2021 (12) TMI 440 - AT - Income Tax

Penalty u/s 271AAB - surrendered income was declared in return filed after issue of notice u/s 153C - CIT-A deleted penalty levy - HELD THAT - Assessee s father was subjected to search u/s 132 of the Act. In the statement recorded u/s 132(4) assessee s father admitted that various gifts were accepted by his daughter Ku. Nishita Singhal i.e. the assessee which was utilized for giving loans to different borrowers on interest. Thereafter assessee was served with a notice u/s 153C of the Act. Return of income was filed on 31.08.2015 and income from gifts of ₹ 2 crore was offered to tax. From perusal of the above finding of Ld. CIT(A) as well as the decision of Coordinate Bench Panji in the case of Volga Dresses 2017 (3) TMI 1783 - ITAT PANAJI which stands uncontroverted by the Ld. DR being unable to place any decision favouring revenue on this issue, we are of the view that since no search was conducted in the case of assessee and since assessment has been made u/s 153C of the Act, penalty proceedings cannot be initiated u/s 271AAB. Even otherwise in the penalty notice Ld. Assessing Officer though has levied the penalty u/s 271AAB of the Act but has not calculated the penalty under the provision of section 271AAB - CIT(A) states that the penalty under this section can be levied either @ 10% of the undisclosed income u/s 271AAB(1)(a) of the Act, or 20% of the undisclosed income if the case of the assessee falls u/s 271AAB(1)(b) of the Act or 60% of the undisclosed income if the case of the assessee falls under the provision of section 271AAB(1)(c) of the Act but the alleged penalty amount does not fall in either of the three cases. This in itself shows that the Ld. Assessing Officer was not aware as to on what basis he was levying the penalty. This action of AO in itself makes the penalty proceedings null and void, as assessee was not served with a correct notice u/s 274 of the Act to initiate the penalty proceedings. We, thus, find no infirmity in the finding of Ld. CIT(A) deleting the penalty levied u/s 271AAB of the Act. Accordingly grounds raised by the revenue stands dismissed.

Summary

Issues Involved:
1. Applicability of Section 271AAB of the Income Tax Act.
2. Validity of penalty proceedings initiated under Section 271AAB.
3. Defective notice under Section 274 read with Section 271AAB.
4. Assessment under Section 153C versus Section 153A.
5. Maintenance of books of accounts.

Issue-wise Detailed Analysis:

1. Applicability of Section 271AAB of the Income Tax Act:
The primary issue was whether the penalty under Section 271AAB of the Act could be levied on the assessee. The Tribunal observed that the provisions of Section 271AAB apply to cases where a search has been initiated under Section 132 of the Act. However, in this case, the search was conducted on the father of the assessee, not on the assessee herself. The Tribunal upheld the findings of the CIT(A), who noted that Section 271AAB starts with the words "Penalty where search has been initiated," and since no search was initiated against the assessee, the section was not applicable.

2. Validity of Penalty Proceedings Initiated Under Section 271AAB:
The Tribunal found that the penalty proceedings under Section 271AAB were not validly initiated. The CIT(A) had observed that the assessment was completed under Section 143(3) read with Section 153C, not under Section 153A, which is a prerequisite for invoking Section 271AAB. The Tribunal agreed with the CIT(A) that the penalty under Section 271AAB could not be levied in this case.

3. Defective Notice Under Section 274 Read with Section 271AAB:
The Tribunal noted that the notice issued under Section 274 read with Section 271AAB was defective as it did not specify the specific charge against the assessee. The CIT(A) had pointed out that the Assessing Officer did not clearly state under which clause of Section 271AAB the penalty was being levied. The Tribunal concurred with the CIT(A) that this defect rendered the penalty proceedings null and void.

4. Assessment Under Section 153C Versus Section 153A:
The Tribunal observed that the assessment in this case was completed under Section 143(3) read with Section 153C, which pertains to assessments related to persons other than the person searched. The CIT(A) had emphasized that Section 271AAB applies only to assessments completed under Section 153A, which deals with assessments of the person searched. The Tribunal upheld this view, noting that the assessment under Section 153C further supported the inapplicability of Section 271AAB.

5. Maintenance of Books of Accounts:
The Tribunal noted that the assessee did not maintain books of accounts as she did not carry out any business activity during the year under consideration. The CIT(A) had observed that the amount in question was received by the assessee as a gift, and therefore, there was no requirement for her to maintain books of accounts. The Tribunal agreed with the CIT(A) that the provisions of Section 271AAB, which apply to undisclosed income not recorded in the books of accounts, were not applicable in this case.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty levied under Section 271AAB. The cross-objections filed by the assessee were also dismissed as infructuous since the main issue had already been decided in favor of the assessee. The order was pronounced on 04.10.2021.