2021 (7) TMI 806 - HC - Income Tax

Penalty imposed u/s 271AAB - undisclosed income had been found in the course of search conducted u/s 132 on different person - ITAT held that penalty cannot be invoked u/s.271AAB in a case where the partner of assessee firm admitted unaccounted income u/s.132(4) during the search, wherein the assessee firm was covered by survey operation u/s.133A as consequent to search operation? - HELD THAT - No penalty under Section 271AAB of the Act may be imposed where search under Section 132 of the Act has not been conducted against the assessee. It is admitted no search under Section 132 of the Act had been conducted in the premises of the assessee-firm. On the other hand, in the course of search under Section 132A of the Act against M/s.N.S. Vaishno Devi Developers (India) Pvt. Ltd, statements of partners of the firm were recorded and pursuant thereto notice under Section 153C of the Act was issued upon the assessee-firm. When return of income is filed in response to notice under Section 153C of the Act by a person other than the penalty who has not been searched in execution of warrant under Section 132 of the Act penalty under Section 271AAB of the Act cannot be imposed. Notice under Section 153C of the Act is incidental the search proceedings under Section 132 thereof and cannot be a foundation to impose penalty on the assessee who has not been searched. The view has been consistently followed by various benches of the Tribunal, as aforesaid, and has become binding on the Department in those cases. No contrary view either of any High Court or the Apex Court has been placed before us. In the light of the settled proposition of law that Section 271AAB of the Act cannot be invoked to impose penalty when search has not been conducted under Section 132 of the Act against the assessee and return of income is in response to notice under Section 156C of the Act which is a consequential or incidental proceeding, we are of the opinion no question of law much less a substantial one is made out in the facts of the case. Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of penalty provisions under Section 271AAB of the Income Tax Act, 1961.
2. Application of penalty provisions in cases where search was conducted under Section 132 of the Act.
3. Determining the legality of penalty imposition under Section 271AAB when search was not conducted against the assessee.

Analysis:
Issue 1: The primary issue in this case pertains to the interpretation of penalty provisions under Section 271AAB of the Income Tax Act, 1961. The appellant contended that the penalty should be imposed as undisclosed income was found during a search operation. However, the Tribunal set aside the penalty, citing specific legal provisions.

Issue 2: The court examined the application of penalty provisions in cases where a search was conducted under Section 132 of the Act. The appellant argued that penalty under Section 271AAB should be imposed due to the undisclosed income discovered during a search operation. The court reviewed the relevant legal provisions and previous judgments to determine the applicability of the penalty in such scenarios.

Issue 3: The legality of imposing a penalty under Section 271AAB when the search was not conducted against the assessee was a crucial aspect of this case. The court analyzed the specific circumstances of the search operation and subsequent proceedings to ascertain whether the penalty was justified. The court emphasized that the penalty could only be imposed if a search was initiated against the assessee, as per the clear language of the law.

The court's decision was based on a thorough examination of the legal provisions, precedents, and the specific facts of the case. The court highlighted that the penalty under Section 271AAB could not be imposed when a search was not conducted against the assessee. The court upheld the Tribunal's decision to cancel the penalty, as the search was not carried out under Section 132 of the Act against the assessee. The court emphasized that the legal position was clear and consistent across various Tribunal judgments, making it binding on the Department. Ultimately, the court dismissed the appeal, stating that no substantial question of law was evident in the case.