2020 (9) TMI 1156 - AT - Income Tax

Penalty u/s 271AAB(1)(a) - additional income surrendered by the assessee u/s 132(4) - income disclosed in the return of income filed after search seizure action - HELD THAT - Additional income surrendered by the assessee have been accepted by the Department on the basis of the explanation given by the respondent and on the basis of offering the same as business income which is even clearly discernable from the assessment order. It is also not in dispute that the assessee company has no other source of generating income other than the business carried out by it as per the objects for which it is registered. This fact was not in dispute and method and manner of additional income offered was duly explained to the Investigation Wing and also during the course of assessment proceedings which is well evident from the assessment order itself. We find that under the similar facts, we both the undersigned of this order have adjudicated the similar issue in assessee s another group concern M/s. Keti Sangam Infrastructure (I) Ltd and Keti-T Construction (India) Ltd 2018 (6) TMI 1525 - ITAT INDORE wherein deleted the penalty levied u/s 271AAA. Defective notice - As notice clearly spells out that the provisions under which the notice was issued for levy of penalty u/s 271AAA but the charges mentioned therein refers to those provided in Section 271(1)(c) of the Act. Ld. A.O failed to mention the charges provided u/s 271AAA of the Act. We find that this issue is also squarely covered in favour of the assessee by the decision in the case of Gillco Developers Builders (P) Ltd 2017 (8) TMI 1468 - ITAT CHANDIGARH wherein the Tribunal after observing that the notice issued is defective held in favour of the assessee and quashed the penalty proceedings As penalty proceedings carried out in the case of the assess were void ab-initio since the notice issued itself is defective and not in accordance with law. Thus we find no reason to interfere in the finding of Ld. CIT(A) deleting the penalty levied u/s 271AAA - Decided against revenue. Penalty u/s 271AAB(1)(a) - income offered by the assessee u/s 41(1) on account of writing off outstanding credit balance in the name of a creditor - HELD THAT - Alleged outstanding amount was offered to tax u/s 41(1) of the Act in the Income Tax Return filed u/s 139(1) of the Act. In these given facts and circumstances of the case, we are of the considered view that the alleged outstanding amount offered to tax u/s 41(1) of the Act on account of cessation of liability is not an undisclosed income since the relevant information about alleged undisclosed income was duly recorded in the books before the date of search and sufficient documentary evidences are available to prove this fact. The alleged amount was brought forward from preceding year and thus forming part of audited books of accounts. Thus the amount offered to tax u/s 41(1) of the Act is not a undisclosed income since it was shown in the return of income filed u/s 139(1) of the Act. Therefore in our view the action of the Ld. A.O levying penalty u/s 271AAB(1)(a) @10% on the alleged undisclosed income was not justified and uncalled for. Therefore Ld. CIT(A) has rightly allowed the ground raised by the assessee on merits of the case holding that penalty was not leviable u/s 271AAB - Decided against revenue.

Summary

Issues Involved:
1. Deletion of penalty under Section 271AAA for Assessment Year 2011-12.
2. Deletion of penalty under Section 271AAB(1)(a) for Assessment Year 2016-17.

Detailed Analysis:

Issue 1: Deletion of Penalty under Section 271AAA for Assessment Year 2011-12

Facts:
- The assessee, Kalyan Toll Infrastructure Ltd, was subjected to search operations from 05.05.2011 to 07.05.2011.
- The original return of income for AY 2011-12 was filed electronically on 30.09.2011, including an additional income of ?6,85,96,426/- offered during the search under Section 132(4).
- The Assessing Officer (AO) levied a penalty of ?70,78,640/- under Section 271AAA, alleging that the assessee did not specify and substantiate the manner of deriving such income during the search.

Contentions:
- The assessee argued that the penalty was not applicable as the manner of additional income offered was duly explained.
- The notice issued under Section 274 r.w.s. 271AAA was defective, lacking specific charges.
- No proper opportunity of being heard was provided to the assessee.

Findings:
- The penalty proceedings were initiated without specifying any charge in the assessment order.
- The notice issued was defective, mentioning charges relevant for Section 271(1)(c) instead of Section 271AAA.
- The assessee had disclosed the manner of earning the income, and the additional income was offered as business income, which was accepted by the Department.

Judgment:
- The ITAT upheld the deletion of the penalty, confirming that the notice was defective and not in accordance with law.
- The penalty proceedings were held void ab initio, and the penalty of ?70,78,640/- was deleted.

Issue 2: Deletion of Penalty under Section 271AAB(1)(a) for Assessment Year 2016-17

Facts:
- The assessee, Kalyan Keti Toll Pvt. Ltd, was subjected to search operations on 04.09.2015.
- The return of income for AY 2016-17 was filed on 17.10.2016, declaring total income of ?20,990/- after including income offered under Section 41(1) of ?13,37,84,149/-.
- The AO levied a penalty of ?1,33,78,415/- under Section 271AAB(1)(a), alleging undisclosed income.

Contentions:
- The assessee argued that the penalty notice was defective and did not specify the charge under Section 271AAB.
- The income offered under Section 41(1) was not undisclosed income as it was recorded in the regular books of accounts and disclosed in the return filed under Section 139(1).

Findings:
- The notice issued under Section 274 r.w.s. 271AAB was cryptic and not in accordance with law, referring to charges under Section 271(1)(c).
- The liability was duly recorded in the books of accounts, and the income offered under Section 41(1) was not undisclosed income.
- The penalty proceedings were initiated without mentioning any specific charge under Section 271AAB.

Judgment:
- The ITAT upheld the deletion of the penalty, confirming that the notice was defective and the penalty proceedings were void ab initio.
- On merits, it was held that the income offered under Section 41(1) was not undisclosed income, and the penalty of ?1,33,78,415/- was deleted.

Conclusion:
Both appeals by the Revenue were dismissed. The penalties under Section 271AAA for AY 2011-12 and under Section 271AAB(1)(a) for AY 2016-17 were deleted due to defective notices and lack of proper charges, rendering the penalty proceedings void ab initio.