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Facts
A survey was conducted on the assessee, during which undisclosed income of Rs. 4,15,05,000/- was surrendered and recorded in the books. Later, a search was conducted, but no further incriminating material was found. The AO initiated penalty proceedings under section 271AAB based on the surrendered income.
Held
The Tribunal held that the penalty under Section 271AAB was not sustainable. This was because the income was surrendered during a survey and not a search, and the penalty notice was also defective as it did not specify the limb of the section under which the penalty was being levied.
Key Issues
Whether penalty under Section 271AAB is leviable when undisclosed income is surrendered during a survey and not during a search, and whether the penalty notice was legally valid.
Sections Cited
271AAB, 133A, 132, 143(3), 153A, 69B, 115BBE, 139(4), 271(1)(c), 274, 275
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 18.01.2024 passed by learned Commissioner of Income-tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of penalty-order dated 26.06.2019 passed by learned DCIT, Central-2, Indore [“AO”] u/s 271AAB of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2017-18, the revenue has filed this appeal on following grounds:
Page 1 of 15 “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty of Rs. 83,01,000/- levied u/s 271AAB(1)(b) of Income Tax Act, 1961? 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty of Rs. 83,01,000/-on the ground that the AO has not made any addition in the assessment order u/s 143(3) r.w.s. 153A, ignoring para 8 of the assessment order wherein the AO has assessed the surrendered amount u/s 69B of the I.T. Act and held that the amount of Rs. 4,15,05,000/- is to be taxed under provisions of s. 115BBE? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty of Rs. 83,01,000/- levied u/s 271AAB(1)(b) of Income Tax Act, 1961 ignoring that assessee filed its ITR u/s 139(4) only on 31-01-2018, that is after the search was carried out on 25-03- 2017, and therefore the assessee did not disclose the surrendered income of Rs. 4,15,05,000/- before the search proceedings? 4. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the above penalty by observing that the additional income surrendered during the course of survey u/s 133A of the Income Tax Act, 1961 held 19.09.2016 was recorded in the books of accounts of the company on 10.03.2017 ignoring the fact that no such books of accounts were found during the course of search u/s 132 of the Income Tax Act.”
The background facts leading to present appeal are such that a search u/s 132 of the Act was carried out upon assessee on 25.03.2017 pursuant to which the assessments of six AYs 2012-13 to 2016-17 were framed u/s 153A r.w.s 143(3) and assessment of current AY 2017-18 was framed u/s 143(3). Presently, in this appeal, we are concerned with AY 2017-18. Prior to such search, a survey u/s 133A was also carried out upon assessee on 19.09.2016. During survey proceeding, the statements of Shri Jitendra Agrawal, director of assessee-company, were recorded wherein he surrendered undisclosed income of Rs. 4,15,05,000/-. This surrendered income was offered by assessee in the return of income of AY 2017-18 at normal rate. The AO, however, taxed the surrendered income at a higher rate of tax u/s 115BBE r.w.s. 69B. Simultaneously, the AO initiated penalty
Page 2 of 15 proceedings u/s 271AAB through show-cause notice dated 01.05.2019. In reply, the assessee submitted that the income was discovered and surrendered during survey proceedings and not in search proceedings, therefore the penalty provisions of section 271AAB do not apply. The AO, however, rejected assessee’s submission and imposed a penalty of Rs.
83,01,000/- for the impugned income of Rs. 4,15,05,000/-. Aggrieved, the assessee carried matter in first-appeal and raised various contentions. The CIT(A), being satisfied with assessee’s submission, reversed AO’s action and deleted penalty. Now, the revenue has come in next appeal before us.
We have heard the learned Representatives of both sides and carefully perused the case record including the orders of lower-authorities.
