MUKESH KHURANA,NEW DELHI vs. DCIT, CENTRAL CIRCLE, NOIDA

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-

This appeal by the assessee is preferred against the order of the

Ld. CIT(A) - IV, Kanpur dated 12.04.2018 pertaining to A.Y. 2014-15.

upholding of the penalty amounting to Rs. 2,40,000/- levied by the Assessing Officer by the ld. CIT(A).

Therefore, we decided to proceed exparte.

assessee is proprietor of M/s Classic Spares dealing in trading

of spare parts/auto parts. The assessee filed his Return of

Income for AY 2014-15 declaring an income of Rs. 20,18,250/.

tax Act, 1961 [the Act, for short] was conducted on

09.10.2013 on the premises of the assessee comprising

Shubhkamana Buildtech Pvt Ltd group of cases. During the

course of search, cash amounting to Rs. 9,76,190 was found.

cash found. In response, the assessee explained that this

cash was a part of the cash balance of Rs 1,11,15,785.94 as

per books of M/s Classic Spares.

to submit any evidence and, therefore, the contention of the

assessee cannot be accepted. However, the Assessing Officer

found that an amount of Rs. 1,76,190/- was found reasonable

and remaining amount of Rs. 8,00,000/- was added to the

total income of the assessee assessing the total income of

the assessee at Rs. 28,18,250/- u/s 143(3) of the Act. The

Assessing Officer also initiated penalty proceedings u/s

271AAB of the Act. The AO considering the entire income

assessed at Rs 28,18,250/- as the undisclosed income and

levied penalty @ 30% on it which worked out to Rs 9,57,920/.

CIT(A) who restricted the penalty to Rs. 2,40,000/- instead of

Rs. 9,57,920/- holding that the undisclosed income is only Rs

8,00,000/-.

the assessee explained that the cash amounting to Rs.

9,76,190/- found during search was part of cash balances of

Rs 1,11,15,785.94as per books of M/s Classic Spares, but the

assessee could not produce evidences. Therefore, the ld. DR

submitted that the Assessing Officer was right in treating the

same as undisclosed income of the assessee and correctly

levied the penalty u/s 271AAB. The ld DR was fair to submit

that the CIT(A) correctly restricted the penalty to 30% of

unexplained cash of Rs. 8 lakhs which worked out to Rs.

2,40,000/-.

the relevant material on record. We find that the assessee

during the year under consideration has duly filed the return

u/s 139(1) showing an income of Rs. 20,18,250/-. With regard

to the cash so found during the search and seizure action,

the assessee has submitted that it is a part of cash balance

of Rs. 1,11,15,785/- which is reflected in the cash books of

its proprietary concern M/s Classic Spares and therefore,

there is no undisclosed income as defined in Explanation (c)

of section 271AAB of the Act. Rejecting the assessee

explanation, the Assessing Officer considered the entire

assessed income as undisclosed income and levied the

penalty u/s 271AAB. The CIT(A), however, restricted the

penalty to 30% of unexplained cash of Rs. 8 lakhs which

worked out to Rs. 2,40,000/-.

assessee had submitted that the enhancement of income was

to the extent of Rs 8,00,000/- only however, for the purpose

of calculating penalty, the entire assessed income has been

considered as undisclosed income rendering the penalty order

illegal and invalid. The assessee also took a legal ground no.

6 assailing that “order levying penalty under section 271AAB,

lacks in vital ingredients of a valid penalty order and the

same could not have been upheld/sustained by the

CIT(A)”.To substantiate this ground the assessee has

submitted in the statement of fact that notice u/s 274 read

with section 271 of the Act dated 31.03.2016 was issued

requiring the assessee to show cause as to “why penalty u/s

271(1)(c ) of the IT Act may not be imposed upon you/why

penalty u/s 271AAB may not be imposed upon you”. It is

pleaded by the assessee that the show cause notice is based

on ambiguous grounds and is fatal to the very survival of the

penalty proceedings u/s 271AAB of the Act.

cases that a proper notice u/s 274 r.w.s 271AAB is a vital

ingredient for a valid penalty order. On the issue of valid

notice, the coordinate bench of Delhi ITAT in the case of

Jaina Marketing & Associates Vs DCIT reported in [2024] 162

taxmann.com 439 (Delhi - Trib.) had the occasion to deliberate on this

issue with reference to penalty u/s 271AAB. Its deliberation is

reproduced as under:

“21. As could be seen from the above the notice issued u/s 271AAB of the Act, it does not depict the charge against the assessee as to under which Clause (a), (b) or (c) or Section 271AAB (1) or Clause (a) or (b) of 271 AAB (1A) of the Act penalty is leviable on the assessee. Therefore, we are of the opinion that the notice initiating penalty u/s 271AAB of the Act is vague and the assessee was not made aware of the actual charge

on which the penalty proceedings will be initiated on the assessee. The various judicial precedents have held that the penalty notice should be clear enough to convey the assessee about the charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act.

