2020 (8) TMI 905 - AT - Income Tax

Penalty u/s 271AAB - defective notice u/s 274 - non specification of charge - As per assessee penalty notice so issued is defective as it does not disclose specific charge and secondly there is no concealed income as search took place prior to due date of filing of income-tax return - HELD THAT - Where a search has been initiated the AO may direct payment of penalty in addition to tax if any payable by him. However, provisions of section 274 and 275 shall so far as may apply in relation to the penalty refer to in section 271AAB of the Act. As per section 274 of the Act no order imposing a penalty shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. In this case the assessing officer has given notices and in response thereto the representative of the assessee appeared before the assessing officer. Now coming to the question whether notice so issued mention any specific charge. A bare reading of notice demonstrates that notice relate to ingredients of penalty u/s 271(1)(c) of the Act, it does not contain the ingredients of section 271AAB of the Act. Under these facts the notice is improper and is not in accordance with requirement of law. The assessing officer is expected to make his direction clear as to which clause of section 271AAB of the Act, he wishes to invoke. There is clear absence of such direction. Ld. counsel for the assessee has relied upon various judicial pronouncements in support of his contention that where the notice is being defective, therefore, no penalty can be levied or sustained. CIT(A) observed that the impugned amount would not have been offered for taxation had there been no search and seizure operation, this observation goes to demonstrate that convers of such observation gives benefit of doubt to the taxpayer. In our considered view that it is purely a guess work without being substantiated by any material evidence. The impugned penalty therefore, cannot be sustained. The Assessing Officer is directed to delete the penalty. Assessee appeal allowed.

Summary

Issues Involved:
1. Levy of penalty under section 271AAB of the Income Tax Act.
2. Validity of the show cause notice issued for the levy of penalty.
3. Definition and applicability of "undisclosed income" under section 271AAB.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271AAB:
The Assessee challenged the levy of penalty amounting to Rs. 6,83,498/- under section 271AAB of the Income Tax Act, 1961. The penalty was imposed by the Assessing Officer (AO) following a search and seizure operation where the Assessee admitted to an undisclosed income of Rs. 68,34,975/- on account of investment in the construction of a house. The AO levied a penalty at the rate of 10% on this undisclosed income. The Assessee contended that the penalty was imposed without proper satisfaction and that the additional income did not fall within the definition of "undisclosed income" as per the Act.

2. Validity of the Show Cause Notice:
The Assessee argued that the show cause notice issued under section 274 read with section 271AAB was defective as it did not specify the specific charge against the Assessee. The notice was vague and did not comply with the legal requirements, making it invalid. The Tribunal noted that the show cause notice must clearly specify the default committed by the Assessee to attract the penalty under section 271AAB. The Tribunal observed that the notice issued was in a general proforma and did not mention any specific charge, thus making it defective and invalid. The Tribunal relied on several judicial precedents, including the cases of Dr. Rajesh Jain Vs. DCIT and Shri Vivek Chugh Vs. ACIT, where similar defects in the notice led to the quashing of penalty proceedings.

3. Definition and Applicability of "Undisclosed Income":
The Assessee contended that the additional income accepted during the search did not qualify as "undisclosed income" under the definition provided in section 271AAB. The Tribunal examined the definition, which includes income represented by money, bullion, jewellery, or other valuable articles not recorded in the books of account or disclosed to the tax authorities before the search. The Tribunal found that the additional income of Rs. 68,34,975/- on account of investment in the construction of a house did not fall within this definition. The Tribunal cited various judicial precedents, including the cases of ACIT Vs. Marvel Associates and Padam Chand Pungliya Vs. ACIT, where it was held that mere disclosure of income in the statement recorded under section 132(4) does not automatically lead to the levy of penalty unless it qualifies as "undisclosed income."

Conclusion:
The Tribunal concluded that the penalty imposed under section 271AAB was not sustainable due to the defective show cause notice and the fact that the additional income did not qualify as "undisclosed income" under the Act. The Tribunal directed the AO to delete the penalty. The appeal filed by the Assessee was allowed.