2022 (3) TMI 1492 - AT - Income Tax

Penalty issued u/s 271AAB r.w.s. 274 - As argued AO has failed to specifically point out the clause on which the penalty was proposed to be levied - HELD THAT - As perused the decision cited before us in the case of PCIT vs. Shri R. Elangovan 2021 (4) TMI 1131 - MADRAS HIGH COURT and find that under similar facts the Hon ble court has quashed the penalty order on the ground that it is based upon invalid penalty notice issued u/s 271AAB of the Act. As in the case of PCIT vs. Shri R. Elangovan 2021 (4) TMI 1131 - MADRAS HIGH COURT hold that the penalty order passed by the Assessing Officer is invalid and is accordingly quashed. The appeals of the assessee are allowed on legal issue.

Summary

Issues:
Validity of penalty notice under Section 271AAB of the Income Tax Act, 1961.

Analysis:
For the Assessment Year 2013-14, the assessee challenged the penalty notice issued under Section 271AAB r.w.s. 274 of the Act as being invalid and void ab initio. The Assessing Officer failed to specify the clause on which the penalty was proposed to be levied. The search action revealed undisclosed income, and the penalty was initiated based on this. The ld. CIT(A) partly allowed the appeal, reducing the penalty to 10% from 30% imposed by the Assessing Officer. However, the notice was found to be issued mechanically without specifying the relevant clause for penalty imposition. The Hon'ble Madras High Court's decision in a similar case was cited, emphasizing the importance of a valid notice for penalty proceedings. The penalty order was deemed invalid and quashed.

Regarding the legal arguments, the ld. A/R contended that the penalty proceedings were flawed from the start due to the defective notice. The ld. D/R argued that Sections 271(1)(c) and 271AAB deal with distinct penalty aspects. The Hon'ble court's decision emphasized the necessity of specifying the relevant clause under Section 271AAB for penalty imposition, ensuring the assessee's right to respond effectively. The judgment highlighted that penalty proceedings are independent and must follow the prescribed procedure. The penalty notice's defects led to the quashing of the penalty order.

Conclusively, following the precedent set by the Madras High Court, the penalty order was declared invalid and quashed. The appeals were allowed on legal grounds. Other issues raised by the assessee were deemed academic and dismissed. The judgment emphasized the importance of a valid penalty notice and adherence to procedural requirements in penalty proceedings. The decision ensured the assessee's right to a fair opportunity to respond effectively to penalty imposition.