RAHUL JAIN S/O SHRI RAKESH JAIN, GALI KANDA WALI, NOHARIA BAZAR, SIRSA,HARYANA vs. INCOME TAX OFFICER, WARD 1, , SIRSA

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2016-17 arises out of an order of learned Commissioner of Income Tax (Appeals)-3, Gurgaon [CIT(A)] dated 30-09-2024 confirming penalty of Rs.98.07 Lacs u/s 271AAB as levied by Ld. AO vide order dated 12-03- 2018. The registry has noted minor delay of 19 days in the appeal which stands condoned. The Ld. AR, drawing attention to the factual matrix, referred to various judicial decisions to assail the impugned penalty. The copies of the judicial decisions have been placed on record. The Ld. Sr. DR also advanced arguments supporting impugned penalty on the assessee. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Proceedings before lower authorities 2.1 From case records, it emerges that pursuant to search action on assessee on 29-09-2015, the assessee made surrender of cash and bullion. The assessee filed return of income declaring income of Rs.326.90 Lacs which was accepted by Ld. AO. However, Ld. AO initiated penalty u/s 271AAB on the allegation that the assessee failed to substantiate the manner in which the undisclosed income was derived. During the course of penalty proceedings, a show-cause notice was issued to the assessee proposing levy of penalty. Though the assessee assailed proposed penalty on the ground that sources of investment / cash were explained at the time of search, Ld. AO levied penalty of Rs.98.07 Lacs u/s 271AAB(1) which was computed at 30% of undisclosed income of Rs.326.90 Lacs. 2.2 During first appeal, the assessee assailed impugned penalty on merits as well as on legal grounds by contending that there was no valid satisfaction for the default for which penalty proceedings were initiated against the assessee. The three alternative clauses (a), (b)& (c) of Sec.271AAB(1) had distinctimplication qua the default committedby the assessee and the quantum of penalty would vary under each of the clauses. Therefore, it was imperative for Ld. AO to communicate to the assessee as to the applicability of specific clause of Sec.271AAB(1) under which Ld. AO had proposed to impose the penalty. It was alsocontended that the provisions of Sec.271AAB(3) specifically stipulate issuance of notice u/s 274 wherein specific charge has to be framed. Nothing was specified in the notice as to specific clause whichwas applicable to the case of the assessee. Therefore, the impugned notice was liable to be quashed since the notice did not meet the requirement of law.Reference was made to the decision of Hon’ble High Court of Madras in the case of R. Elangovan (TCA Nos.770 & 771 of 2018) deleting penalty on similar facts. Similar was stated to be decision of Hon’ble High Court of Calcutta in the case of Industrial Safety Products Pvt. Ltd. (ITA No.88 of 2022). The assessee also referred to similar decision of Chandigarh Tribunal in the case of M/s Happy Steels Pvt. Ltd. (ITA No.398/Chd/2023 dated 05-06-2024) deleting penalty on similar grounds. Reference was made to various other decisions of Tribunal taking the same view and deleting the penalty on legal grounds. 2.3 The Ld. CIT(A) did not concur with the aforesaid submissions on the ground that rates of penalty vary according to the level of compliance made by the assessee with respect to undisclosed income and thus specifying the limb in the penalty notice is not a requirement since penalty notice was for the concealment of income. The assessee failed to justify the sources of undisclosed income surrendered during search operations. The Ld. AO also mentioned that the assessee failed to substantiate the manner in which the undisclosed income was derived. Therefore clause (a) or (b) was not applicable but only clause (c) was applicable. Accordingly, the penalty was confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 3. Upon perusal of factual matrix, it could be seen that pursuant to search action on the assessee, the assessee surrendered certain income and declared the same in the return of income. The returned income has duly been accepted by Ld. AO. However, the grievance of the assessee is levy of penalty u/s 271AAB. From impugned penalty order, it could be observed that during the course of penalty proceedings, notice u/s 274 was issued by Ld. AO on 28-12-2017 in terms of specific requirements of Sec.271AAB(3). The copy of notice has been placed on record. In the notice, it has been alleged that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. Though penalty has been proposed u/s 271AAB which has specific clauses, the exact charge which was applicable to the case of the assessee has not been specified in the show-cause notice. It is trite law that a valid initiation of penalty proceedings under the act is sine-qua-non for validity of penalty proceedings. Before imposing penalty, there should be an application of mind by Ld. AO as to specific clause which was applicable to the case of the assessee. However, the notice so issued to the assessee do not show any such application of mind and is a vague notice. The notice does not specify the exact charge against the assessee and do not specify the relevant clause of Sec.271AAB as applicable to the case of the assessee. This being so, the impugned penalty could not be sustained in law on this score only.