At first, we re-produce the order passed by CIT(A) reversing the order of AO and deleting the penalty:
“3. After taking into consideration the ld AO's findings and appellant's written submission, made in the course of appellate proceedings as well as the facts of the case the issues involved in appeal are discussed and decided as under: 3.1 Ground Nos 1 (1.1 & 1.2), 2, 3 and 4 (4.1 & 4.2):- Through these grounds of appeal, the appellant has challenged initiation of penalty proceedings and levy of penalty u/s 271AAB of the Act. 3.1.1 The appellant, to substantiate these grounds of appeal, has filed written submissions which are reproduced as under:- XXX 3.1.2 Through these grounds of appeal the appellant has challenged the levy of penalty u/s 271AAB of the Act on both legal and factual grounds. While examining the legal issue first, I observe that the notice u/s 274 dated 30.12.2018 issued by the AO for the initiation of penalty does not specify which limb of section 271AAB is being invoked for levying the penalty. In fact, the language of the notice u/s 274 is of the nature used for initiating penalty
Page 3 of 15 u/s 271(1)(c) of the I.T. Act, 1961. The penalty notice u/s 274 is being reproduced as under:-
Hence, it is clear from the perusal of the above notice u/s 274 of the Act that not only has the AO not specified whether the penalty proposed to be levied is under sub section (a), (b), or (c) of section 271AAB(1) but the reason given for Page 4 of 15 initiating penalty is that which is applicable for penalty proceedings u/s 271(1)(c). I find that the issue of levy of penalty without issuance of a proper notice is no more res integra. The Hon'ble Supreme Court in the case of CIT vs. SSA’s Emerald Meadows and the Hon’ble Jurisdictional MP High Court in the case of Principal Commissioner of Income Tax v/s Kulwant Singh Bhatia dated 09.05.2018 (ITA 9 to 14 of 2018) have held that if no specific charge is specified in the penalty notice, then the levy of penalty is not sustainable in law. I also find that the Hon’ble Jurisdictional ITAT, Indore Bench in the case of Shri Vivek Chugh vs. ACIT (Central-2), Indore, vide its Order dated 28-03- 2019 in Appeal No. ITA-636/Ind/2017, has quashed the entire Penalty Order passed by the AO u/s 271AAB of the Act by holding that the AO has not applied his mind and no specific charge was mentioned. I also find that similar pronouncements have been made by the Hon’ble Jurisdictional ITAT, Indore Bench in various other cases. I further find that the Predecessor in my office, while adjudicating one appeal in the case of Shri Kantilal Kataria [Appeal No. CIT(A)-3/BPL/IT- 10108/2019- 20] vide his Order dated 10.08.2021, has deleted the entire penalty levied u/s 271AAA by holding the penalty notice as defective not mentioning any specific default therein. I find that against such Order, the Revenue preferred an appeal before the Hon’ble Jurisdictional ITAT, Indore Bench which came to be dismissed vide Order dated 28.06.2022 in Appeal No. ITA-220/Ind/2021. For the sake of ready reference, the relevant findings of the Hon’ble ITAT in the aforesaid case of Shri Kantilal Kataria are reproduced as under: “8.We have heard both the parties and perused all the relevant material available on record. It is an admitted fact that notice issued under Section 274 of the Act read with Section 271AAA of the Act has not specified the limb in respect of imposing penalty. As required under Section 271AAA of the Act when the provisions of Section 274 and 275 of the Act are applicable in relation to the penalty referred to the said Section has given in Section 271AAA(4) of the Act. Issuance of notice is mandatory as per the Income Tax Statute and specifying the charges/ initiation of penalty in the present appeal under the specific clause of Section 271AAA of the Act was a necessity. In fact, the revenue has not treated the mandatory provisions of the Act properly and in respect of the decision of the Hon’ble Supreme Court in the case of CIT vs. SSA’s Emerald Meadows, 73 taxmann.com 248 (SC) and CIT vs. Manjunath Cotton & Ginning 359 ITR 565 (Karnataka) are squarely applicable in the present case. Besides this, from the perusal of the assessment order it can be seen that the assessee has given details of undisclosed income during the invocation of proceedings under Section 153A of the Act. Though from the perusal of the assessment order and penalty order it can be seen that the amount of Rs.6,39,41,429/- would not have been taxed had there been no search and seizure operation. The provisions of Section 271AAA(1) of the Act are clearly applicable in the present case. But, due to the defective notice which is part of mandatory procedure to be followed by the Department, the Page 5 of 15 penalty order does not survive. Therefore, appeal of the Revenue is dismissed.” Hence, on legal grounds it is held that the penalty u/s 271AAB(1)(b) is not sustainable and hereby directed to be deleted. 