"5.1 In case of Shri Padam Chand Pungliya v. ACIT (supra), the Coordinate Bench has held at para 5 page 7 of its order as under :-

"It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) Itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to be considered and decided in the penalty. Since the assessee has offered the said income in the return of income filed under section 139(1) of the Act, therefore, the question

of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise and only when the AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Therefore we do not agree with the contention of the Id. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after considering the fact that all the conditions provided under section 271AAB are satisfied."

It is evident from the show cause notice issued under section 274 read with section 271AAB (APB Page 1) that the AO was not clear as to on what precise charge the appellant was asked to show cause, whether the assessee shall pay by way of penalty under clause (a), (b) or (c) of section 271AAB. The AO has just mentioned "deliberately concealed the true income". Thus the AO without mentioning specific default of

the assessee in terms of clause (a), (b) or (c) of section 271AAB of the Act, the, show cause notice issued in routine manner cannot be considered a valid notice in the eyes of law and accordingly the levy of penalty against the assessee is held to be void ab initio. Further, the assessee has substantiated the undisclosed cash available, as to the extent of surrendered income of Rs. 8,73,000/-.

"8. From perusal of the above provision we observe that sub section 3 of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by 1.d. A.O is to issue a valid notice u/s 274 of the Act. Sub- section (1) to Section 274 of the Act provides a procedure that "No order imposing a penalty under this Chapter shall he made unless the assessee has been heard, or has been given a reasonable opportunity of being heard". To comply with this requirement the notice

u/s 274 should be clear enough to convey the assessee about the charge which is to be leveled against him/her/it for levying the penalty for the contravention of the related provisions of the Act which in the instant case relates to not surrendering of undisclosed 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 assessee should have been given a reasonable opportunity of being heard.”

From going through the above three notices issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.2016, we find that there is no mention about various conditions provided u/s 271 AAB of the Act. The Ld. A.O has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the Section 271AAB of the Act in the notice it does not talk anything about the provision of section 271AAB. Certainly, such notice has a fatal error and technically is not a correct notice in the eyes of law because it

intends to penalize an assessee without spelling about the charge against the assessee. Hon'ble Jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra) dealt the issue of defective notice issued u/s 274 r.w.s. 271(1)(c) of the Act and Hon'ble court after relying judgment of Hon'ble Supreme Court in the case of CIT V/s 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".

contested or controverted the statement of fact narrated by

the assessee that the notice u/s 274 stated “why penalty u/s

271(1)(c) of the IT Act may not be imposed upon you/why

penalty u/s 271AAB may not be imposed upon you”. We now

have to decide what is the legal validity of such a notice.

the issuance of a valid notice u/s 274 for initiating the penalty

proceedings u/s 271 AAB of the Act. Further, the provision of section

274(1) stipulates that "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." The mandate that befalls on

the AO is to clearly spell out the charges against the assessee for

levying penalty in order to give him reasonable opportunity of being

heard and defend himself. It was therefore, incumbent upon the AO to

specifically elaborate in the notice u/s 274 of the Act itself 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. The

AO was further required to mention the category in which the assessee

was being placed i.e whether the assessee fell under clause (c) of

section 271AAB of the Act and why penalty @ 30% of the undisclosed

income should not be levied on him.

u/s 274 r.w.s 271AAB issued to the assessee, we find that there is no

mention about various conditions provided u/s 27IAAB of the Act. The

AO has merely and casually issued the proforma used for issuing notice

before levying penalty u/s 271(1)(c) of the Act for the concealment of

income or furnishing of inaccurate particulars of income. More fatally,

the notice merely mentions section 271AAB of the Act but does not

provide the specific charges against the assessee as stipulated in

section 271AAB. Such an error in the notice cannot but be considered a

fatal legal error rendering the notice as technically not a valid notice

in the eyes of law because it intends to penalize an assessee without

spelling about the specific charge against the assessee.

pronouncements, therefore, hold that the assessee must succeed on

the ground taken that the penalty order lacked the vital ingredient of

a valid penalty order. On this technical ground, we delete the penalty imposed by the A.O for the Assessment Years 2014-15. Since, penalty is

cancelled on technical ground, the adjudication of levy of penalty on

merits becomes academic in nature and are left open. Accordingly,

ground 6 of the assessee are allowed and we direct the Assessing

Officer to delete the impugned penalty of Rs. 2,40,000/- so

sustained by the CIT(A).

4710/DEL/2018 is allowed.

The order is pronounced in the open court on 27.06.2024.

Sd/- Sd/-

[VIKAS AWASTHY] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 27th JUNE, 2024.

VL/