2022 (12) TMI 1008 - AT - Income Tax

Penalty u/s 271AAB - Validity of notice issued u/s 274 - whether the notice issued u/s 274 r.w.s. 271AAB of the Act suffers from fatal error and technical defect thereby not providing an opportunity to the assessee to plead his case? - HELD THAT - For levying penalty u/s 271AAB AO needs to primarily issue notice u/s 274 of the Act so for initiating proceedings u/s 271AAB. From Notice issued to the assessee we find that there is no mention about various conditions provided u/s 271AAB - AO has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the section 271AAB of the Act in the notice, it does not talk anything about the provisions of section 271AAB. Therefore, certainly such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee. Respectfully following the judgement of decision of R. Elangovan 2018 (4) TMI 1553 - ITAT CHENNAI and Ravi Mathur 2018 (6) TMI 1128 - ITAT JAIPUR wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceeding itself has been quashed the impugned penalty stands deleted. Thus the assessee succeeds on legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act. - Decided in favour of assessee.

Issues Involved:
1. Justification of Penalty under Section 271AAB.
2. Validity of Notice Issued under Section 274 read with Section 271AAB.
3. Adjustment of Tax Liability with Seized Cash.
4. Fulfillment of Conditions for Concessional Rate of Penalty.

Issue-Wise Detailed Analysis:

1. Justification of Penalty under Section 271AAB:
The primary issue was whether the penalty of Rs. 23,70,000/- imposed under Section 271AAB of the Income Tax Act was justified. The assessee argued that the penalty should be restricted to Rs. 7,90,000/-, being 10% of the disclosed income during the search and seizure operation. The CIT(A) confirmed the penalty at 30%, observing that the appellant did not pay the tax on the total undisclosed income of Rs. 79,00,000/- and did not fulfill the conditions for a concessional rate of penalty under Section 271AAB(1)(a) or 271AA(1)(b). The penalty was imposed under Section 271AAB(1)(c) due to the conscious act of concealment of income.

2. Validity of Notice Issued under Section 274 read with Section 271AAB:
The legal ground raised by the assessee challenged the validity of the notice issued under Section 274 read with Section 271AAB, claiming it to be illegal and bad in law. The assessee relied on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Company Limited and other judicial pronouncements. The Tribunal observed that the notice issued was vague and did not specify the charge against the assessee, whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal found that the notice had a fatal error and was technically incorrect, as it did not convey the specific charge, thereby not providing a reasonable opportunity for the assessee to plead his case.

3. Adjustment of Tax Liability with Seized Cash:
The assessee had requested the AO to adjust his tax liability of Rs. 28,34,610/- with the seized cash of Rs. 36,00,000/-. However, the AO initiated penalty proceedings under Section 271AAB and passed an order imposing the penalty. The CIT(A) observed that the appellant had not paid the tax on the total undisclosed income and thus did not fulfill the conditions for a concessional rate of penalty.

4. Fulfillment of Conditions for Concessional Rate of Penalty:
The CIT(A) noted that the appellant did not pay the tax on the total undisclosed income of Rs. 79,00,000/-, which was a condition for a concessional rate of penalty under Section 271AAB(1)(a). The appellant's acceptance of the undisclosed income was not voluntary but came after the concealment was detected during the search and seizure operation. Therefore, the penalty was imposed at the highest rate of 30% under Section 271AAB(1)(c).

Conclusion:
The Tribunal quashed the penalty proceedings on the preliminary legal ground that the notice issued under Section 274 read with Section 271AAB was defective and invalid. Consequently, the penalty of Rs. 83,02,410/- was deleted. Other arguments on the merits of the penalty were not addressed as they were rendered academic. The appeal of the assessee was partly allowed.

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