishore C. Tapadia was recorded u/s 132(4) of the Act in which additional income as mentioned was offered for taxation. Thus, there is excess income shown by the assessee company at Rs.2,45,58,000/- in response to notice u/s 153A of the Income Tax Act issued to the assessee for the year under consideration. If no search action u/s 132 of the Income Tax Act, 1961 had been conducted in the case of the assessee, the assessee would not have shown the said Undisclosed Income over and above its regular income. Hence, penalty proceedings u/s 271AAB(1A) of the Act is separately initiated as there is Undisclosed Income for the specified previous year as defined in Section 271AAB of the Income Tax Act, 1961.” 4.2 The Assessee has not filed any appeal against the assessment order. Assessing Officer levied penalty under section 271AAB of the Act on 26.03.2022. Aggrieved by the penalty order, assessee filed appeal before the ld.CIT(A). Ld.CIT(A) deleted the penalty 6 on a technical ground. The relevant paragraph of 4.8 of the ld.CIT(A)’s order is as under : “4.8 Having gone through the relevant material on record and the decisions of above judicial authorities relied upon by the appellant, it is seen that the AO in the show cause notice has neither specified the grounds and default on the part of the appellant nor even specified the undisclosed income on which the penalty was proposed to be levied Thus it is bear that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB are very vague and silent about the default of the appellant and further the amount of undisclosed income on which the penalty was proposed to be levied. In view of the above it is held that the penalty proceedings were not correctly initiated by the assessing officer, thereby vitiating the proceedings and accordingly, penalty levied u/s 271AAB(1A) of the Act is bad in law. Hence, the AO is directed to delete the impugned penalty. This ground raised by the appellant is, therefore, allowed.” 4.3 Thus, ld.CIT(A) has deleted the penalty on the ground that show cause notice issued by AO are vague and are silent about the default of the appellant. Therefore, ld.CIT(A) held that penalties were not correctly initiated by the Assessing Officer.
4.4 Section 271AAB of the Act applicable for A.Y.2019-20 is reproduced here as under : “Section 271AAB of the Income Tax Act as under : 1)…………………. 1A) The Assessing Officer 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,— 7 (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). ……………………….. (c) "undisclosed income" means— (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has— (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.” (emphasis supplied) 4.5 It can be seen from the Section 271AAB reproduced above that there are two sub-sections i.e. 271AAB(1) & 271AAB(1A).
4.6 In the case of the assessee, the Assessing Officer has specifically initiated penalty proceedings under section 8 271AAB(1A) of the Act, as seen from the para 6 of the assessment order which has been reproduced above. Thus, the Assessing Officer has categorically specified the charge of the penalty in the assessment order. Then, in the penalty order the Assessing Officer has again discussed 271AAB(1A) of the Act. Thus, at the time of assessment, the Assessee was made aware that penalty proceedings under section 271AAB(1A) of the Act, has been initiated for undisclosed income. In the assessment order, the AO has specifically mentioned the amount of undisclosed income also. Therefore, the Assessee was categorically made aware about the amount of undisclosed income for which penalty under section 271AAB(1A) of the Act was initiated. As far as notice dated 05.06.2021 is concerned, these are computer generated notices and the Assessing Officer do not have any scope to make changes other than putting the dates,PAN, Assessment Year etc. In this context, we derive strength from the order of the ITAT Pune in the case of Smt.Taradevi R Bafna Vs. ACIT(supra), which has relied on Hon’ble Allahabad High Court’s decision in the case of Sandeep Chandak(supra). The relevant paragraph of the ITAT Pune order is reproduced here as under :
9 “9. On a perusal of the provisions of section 271AAB, it is distinctly evident that the section 271AAB of theAct is self-contained. It is worthy to note that, on one hand, the sub section (1) thereof authorises levy ofpenalty on undisclosed income where the proceedings u/s 132 of the Act is initiated, and on the other hand thesub-section (2) puts an embargo on imposing of penalty u/s 270A and u/s 271(1)(c) of the Act on suchundisclosed income falling within the realm of subsection (1). This clearly establishes the solitary domain ofsection 271AAB over undisclosed income where the proceedings u/s 132 of the Act is initiated and at thesame time it drags out the authorisation of imposition of penalty u/s 270A and 271(1)(c) of the Act asextraterritorial.
Keeping aforesaid in mind, we find that, the appellant's contention that, the aforestated SCN represents thenon-application of mind in communicating the exact charge for rebuttal falls like a house of cards on twocounts; (i) Firstly, the impugned SCN calling upon the appellant to showcase the reasons as to why a penaltyu/s 271AAB should not be imposed clearly concluded intimating the consideration ofrepresentation before concluding proceedings imposing penalty u/s 271AAB of the Act, as itostensible from the reproduced text of SCN laid at para 8 hereinbefore. (ii) Secondly, the sub-section (2) of section 271AAB intractably expunges the levy of penalty u/s 270Aand 271(1)(c), consequently, it communicates the exact charge left i.e. levy of penalty u/s.271AAB(1) for undisclosed income where the proceedings u/s 132 of the Act is carried out.
