2023 (2) TMI 801 - AT - Income Tax

Penalty u/s 271AAA OR 271(1)(c) - issuance of a lawful notice u/s 274 - notice issued under wrong section - HELD THAT - The last para of the notice has two sentences. The first asks assessee the reasons to show cause why an order imposing a penalty on you should not be made u/s 271. AO reiterated here the reference to section 271 for imposing the penalty, which also finds place in the opening part of the notice. The last sentence of the para simply states that If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271AAA . It is explicit that the second sentence contains a warning to the assessee to appear, failure of which would lead to making the order u/s 271AAA. Reference in the second sentence is only to the making of the order u/s 271AAA. On the other hand, the notice part informing the assessee of the charge against him has only reference to section 271 and the ingredients of section 271(1)(c). We are satisfied that the penalty order passed by the AO, pursuant to notice issued under wrong section, has been rendered void. We, therefore, set aside the penalty order as well as the consequential impugned order. Decided in favour of assessee.

Summary

Issues:
Cross appeals by assessee and revenue regarding penalty imposed under section 271AAA of the Income-tax Act, 1961 for assessment year 2011-12.

Analysis:
1. The factual background involves the assessee being subjected to search, leading to the imposition of penalty under section 271AAA by the Assessing Officer (AO) based on three additions to the income. The ld. CIT(A) partly confirmed the penalty, leading to cross-appeals by both parties before the Tribunal.

2. The legal issue raised by the assessee was regarding the validity of the penalty notice issued under section 274 r.w.s. 271 of the Act, contending that it vitiates the penalty order. Reference was made to relevant judgments, including Ventura Textiles Ltd. vs. CIT and Mohd. Farhan A. Shaikh & Anr. vs. ACIT, emphasizing the importance of a lawful notice setting out the charge for a valid penalty order.

3. The Tribunal highlighted the significance of the penalty notice in setting the charge against the assessee, as per the judgments in Mohd. Farhan A. Shaikh and PCIT vs. Golden Peace Hotels and Resorts. It emphasized that a vague notice under section 274 can vitiate the penalty order, necessitating a clear charge for the penalty to be valid.

4. The notice issued to the assessee was under section 274 r.w.s. 271 of the Act, pertaining to penalty proceedings. However, the penalty imposed was under section 271AAA, which deals with undisclosed income in cases of search initiated after June 2007 but before April 2012. The AO's error in invoking the wrong section and including irrelevant limbs of section 271(1)(c) in the notice rendered the penalty order void.

5. The Tribunal concluded that the penalty notice issued under the wrong section and the inclusion of incorrect limbs for penalty imposition under section 271AAA invalidated the penalty order. Despite the ld. DR's arguments, the reference to section 271 in the notice and the incorrect application of penalty provisions led to setting aside the penalty order and the impugned decision.

6. Due to the decision in favor of the assessee on legal grounds, the Tribunal did not delve into the merits of the penalty imposed or deleted by the ld. CIT(A), deeming them academic. Consequently, the appeal of the assessee was allowed, and that of the Revenue was dismissed, with the penalty order and the impugned decision being set aside.