2025 (3) TMI 285 - AT - Income Tax

Penalty u/s 271AAB - during the course of Search Seizure proceedings the Director of the company had declared the undisclosed income - CIT(A) has deleted the penalty on the ground that show cause notice issued by AO are vague and are silent about the default of the appellant - HELD THAT - AO has categorically specified the charge of the penalty in the assessment order. Then in the penalty order the AO has again discussed 271AAB(1A) of the Act. Thus at the time of assessment the Assessee was made aware that penalty proceedings under section 271AAB(1A) of the Act has been initiated for undisclosed income. In the assessment order the AO has specifically mentioned the amount of undisclosed income also. Therefore the Assessee was categorically made aware about the amount of undisclosed income for which penalty under section 271AAB(1A) of the Act was initiated. As far as notice dated 05.06.2021 is concerned these are computer generated notices and the Assessing Officer do not have any scope to make changes other than putting the dates PAN Assessment Year etc. Respectfully following case of Sandeep Chandak 2017 (12) TMI 70 - ALLAHABAD HIGH COURT and Smt. Taradevi R. Bafna 2023 (7) TMI 894 - ITAT PUNE we hold that the order passed by ld.CIT(A) is not sustainable. Hence for all the reasons discussed we set aside the order of ld.CIT(A). Accordingly Ground raised by the Revenue is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the penalty under Section 271AAB of the Income Tax Act, 1961 was correctly levied by the Assessing Officer (AO) on the undisclosed income declared during the search proceedings.
Whether the show cause notice issued for the initiation of penalty proceedings under Section 271AAB was valid, given the alleged vagueness and lack of specification regarding the default and undisclosed income.
The applicability and interpretation of Section 271AAB(1A) in relation to the facts of the case.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Penalty under Section 271AAB:

Relevant Legal Framework and Precedents: Section 271AAB of the Income Tax Act provides the framework for imposing penalties on undisclosed income detected during search operations. The section specifies conditions under which penalties can be levied, including admissions made during search proceedings.
Court's Interpretation and Reasoning: The Tribunal considered whether the AO's initiation of penalty proceedings was valid. The AO had initiated proceedings under Section 271AAB(1A), which was specified in the assessment order.
Key Evidence and Findings: The Tribunal noted that the AO had clearly mentioned the charge of penalty in the assessment order, and the assessee was aware of the undisclosed income amount for which the penalty was initiated.
Application of Law to Facts: The Tribunal found that the AO had complied with the procedural requirements of Section 271AAB by specifying the penalty under subsection (1A) and the amount of undisclosed income in the assessment order.
Treatment of Competing Arguments: The Tribunal addressed the assessee's argument that the show cause notice was vague. It relied on precedents affirming that the notice's validity was not compromised by its format, as the substantive details were provided in the assessment order.
Conclusions: The Tribunal held that the penalty proceedings were correctly initiated, and the show cause notice was valid. The order of the CIT(A) deleting the penalty on technical grounds was set aside.

2. Interpretation of Section 271AAB(1A):

Relevant Legal Framework and Precedents: Section 271AAB(1A) outlines the conditions under which a penalty can be levied at a rate of thirty percent on undisclosed income admitted during search proceedings.
Court's Interpretation and Reasoning: The Tribunal emphasized that the section is self-contained and distinct from other penalty provisions like Section 271(1)(c). It highlighted that the section automatically applies when the conditions are met, as in the present case.
Key Evidence and Findings: The Tribunal noted the AO's clear reference to Section 271AAB(1A) in the assessment order and penalty order, which informed the assessee of the charge and amount involved.
Application of Law to Facts: The Tribunal applied the provisions of Section 271AAB(1A) to the facts, confirming that the AO followed the statutory requirements for imposing the penalty.
Treatment of Competing Arguments: The Tribunal distinguished the case laws cited by the assessee, which pertained to Section 271(1)(c), and affirmed the applicability of Section 271AAB(1A) as upheld by higher courts.
Conclusions: The Tribunal concluded that Section 271AAB(1A) was correctly invoked, and the penalty was justified under the circumstances.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The order passed by ld.CIT(A) is not sustainable. Hence, for all the reasons discussed, we set aside the order of ld.CIT(A). Accordingly, Ground No.2 raised by the Revenue is allowed."
Core Principles Established: The Tribunal reinforced the principle that Section 271AAB is self-contained and distinct from other penalty provisions, and its application is automatic when its conditions are met.
Final Determinations on Each Issue: The Tribunal set aside the CIT(A)'s order deleting the penalty and remanded the case for adjudication on the merits of the quantum of penalty. It directed the CIT(A) to provide an opportunity for a hearing to the assessee.

The Tribunal's decision emphasizes the importance of procedural compliance in penalty proceedings and clarifies the automatic application of Section 271AAB when the statutory conditions are satisfied. The case is remanded for further proceedings on the quantum of penalty, with directions for a fair hearing.

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