2020 (11) TMI 473 - AT - Income Tax

Penalty levied u/s 271AAB - disclosure made during the search u/s 132(4) - assessee was required to pay penalty at the rate of 10% of undisclosed income - HELD THAT - Consistent with the view taken by us in the case of Smt. Rashmi Jalan 2020 (10) TMI 353 - ITAT KOLKATA we hold that the show cause notice issued u/s 274 r.w.s. 271 of the Act proposing levy of penalty u/s 271AAB of the Act is defective as it has not specified the charge and consequently the penalties in both the cases levied are bad in law. Hence the penalty levied in both the cases is hereby quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty notice under Section 271AAB of the Income Tax Act, 1961.
2. Specificity of charges in the penalty notice.
3. Basis for penalty imposition under Section 271AAB.
4. Legal precedents and their applicability to the case.

Detailed Analysis:

1. Validity of Penalty Notice under Section 271AAB:

The core issue in both appeals was the validity of the penalty notices issued under Section 271AAB of the Income Tax Act, 1961. The assessee argued that the notices were defective as they did not specify any specific charge, making the penalty orders based on such defective notices bad in law. The Tribunal found that the notices issued to Mr. Naresh Jalan (HUF) and Mr. Naresh Jalan (Individual) did not clearly specify the grounds for penalty, thus failing to meet the legal requirements.

2. Specificity of Charges in the Penalty Notice:

The Tribunal emphasized the importance of specificity in penalty notices. The notices issued to the assessees merely stated that they had not satisfied the conditions of Section 271AAB without specifying the exact nature of the default. This lack of specificity was deemed insufficient for a valid penalty notice. The Tribunal referenced the Jaipur Bench’s decision in Padam Chand Pungliya, which held that penalty notices must clearly state the grounds and the undisclosed income on which the penalty is proposed.

3. Basis for Penalty Imposition under Section 271AAB:

The Tribunal examined whether the penalties were justified based on the facts and circumstances of the case. The assessee argued that the income declared during the search was not undisclosed as defined under Section 271AAB and that the profits from commodity transactions were duly recorded in "Other Documents." The Tribunal noted that the assessment orders did not discuss any statement under Section 132(4) or any seized documents that were not disclosed. Therefore, the basis for imposing penalties was not established.

4. Legal Precedents and Their Applicability:

The Tribunal relied heavily on legal precedents to reach its decision. It cited several cases, including the decision in Smt. Rashmi Jalan, where penalties under similar facts were canceled. The Tribunal also referred to the Indore Bench’s decision in Shri Ravi Mathur, which emphasized the need for specifying the default and charge in the penalty notice. The Tribunal concluded that the penalty notices in the present case were defective, and as a result, the penalties were quashed.

Conclusion:

The Tribunal quashed the penalties levied under Section 271AAB in both cases due to defective show-cause notices that failed to specify the charges against the assessees. This decision was consistent with the Tribunal’s earlier ruling in the case of Smt. Rashmi Jalan. As the penalties were quashed on legal grounds, the Tribunal did not address the merits of the case, considering it an academic exercise. The appeals filed by the assessees were allowed, and the penalties were deemed bad in law.