3.1.3. Examining the imposition of the penalty u/s 271AAB(1)(b) on factual grounds I find that from the outset the appellant has contended that a survey proceeding u/s 133A of the Act in the case of appellant was carried out on 19.09.2016. During the course of survey the appellant has surrendered income of Rs. 4,15,05,000/- on account of various incriminating material in the form of diary of loans and advances given to different parties. The surrendered income was duly recorded in books of account on 10.03.2017 and full advance tax was also paid. Thereafter, search proceedings u/s 132 of the Act were initiated in the case of appellant on 25.03.2017 and were concluded on 01.05.2017. During the course of search no incriminating material was found and seized which represented any unaccounted/undisclosed income. The appellant, for the year under consideration, filed return of income on 1.01.2018 declaring total income of Rs. 4,38,92,600/- which included surrendered income of Rs. 4,15,05,000/- and assessment order was passed u/s 143(3) after accepting returned income of the appellant. Till here there existed no dispute. The subject issue arose when the ld AO levied penalty u/s 271AAB @ 20% stating that the return of income u/s 139(4) of the Act for AY 2017-18 was filed after the search proceedings and that in the return filed the assessee had surrendered the undisclosed income. Considering the facts supra, I find that the appellant during survey proceedings voluntarily offered undisclosed income of Rs. 4,15,05,000/- on account of undisclosed loans and advances given to different persons as per impounded incriminating material. The relevant extract of statement of Shri Jitendra Agrawal, Director, is reproduced here under:-
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Thus, the CIT(A) has deleted penalty for two reasons. Firstly, he has examined the show-cause notice issued by AO for initiation of penalty- proceedings [re-produced in CIT(A)’s order in earlier para] and held that the AO has not specified the limb of section 271AAB(1) i.e. whether (a), (b) or (c) under which penalty was initiated and also that the AO has copied the language of section 271(1)(c) in the notice issued for imposing penalty u/s 271AAB. He has taken into account the decisions of Hon’ble Supreme Court, Hon’ble Jurisdictional High Court and ITAT, Indore and accordingly held that initiation of penalty without issuance of a proper notice is not valid and not sustainable. This very issue was again decided in favour of assessee and against revenue in a recent order of ITAT, Indore in – Gaurav Ajmera Vs. DCIT, Central-2, Indore. Secondly, he has examined the factual aspects of case, particularly the Statements of assessee-company’s director Shri Jitendra Agarwal recorded [re-produced in CIT(A)’s order in earlier para] and held that the undisclosed income of Rs. 4,15,05,000/- was discovered and surrendered during survey u/s 133A and not in search u/s 132. Thereafter he has re-produced language of section 271AAB and concluded that the penalty under that section was applicable for detection of undisclosed income during search u/s 132 and not in survey proceedings. Therefore, also the penalty imposed by AO is not valid. Both of these conclusions taken by CIT(A) were deliberated during hearing before us and no mistake, error, perversity or adversity is found therein. Ld. DR for revenue though dutifully relied upon the penalty-order passed by AO but Page 14 of 15 could not controvert or rebut the impugned order of first-appeal passed by CIT(A). Faced with this situation, we do not have any reason to interfere with the order of CIT(A) which is valid and proper in the facts of case; the same is hereby upheld. The revenue’s appeal is dismissed being devoid of any merit.
Resultantly, this appeal is dismissed.
Order pronounced in open court on 25/09/2025