2020 (2) TMI 929 - AT - Income Tax

Validity of initiation of penalty proceedings u/s 271AAB - Defective notice - non specifying the charge in the show cause notice - HELD THAT - Since the assessee has offered this income in the return of income and no addition is made by the AO on this account, therefore, the AO was not under any obligation to explain and make the assessee known about the nature of charge of default committed by the assessee. Once the assessee herself has disclosed the undisclosed income based on the assets being unexplained cash and unexplained investment in the gold jewellery found during the course of search then it was very well in the knowledge of the assessee about undisclosed income and default committed by the assessee. No merit or substance in the Ground No. 1 of the assessee's appeal challenging the validity of initiation of penalty proceedings and consequential order passed u/s 271AAB of the Act. Thus Ground No. 1 of the assessee is dismissed. Levy of penalty u/s 271AAB - disclosure and surrender during the course of search and seizure action - No dispute that during the course of search and seizure action, the assessee could not explain the cash of ₹ 60,311/- and jewellery of ₹ 2,31,880/- found during search. The assessee in the statement recorded u/s 132(4) of the Act has disclosed the said amount as undisclosed income and also declared the same in the return of income filed u/s 139 of the Act. Once the disclosure and surrender made by the assessee is representing the physical assets found during the course of search and seizure action then the said amount of ₹ 2,92,191/- would fall in the definition of undisclosed income as per Explanation to Section 271AAB of the Act. The disclosure and surrender represents the underlying assets being unexplained cash as well as jewellery. Accordingly, the same will fall in the definition of undisclosed income provided in clause (c) of Explanation to Section 271AAB - Appeal of the assessee is dismissed

Summary

Issues:
1. Validity of initiation of penalty proceedings u/s 271AAB for lack of specifying the charge in the show cause notice.
2. Merits of levy of penalty u/s 271AAB of the Act.

Issue 1: Validity of Initiation of Penalty Proceedings:
The appeal challenged the initiation of penalty proceedings u/s 271AAB due to the absence of a specific charge in the show cause notice. The assessee argued that without a specific charge, the penalty order was not sustainable. The assessee cited legal precedents to support the argument. However, the Revenue contended that the penalty was initiated based on undisclosed income disclosed during a search and seizure action. The AO specified the charge in the show cause notice as per Section 271AAB. The Tribunal noted that the disclosed income was based on assets found during the search, making the nature of the charge clear to the assessee. Consequently, the Tribunal dismissed the appeal challenging the initiation of penalty proceedings.

Issue 2: Merits of Levy of Penalty:
The grounds 2 to 4 of the appeal questioned the justification of levying the penalty u/s 271AAB. The AO imposed a penalty of 10% on the undisclosed income disclosed by the assessee. The assessee argued that the disclosed income was declared in the return and did not meet the definition of undisclosed income under the Act. Legal decisions were cited by the assessee to support this claim. On the other hand, the Revenue argued that the disclosure was based on assets found during the search, falling under the definition of undisclosed income. The Tribunal observed that the disclosed amount represented physical assets discovered during the search, meeting the criteria of undisclosed income as per the Act. The CIT(A) confirmed the penalty, stating that the disclosed income fell within the definition of undisclosed income. The Tribunal upheld the CIT(A)'s decision, dismissing the appeal on the grounds related to the merits of the penalty levy.

In conclusion, the Tribunal dismissed the appeal of the assessee challenging the order of the ld. CIT(A) regarding the penalty imposed u/s 271AAB for the Assessment Year 2015-16. The Tribunal found no merit in the arguments presented by the assessee regarding the validity of initiation of penalty proceedings and the justification of the penalty levy. The decision was pronounced in open court on 05/02/2020.