ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, TIRUPATI vs. PALAKALA GUNASEKHAR, TIRUPATI

These two Revenue’s appeals for AY.2017-18 arise from the CIT(A)-3, Visakhapatnam’s order(s); both dated 07-10- 2020 passed in appeal Nos.113 & 112 / 2019-20 / CIT(A)-3 / VSP / 2019-20 & 2020-21, involving proceedings u/s.271AAB of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively. Heard both the parties. Case files perused.

Office of the Assistant Commissioner of Income Tax, Central Circle, Aayakar Bhawan, Third Floor, KT Road Tirpuati. PAN:BUWPS2296H Date:31-12-2018 PENALTY NOTICE UNDER SECTION 271AAB OF THE INCOME TAX ACT, 1961 To Smt. P.Sree Lakshmi, Door No.18-1-736, Venkatagiri Quarters, Bhavani Nagar, Trupathi-517 501. The Undisclosed income which was unearthed as a result of the Search Proceedings U/s 132 would not have seen the light of the day hod the search not been conducted. Though the assessee has returned the income in the return of income for AY.2017-18 filed by her, it is because of the search only and as agreed to by the assessee at the time of search, Hence, I have reason to believe that the income had been concealed by the assessee till the time of search which was detected during the course of search. Accordingly, in your case, penalty u/s 271AAB of the Income Tax Act, 1961 is leviable on tile undisclosed income so brought to tax as discussed above. In this regard, you are hereby requested to appear before me at 02:30 PM till 18th January,2019 and showcause as to why on order imposing a penalty on you should not be made U/s.271AAB of the Income Tax Act,1961. If you do not wish to avail of this opportunity of being heard in person or through Authorized Representative you may furnish your explanation in writing on or before the said date which will be examined on merits before such order is made u/s.271AAB of the Income Tax Act, 1961. In case there is no compliance from you before the above assigned date, it will be deemed that you have no explanation to offer and accordingly, the matter will be decided on merits”.

3. The moot preliminary question that arises for our apt adjudication in light of the Assessing Officer’s foregoing show

:- 3 -: & 757/Hyd/2020 cause notice(s) as to whether the impugned penalty proceedings could be held as rightly initiated since not specifying the corresponding statutory limb. We find in this backdrop that the tribunal’s co-ordinate bench’s decision in Ashok Bhatia Vs. DCIT, dt.05-02- 2020 concludes that such a failure is indeed fatal to the impugned penalty mechanism as under:

7. A bare reading of the above notice suggests that the notice has been issued in a casual fashion. The officer has not applied his mind and no specific charge is mentioned for which the assessee was required to be show caused. In absence of the requisite contents of specific charge the initiation of proceedings cannot be sustained being bad in law.

Further, reliance is also placed on the judgment in DCIT vs R. Elangovan (Trib. Chennai) (CL 113), where again it was held that since the penalty notice u/s. 271AAB was vague, penalty cannot be levied.

Further, ld CIT(A) has referred to the judgment of Pr. CIT vs Sandeep Chandak 405 ITR 648 (All.). This judgment was discussed and distinguished in the case of Ravi Mathur vs DCIT (TS-8004-ITAT- 2018(Jaipur)-O) (CL-131-155).

5. Ld. Counsel for the assessee submitted that before levying the penalty u/s 271AAB of the Act Ld. A.O has to issue notice u/s 274 of the Act, as provided in Section 271AAB(3) of the Act. In the notice issued to the assessee there is no mention about the various conditions provided u/s 271 AAB of the Act relating to levy of penalty @ 10% or 20% or 30% (as the case may be). Nothing is specified in the notice about Clause-a, b & c of Section 271AAB of the Act as to at what percentage the penalty will be levied on the assessee for the undisclosed income not surrendered during the course of search. The assessee deserves an opportunity to plead before the Ld. A.O before being visited with the penalty u/s 271AAB Shri Ashok Bhatia of the Act. The alleged notice issued u/s 274 r.w.s 271AAB of the Act is liable to be quashed since there is a technical defect in issuing the notice. Reliance placed on the decision of Co- ordinate Bench, Chennai in the case of DCIT V/s R. Elangovan 1199/CHNY/2017 order dated 05.04.2018 which has also been :- 4 -: & 757/Hyd/2020 followed by Jaipur Bench of Tribunal in the case of Ravi Mathur Vs. DCIT, laying down the proposition that show cause notice issued u/s 274 of the Act without drawing requisite levy of penalty u/s 271AAB of the Act is a defective notice and is liable to be quashed.

'271AAB. Penalty where search has been initiated.--(1) 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 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,--

:- 5 -: & 757/Hyd/2020 (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such 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 twenty per cent of the undisclosed income of the specified previous year, if such assessee-- (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date-- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).

(2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).

(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.--For the purposes of this section,-- (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; Shri Ashok Bhatia (b) "specified previous year" means the previous year-- (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (c) "undisclosed income" means--

:- 6 -: & 757/Hyd/2020 (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 Chief 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.'. Section 274 of the Act (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.

(2) No order imposing a penalty under this Chapter shall be made- (a) by the Income- tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer']

:- 7 -: & 757/Hyd/2020 amount during the course of search which is subsequently admitted during the course of assessment and not challenged before the Ld. CIT(A). So it was incumbent for Ld. A.O that in the notice issued u/s 274 of the Act he should have mentioned that penalty u/s 271AAB of the Act may be levied @10/20/ 30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assessees case falls under clause-c of section 271AAB of the Act, why she should not be visited by penalty @30% of the undisclosed income. Against this charge the Shri Ashok Bhatia assessee should have been given a reasonable opportunity of being heard.

