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2019 (10) TMI 1123 - AT - Income TaxPenalty u/s 271AAB - AO has only mentioned the penalty under section 271AAB in the show cause notice which does not satisfy the requirement of law - HELD THAT - When the AO has failed to specify the default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act the said show cause notice suffers from illegality and consequently the order passed by the AO under section 271AAB is not sustainable and liable to be quashed. Levy of penalty under section 271AAB regarding undisclosed income on account of advance for land and excess jewellery - HELD THAT - When the jewellery was found at the residence of the assessee and also accepted as belonging to the family members as the department has already allowed the credit of the jewellery declared in the wealth-tax return by the family members then the benefit of the CBDT Instruction No. 1916 dated 11.05.1994 shall also be given in respect of all family members. Irrespective of the income disclosed by the assessee in the statement recorded under section 132(4) of the Act the AO is required to consider the benefit of CBDT Instruction No. 1916 dated 11.05.1994 at the time of levying the penalty under section 271AAB. Such benefit of CBDT Instruction has to be allowed in respect of all the family members. Once the benefit is given as per the CBDT Instruction in respect of the quantity of the gold being 500 grams per married lady 250 grams per unmarried lady and 100 grams per male member of the family then the excess jewellery treated for undisclosed income will not survive. Accordingly the penalty levied by the AO in respect of the excess jewellery without giving the benefit of CBDT Instruction No. 1916 is not sustainable. The same is deleted.
Issues Involved:
1. Validity of initiation of penalty proceedings under section 271AAB for not specifying the default. 2. Whether the penalty under section 271AAB is mandatory or discretionary. 3. Validity of the show cause notice issued under section 274 read with section 271AAB. 4. Justification for penalty on undisclosed income regarding advances for land and excess jewellery. Issue-wise Detailed Analysis: 1. Validity of Initiation of Penalty Proceedings under Section 271AAB for Not Specifying the Default: The assessee contested the validity of the penalty proceedings initiated under section 271AAB, arguing that the notice did not specify the default as per clauses (a) to (c) of section 271AAB(1). The Tribunal noted that the Assessing Officer (AO) failed to specify the limb/clause of section 271AAB(1) in the show cause notice, thus violating the principles of natural justice. The AO's failure to specify the default meant the assessee was not adequately informed of the grounds to be contested, rendering the penalty proceedings invalid. 2. Whether the Penalty under Section 271AAB is Mandatory or Discretionary: The Tribunal examined whether the penalty under section 271AAB is mandatory or discretionary. It was determined that the penalty is not automatic but discretionary. The AO must consider the assessee's explanation and decide based on the facts and circumstances of each case. The Tribunal referenced several decisions, including those of the Visakhapatnam Bench and the Hon'ble Allahabad High Court, which supported the view that the AO has discretion in levying the penalty under section 271AAB. 3. Validity of the Show Cause Notice Issued under Section 274 Read with Section 271AAB: The Tribunal found that the show cause notices issued by the AO were vague and did not specify the default or the amount of undisclosed income. Citing the decision of the Hon'ble Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory and the Hon'ble Supreme Court's dismissal of the SLP in CIT vs. SSA’s Emerald Meadows, the Tribunal held that such vague notices violate principles of natural justice. Consequently, the penalty orders based on these defective notices were deemed unsustainable and quashed. 4. Justification for Penalty on Undisclosed Income Regarding Advances for Land and Excess Jewellery: The Tribunal considered whether the disclosed income on account of advances for land and excess jewellery constituted undisclosed income under section 271AAB. It was noted that the seized diary entries regarding land advances were vague, lacked particulars, and did not represent actual transactions. The Tribunal referenced the decision in Rajendra Kumar Gupta vs. DCIT, concluding that such entries do not constitute undisclosed income as defined under section 271AAB. Regarding excess jewellery, the Tribunal observed that the jewellery found was consistent with the family's status and customs. Citing the CBDT Instruction No. 1916 and the decision in CIT vs. Satya Narain Patni, the Tribunal held that the benefit of the CBDT Instruction should be extended to all family members. Consequently, the excess jewellery could not be treated as undisclosed income, and the penalty was deleted. Conclusion: The Tribunal allowed the appeal, holding that the initiation of penalty proceedings under section 271AAB was invalid due to the vague show cause notices and the discretionary nature of the penalty. The penalty levied on the disclosed income for land advances and excess jewellery was not justified, leading to the deletion of the penalty. The decision underscores the importance of specific and clear notices and the discretionary nature of penalties under section 271AAB.
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