In this context, we heedful to quote that, our aforesaid view finds fortified by the decision of Hon'ble ApexCourt in the case of "Sandeep Chandak v. PCIT" reported in [2018] 93 taxmann.com 406/255 Taxman 367(SC) where in similar facts and circumstance their lordship have dismissed the appeal of the assessee andupheld the order of Hon'ble High Court sustaining the penalty imposed u/s.271AAB of the Act, as under; A search u/s 132 of the Act was carried out in case of assessee, and in the course of search, assesseemade a statement admitting certain undisclosed income. Assessing Officer added said amount toassessee's taxable income and thereupon, issued a notice u/s 274 r.w.s. 271 of the Act for initiatingpenalty proceedings to which assessee submitted written reply. Assessing Officer having rejectedassessee's explanation, passed 10 a penalty order u/s 271AAB. Tribunal proceeding on presumption thatpenalty proceedings had been initiated u/s 271(1)(c), set aside penalty order. High Court took a view thatwhere assessee in course of search admits undisclosed income and the manner in which such income hasbeen derived, then provisions of section 271AAB would automatically be attracted and further the HighCourt opined that since opportunity of hearing as prescribed u/s 271AAB had been given to assessee,penalty order passed by Assessing Officer was to be restored. Supreme Court held that, on facts, therewas no ground to interfere with impugned order passed by High Court and, therefore, instant petition wasto be dismissed 12. In view of the aforestated discussion, the case laws relied upon the appellant does not come to rescue andthus finding no merits in the ground raised
; we therefore dismiss the ground number 1 and 2 of the presentappeal.” 4.6 The ITAT Pune(supra) has followed the decision of Hon’ble Allahabad High Court in the case of PCIT Vs. Sandeep Chandak [2018] 405 ITR 648 (All) dated 27.11.2017 which has been confirmed by the Hon’ble Supreme Court vide decision in the case of Sandeep Chandak Vs. PCIT [2018] 255 Taxman 367 (SC), order dated 23.04.2018. The said case was relied by ld.DR for the Revenue. The said decision of Hon’ble Allahabad High Court was arising from the ITAT Lucknow’s Decision in the case of Sandeep Chandak Vs. PCIT in and ITA No.417/Lucknow/2016. The Hon’ble Allahabad High Court has held as under : “22. Section 271AAB provides the procedure for penalty where the search has been initiated. In the presentcase, admittedly a search and seizure operation is carried out in which the assessees have 11 surrendered theamount of Rs.4 crores each (Rs.4 lakh each by all the three assessees) and therefore, in view of the provisionsof Section 271AAB the assessees are required to pay, by way of, penalty in addition to tax, if any, a sumcomputed @ 10% of undisclosed income of the specified period or previous years. In the case where theassessee in the course of search in a statement (under Section 4 of Section 132) admits the undisclosed incomeand specified manner in which such income has been derived, than the provisions of Section 271AABautomatically attracts and the proceedings are to be carried out/completed.
23. We have noticed that the penalty notice has been issued under Section 274 read with section 271. Section274 provides that no order imposing a penalty shall be made unless the assessee has been heard or has beengiven a reasonable opportunity of being heard. In the instant case the penalty notice issued clearly indicatesthat the opportunity of being heard is provided to the assessee and therefore, the penalty notices has beenissued under Section 274 read with section 271 calling upon the assessee to show cause in writing or in personwhich fulfill the requirement of Section 274 of the Act.
24. In the present case, the provisions of Section 271AAB are fully applicable as of the conditions sostipulated or attracts as a search has been initiated under Section 132 and during the course of search thestatement of the assessee has been recorded under sub section (4) of Section 132, in which the assesseesadmitundisclosed income and specifies the manner in which such income has been derived.
25. We have gone through the contents of the penalty notice and we find that in the penalty notice, which hasbeen issued under Section 274 read with Section 271, the assessing authority has clearly indicated that theproceedings under Section 271AAB being initiated and the reply to the show cause notice in writing on orbefore the date so as indicated will be considered before any such order is made under Section 271 AAB.
26. We find the substance in the submission of the learned counsel for the department and we noticed that theorders passed by the CIT (Appeals), affirming the orders of the penalty, are fully justified where the CIT(Appeals) has recorded a categorical finding with regard to the statement of Sri Kamal Kishore Chandakduring the search and the issuance of the penalty notices under Section 271AAB, which is relevant. We havenoticed that this fact has not been considered by the Tribunal.”
12 4.7 Thus, Hon’ble High Court has upheld the validity of notice under section 271AAB of the Act, issued by the Assessee, which was one of the issue before the Hon’ble High Court. The said order of the Hon’ble High Court has been upheld by Hon’ble Supreme Court. In these facts and circumstances of the case, the law laid down by Hon’ble Allahabad High Court is a binding precedence, binding on us. Therefore, respectfully following Hon’ble Allahabad High Court in the case of Sandeep Chandak(supra) and Hon’ble ITAT Pune in the case of Smt.Taradevi R. Bafna(supra), we hold that the order passed by ld.CIT(A) is not sustainable. Hence, for all the reasons discussed, we set aside the order of ld.CIT(A). Accordingly, Ground No.2 raised by the Revenue is allowed.
4.7.1 The case laws relied by ld.AR are pertaining to Section 271(1)(c) of the Act, and hence will not be applicable to the present case which pertains to Section 271AAB of the Act, specially when Hon’ble Supreme Court has upheld the decision of Hon’ble Allahabad High Court in the case of Sandeep Chandak(supra).
13 4.8 In this case, before us, ld.AR for the Assessee and ld.DR for the Revenue had argued the case only on legal ground. However, ld.CIT(A) has decided the only legal issue vide order dated 09.03.2024, and has not adjudicated the penalty order on merits of the quantum of penalty. Therefore, we set-aside the order of ld.CIT(A) to ld.CIT(A) with a direction to adjudicate the appeal of the assessee qua quantum.
4.9 Ld.CIT(A) shall provide opportunity of hearing to the assessee.
Revenue’s Ground No.1 and 3 are on the merits of the quantum of the penalty. We do not intend to adjudicate these grounds, as we have already mentioned above that ld.AR as well as ld.DR had argued only on the legal issue. Accordingly, appeal of the Revenue is partly allowed.