*Have without reasonable cause failed to furnish me return of income with you were required to furnish by a notice given under section 22(1)/22(2)/34 of the India Income Tax Act, 1922 or which you were required to furnish under section 193(1) or by a notice given under section 193(2)/148 of the Income Tax Act 1961, No. .... Dated..... or have without reasonable cause failed to furnish it within the allowed and the manner required by the side section 139(1) or by such notice.

*Have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the India Income Tax Act, 1922 or under section 142(1)/143(2) of the Income Tax Act 1961, No. dated have concealed the particulars of your Income or furnished inaccurate particulars of such Income.

You are hereby requested to appear before me on 21.04.2016 at 3.30 PM 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 Shri Ashok Bhatia not wish to avail yourself of this opportunity of bearing heard in person or through

:- 8 -: & 757/Hyd/2020 authorized representative you may show cause in writing on or before the side date which will be considered before any such order is made under section 271AAB.

Sd/- (Amit Kumar Soni)

Asstt. Commissioner of Income Tax (Central)-I Indore OFFICE OF THE Deputy Commissioner of Income Tax (Central)-I, Indore PAN. ACFPB4590H Date: 03.06.2016 To Shri Ashok Kumar Bhatia 33-A Radha Nagar Neelkanth Colony Indore-452006 Sir, Sub: Penalty fixation u/s 271AAB of the Income Tax Act, 1961 for the A.Y. 2014-15-reg.

Please refer to the penalty proceedings u/s 271AAB of the Income Tax Act 1961 for the A.Y. 2014-15 in the above mentioned case, you are hereby requested to appear before the undersigned on 10.06.2016 at 11.50AM in my office at Room No.101, Aayakar Bhawan, Main opp. White Church, Indore personally or through authorized representative to show cause as to why penalty u/s 271AAb of the I.T. Act 1961 be not levied against you? If you do not want to appear personally, you may send your written reply on or before above mentioned date, otherwise penalty proceedings shall be decided on merits.

Sd/- (Amit Kumar Soni)

Deputy Commissioner of Income Tax (Central)-I Indore OFFICE OF THE Deputy Commissioner of Income Tax (Central)-I, Indore PAN. ACFPB4590H Date: 16.09.2016 Shri Ashok Bhatia To Shri Ashok Kumar Bhatia 33-A

:- 9 -: & 757/Hyd/2020 Radha Nagar Neelkanth Colony Indore-452006 Sir, Sub: Penalty fixation u/s 271AAB r.w.s. 129 of the Income Tax Act, 1961 -reg.

Please refer to the above The following penalty proceeding are initiated during assessment as mentioned below:

S.NO. A.Y. Section Penalty initiated on 1 2014-15 271AAB 22.03.2016 You are requested to appear before the undersigned on 19.09.2016 at 11.00 AM in my office at Room No.101, Aayakar Bhawan, Main opp. White Church, Indore personally or through authorized representative to show cause as to why penalty u/s 271AAb of the I.T. Act 1961 be not levied against you? If you do not want to appear personally, you may send your written reply on or before above mentioned date. If any that you have nothing to say in this regard. It is to brought to your notice that there is a change in incumbent hence this notice is issued to provide opportunity of being heard to the assessee.

Sd/- (Amit Kumar Soni)

Deputy Commissioner of Income Tax (Central)-I Indore

:- 10 -: & 757/Hyd/2020 Manjunatha Cotton Ginning Factory and CIT v/s SSA'S Emerald Meadows (supra) held that such show cause notices would not satisfy the requirement of law as notice was not specific. Merely issuing notice in general proforma will negate the very purpose of natural justice. Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 held that "the quasi criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice".

"2. This appeal has been filed raising the following substantial questions of law.

(1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.S. 271(1)(c) is bad in law and Shri Ashok Bhatia invalid despite the amendment of Section 271 (1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?

:- 11 -: & 757/Hyd/2020 (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order When the assessing officer has specified that the assessee has concealed particulars of income?

In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:-

Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(l)(c) , i.e., whether it is Shri Ashok Bhatia for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings; The findings recorded in the assessment proceedings in so far as concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in :- 12 -: & 757/Hyd/2020 pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings".

View taken by the Hon'ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon'ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA's Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued ujs.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside.

It is further submitted that in para 5 of this judgment (Ravi Mathur), the case quoted by ld CIT(A) Pr. CIT vs Sandeep Chandak (All.) was distinguished as under:

"5. Before we proceed further, the decisions relied upon by the ld D/R are to be considered. In the case of Principal CIT vs Sandeep Chandak & Others [TS-6389-HC-2017(Allahabad)-O] (supra) the issue before the Hon'ble High Court was the defect in the notice issued under section 271AAB on account mentioning wrong provision of the Act being 271(1)(c) of the Act. The Hon'ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice.

:- 13 -: & 757/Hyd/2020 Hence the Hon'ble High Court has held as under: - "The ld A.Rs have also challenged that the caption of the notice mentioned only section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB.

The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R. in this regard has already been reproduced above. The A.R. did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s. 271AAB of the Act is confirmed."

Thus it was found by the Hon'ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the isse involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs Amit Agrawal (TS-7675-ITAT-2017(Kolkata)-O) (Supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the Ld D/R is no more in existence."

:- 14 -: & 757/Hyd/2020 deleted. Thus assessee succeeds on legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act.

4. We adopt the foregoing detailed discussion mutatis mutandis to uphold the Ld.CIT(A)’s action deleting the impugned penalty(ies). The Revenue’s vehement identical contentions in both these appeals in favour of the Assessing Officer’s penalty order(s) are rejected.

Order pronounced in the open court on 4th January, 2022