2017 (12) TMI 70 - HC - Income Tax

Validity of penalty orders u/s 271AAB - penalty notice issued under Section 274 read with Section 271 - penalty where the search has been initiated - Held that - Since admittedly no proceeding under Section 271(1)(c) are initiated by the assessing authority during the course of the assessment proceeding under Section 143(3) the impugned penalty proceedings under Section 271AAB are fully justified and are initiated in accordance with law. We find that the order of the ITAT cannot sustain therefore the same is set aside and the penalty orders under Section 271AAB passed by the assessing authority confirmed by the CIT (Appeals) are affirmed and are restored. - Decided in favour of revenue.

Summary

Issues Involved:
1. Whether the ITAT erred in not appreciating the distinction between penalties under Section 271AAB and Section 271(1)(c) of the Income Tax Act.
2. Whether the notice issued for imposition of penalty was correctly interpreted.
3. Whether the benefit of Section 292BB was correctly denied to the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Distinction Between Penalties under Section 271AAB and Section 271(1)(c):
The primary issue was whether the ITAT correctly appreciated the facts regarding the imposition of penalties under Section 271AAB as opposed to Section 271(1)(c). The court noted that the ITAT had wrongly proceeded on the basis that the penalty proceedings were under Section 271(1)(c) when they were actually initiated under Section 271AAB. The penalty proceedings were related to undisclosed income admitted during a search operation, which falls under Section 271AAB. The court emphasized that the provisions of Section 271AAB are fully applicable when a search is initiated under Section 132, and undisclosed income is admitted during such a search.

2. Interpretation of the Notice for Imposition of Penalty:
The court examined the notice issued under Section 274 read with Section 271 and found that it clearly indicated the initiation of penalty proceedings under Section 271AAB. The ITAT had erred in considering the notice under Section 271(1)(c). The court highlighted that the notice provided the assessee with an opportunity to be heard, fulfilling the requirements of Section 274. The CIT (Appeals) had correctly affirmed the penalty orders, noting that the penalties were imposed under Section 271AAB, which is independent of the assessment proceedings.

3. Denial of Benefit under Section 292BB:
The court also addressed whether the benefit of Section 292BB was correctly denied to the AO. The CIT (Appeals) had noted that the AO would get the benefit of Section 292BB because the assessee did not raise any objection before the AO regarding the notice and had comprehended the implication of the notice. The court agreed with this finding, noting that the last line of the notice clearly mentioned Section 271AAB, and the assessee had replied to the notice, indicating an understanding of its implications.

Conclusion:
The court concluded that the ITAT's decision to set aside the penalty orders was incorrect. The penalty proceedings under Section 271AAB were justified and initiated in accordance with the law. The court set aside the ITAT's order and restored the penalty orders passed by the assessing authority and affirmed by the CIT (Appeals). The appeals filed by the Revenue were allowed.