2023 (2) TMI 294 - AT - Income Tax

Penalty u/s 271AAB - assessee during the search action surrendered income - assessee did not pay the due taxes on the income disclosed rather the disclosed income was set off against the derivative loss - As submitted appellant had made disclosure during the search to buy metal peace and avoid litigation - levy of penalty under the said provision is not mandatory as the wording of the section such as that Assessing Officer may to submit that the word may give discretion, thus word may suggests that the levy of penalty is not mandatory - HELD THAT - We find that the aforesaid issue raised by the assessee is duly covered by the decision of the Coordinate Bench of the Tribunal in the case of M/s. Vijayshree Autocom Ltd 2022 (3) TMI 1492 - ITAT KOLKATA wherein, the Tribunal on the identical issue has deleted the penalty while relying upon the decision of the Hon'ble Madras High Court in the case PCIT vs. Shri R. Elangovan 2021 (4) TMI 1131 - MADRAS HIGH COURT penalty order passed by the Assessing Officer is invalid and is accordingly quashed. The appeals of the assessee are allowed on legal issue.

Summary

Issues:
Appeal against penalty u/s 271AAB of the Income Tax Act - Proper initiation of penalty proceedings - Defective penalty notice.

Analysis:
The appeal was filed against the penalty imposed under section 271AAB of the Income Tax Act. The assessee contended that the penalty was not justified as the disclosed income was intended to avoid litigation. The Assessing Officer had levied a 30% penalty, which was later reduced to 10% by the CIT(A) even though all conditions under section 271AAB(1)(a) were met. The assessee argued that the word "may" in the section implies discretion, making the penalty not mandatory. The Assessing Officer had initiated penalty proceedings under section 271(1)(c) instead of section 271AAB, leading to a defective penalty notice. The assessee cited various tribunal and high court decisions to support their case.

The Coordinate Bench of the Tribunal referred to a similar case where the penalty was deleted due to an invalid penalty notice, following a decision of the Hon'ble Madras High Court. The Tribunal emphasized the importance of specifying the clause under which the penalty is proposed to be levied. The High Court's decision highlighted the necessity for proper procedure adherence while imposing penalties. The Tribunal concluded that the penalty notice was defective and, therefore, quashed the penalty order.

Given the similarity in facts, the Tribunal in this case also relied on the previous decision and deleted the penalty. The other issues raised by the assessee were considered academic and dismissed. Consequently, the appeal was allowed, and the penalty was removed.

In conclusion, the penalty under section 271AAB was deleted due to a defective penalty notice, following established legal principles and previous judicial decisions. The Tribunal emphasized the importance of proper procedure adherence and the necessity of specifying the clause for penalty imposition. The appeal was allowed, and the penalty was quashed, aligning with the decision of a higher court and maintaining consistency in legal interpretation.