2019 (1) TMI 1875 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Defective notice - non specification of charge - A.O. framed assessment u/s 153A r.w.s. 143(3) - HELD THAT - We find that the notice issued for levy of penalty dated 24.3.2015 do not contain the specific charge - The revenue has not brought any contrary material suggesting that a valid notice was served on the assessee for initiating proceedings u/s 271(1)(c) A.O. ought to have made specific charge, moreover the notice u/s 271(1)(c) of the Act dated 24.3.2015 is ex-facie defective and contrary to the judgement of the Hon'ble jurisdictional High Court in the case of PCIT-I Vs. Kulwant Singh Bhatia 2017 (8) TMI 1375 - ITAT INDORE - Decided in favour of assessee. Penalty u/s 271AAB - assessee could not specify and substantiate the manner in which the undisclosed income has been derived - payments in cash for material purchases - search seizure operation was carried out in the business as well as residential premises of the appellant group, Indore including the assessee along with other concerns/business associates - HELD THAT - It is recorded by the A.O. that during the course of search evidences related to payment in cash for material purchase was found and on examination of books of accounts, it was found that these amounts were not accounted for by the assessee. It is also stated by the assessing officer that through this letter Shri Deepak Kalra stated that these payments were made out of income from undisclosed sources and admitted these amounts as additional income from undisclosed sources. This fact is not rebutted by the assessee by placing any contrary material on record. Since there is no ambiguity under the law and the assessee has not placed any material which could suggest that these payments in cash for material purchases was recorded in books of accounts before search was conducted. The grounds raised in this appeal are dismissed and order of the Ld. CIT(A) is affirmed.

Summary

Issues Involved:
1. Validity of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of penalty imposed under Section 271AAB of the Income Tax Act, 1961.
3. Defective notice for penalty proceedings.

Detailed Analysis:

1. Validity of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:

The primary issue was whether the penalty of ?92,700/- imposed under Section 271(1)(c) was valid. The Tribunal noted that the penalty proceedings were initiated following a search and seizure operation. The assessee argued that the penalty was bad in law due to a defective notice that did not specify the charge. The Tribunal found that the notice dated 24.3.2015 did not contain the specific charge, making it defective. This conclusion was supported by the jurisdictional High Court's judgment in PCIT-I Vs. Kulwant Singh Bhatia, which held that a penalty notice must specify the charge. Consequently, the Tribunal quashed the penalty order as bad in law.

2. Validity of Penalty Imposed Under Section 271AAB of the Income Tax Act, 1961:

The Tribunal examined the penalty of ?1,50,000/- imposed under Section 271AAB(1)(c) for the assessment year 2012-13. The assessee contended that the penalty was unjustified as the disclosure of income was not based on incriminating material. However, the Tribunal found that during the search, it was discovered that the assessee had made unrecorded cash transactions for material purchases. The assessee admitted these transactions as income from undisclosed sources. The Tribunal upheld the penalty, noting that the conditions for imposing a penalty under Section 271AAB were met, including the failure to explain the manner in which the undisclosed income was derived.

3. Defective Notice for Penalty Proceedings:

Several appeals involved the issue of defective notices for penalty proceedings. The Tribunal consistently found that the notices issued did not specify the charges, rendering them defective. This was in line with the jurisdictional High Court's ruling in PCIT-I Vs. Kulwant Singh Bhatia. As a result, the Tribunal quashed the penalty orders in these cases.

Conclusion:

The Tribunal allowed the appeals related to the defective notices under Section 271(1)(c) and quashed the penalty orders. However, it dismissed the appeals challenging the penalties under Section 271AAB, upholding the penalties imposed for undisclosed income. The Tribunal's decisions were guided by the principles established by the jurisdictional High Court and the specific facts of each case.