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2019 (11) TMI 1093 - AT - Income TaxPenalty u/s 271AAB - admission of undisclosed income - assessment u/s 153B - defective notice - whether penalty is mandatory in nature and not discretionary - as challenged show cause notice issued u/s 274 r.w.s 271AAB the AO has not specified the default of the assessee and the limb under which the penalty was proposed to be levied - HELD THAT - In view of the decision of the Coordinate Bench as well as various other judgments including the judgment of Seveta Constructions Co. Pvt. Ltd. 2016 (12) TMI 1603 - RAJASTHAN HIGH COURT and CIT vs. Manjunatha Cotton Ginning Factory Ltd. 2013 (7) TMI 620 - KARNATAKA HIGH COURT hold that the initiation of penalty proceedings under section 271AAB without specifying the default as well as the particular clause of section 271AB(1) under which the penalty was proposed to be levied, the same is very vague and silent, not making the assessee known about the charge attracting the penalty under section 271AB of the Act. Hence the initiation of penalty proceedings is not valid and consequently the penalty order passed under section 271AAB is liable to be quashed. - Decided in favour of assessee.
Issues Involved:
1. Validity of initiation of penalty proceedings under section 271AAB of the IT Act. 2. Whether the penalty under section 271AAB is mandatory or discretionary. 3. Adequacy of notice issued for initiating penalty under section 271AAB. 4. Determination of 'undisclosed income' within the meaning of section 271AAB. Issue-wise Detailed Analysis: 1. Validity of Initiation of Penalty Proceedings under Section 271AAB: The primary issue raised by the assessee was the validity of the initiation of penalty proceedings under section 271AAB. The assessee contended that the notice issued by the AO did not specify the default or the specific clause under which the penalty was to be levied. The Tribunal noted that the AO issued show cause notices dated 20.12.2016 and 15.05.2017, which were vague and did not specify the grounds or the undisclosed income against which the penalty was proposed. The Tribunal referred to the decision in the case of Shri Shyam Sundar Khandelwal vs. DCIT, where it was held that a show cause notice must specify the default and the clause under which the penalty is proposed to be levied. The Tribunal concluded that the initiation of penalty proceedings was not valid due to the vagueness of the notice. 2. Whether the Penalty under Section 271AAB is Mandatory or Discretionary: The Revenue argued that the penalty under section 271AAB is mandatory in nature, citing the explanatory note of the Finance Bill, 2012. However, the Tribunal emphasized that even if the penalty is mandatory, the AO must still specify the default and the relevant clause under section 271AAB in the notice. The Tribunal highlighted that the assessee should be aware of the specific grounds to prepare an adequate defense, ensuring the principles of natural justice are upheld. 3. Adequacy of Notice Issued for Initiating Penalty under Section 271AAB: The Tribunal scrutinized the notices issued by the AO, which merely mentioned the initiation of penalty proceedings under section 271AAB without specifying the exact default or the clause applicable. The Tribunal referred to several judicial precedents, including CIT vs. M/s. SSA’s Emerald Meadows and CIT vs. Manjunatha Cotton & Ginning Factory, which held that a vague notice does not satisfy the legal requirements and violates the principles of natural justice. The Tribunal concluded that the notices issued were inadequate and invalid, rendering the penalty proceedings unsustainable. 4. Determination of 'Undisclosed Income' within the Meaning of Section 271AAB: The assessee argued that the penalty was levied merely because the income was admitted and disclosed in the return without proving it was 'undisclosed income' as defined under section 271AAB. The Tribunal noted that the AO did not specify the nature of the undisclosed income or provide grounds for the penalty in the assessment order. The Tribunal emphasized that the AO must clearly establish the nature of the undisclosed income and the specific default committed by the assessee to justify the penalty under section 271AAB. The Tribunal found that the AO failed to meet these requirements, further invalidating the penalty order. Conclusion: The Tribunal held that the initiation of penalty proceedings under section 271AAB was not valid due to the vague and unspecified notices issued by the AO. Consequently, the penalty order passed under section 271AAB was quashed. The Tribunal did not address the other grounds raised by the assessee as they became infructuous following the quashing of the penalty order. The appeal of the assessee was allowed, and the order was pronounced in the open court on 06/11/2019.
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