Validity of Penalty under section 271AAB—Leviability if no specific charge mentioned in notice initiating penalty proceedings

Short Overview:

Where notice for initiating penalty under section 271AAB was issued in a casual fashion and where AO did not apply his mind and no specific charge was mentioned in such notice for which the assessee was required to be show caused, in absence of the requisite contents of specific charge, the initiation of proceedings under section 271AAB could not be sustained being bad in law.

A search and seizure operation under section 132 was carried out on business as well as residential premises of assessee. Thereafter, a notice under section 153A was issued. In response thereto, the assessee filed his return of income including additional income of Rs. 35,00,000 declared during the search. AO observed that the assessee could not specify and substantiate the manner in which the said undisclosed income was derived and subsequently, the AO imposed a penalty @ 20% of the concealed income under section 271AAB. However, CIT(A) reduced the penalty and restricted the same @ 10% of the undisclosed income.

It is held that, It was found that the notice for initiating penalty under section 271AAB was issued in a casual fashion. AO did not apply his mind and no specific charge was mentioned for which the assessee was required to be show caused. In absence of the requisite contents of specific charge, the initiation of proceedings could not be sustained being bad in law. Admittedly, CIT(A) reduced the penalty by applying the provisions of section 271AAB(1)(a). There was no ambiguity under the law so far powers of CIT(A) were concerned as he could modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law, the assessee ought to have been given an opportunity of hearing on that aspect. However, in the subject case at the very inception, the notice issued for initiating penalty was not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable under section 292BB. Therefore, the penalty order was quashed.

Decision: In assessee’s favour.

IN THE ITAT, INDORE BENCH

KUL BHARAT, J.M. & MANISH BORAD, A.M.

Vivek Chugh v. ACIT

ITA No. 636/Ind/2017

28 March, 2019

Appellant by: Anil Kamal Garg and Aprit Gaur, CAs

Revenue by: K.C. Selvamani, Sr. Departmental Representative

ORDER

Kul Bharat, J.M.

This is an appeal filed by the assessee against the order of Commissioner (Appeals)-III, Indore dated 31-7-2017 pertaining to assessment year 2013-14. The Assessee has raised following grounds of appeal :–

“Grounds of Income Tax Appeal before the Hon’ble Income Tax Appellate Tribunal, Indore Bench, Indore, against the Appellate Order passed, under section 250 of the income Tax Act, 1961, by the learned Commissioner (Appeals)-III, Indore, pertaining to the assessment year 2013-14 in response to the appeal filed against the Penalty Order under section 271AAB of the Act, passed by the learned Assistant Commissioner (Central)-2, Indore.

1. That, the learned Commissioner (Appeals) grossly erred in law in confirming the penalty of Rs. 3,50,000 out of total penalty of Rs. 7,00,000 imposed by the assessing officer under section 271AAB of the Income Tax Act, 1961 without considering and appreciating the material fact that the assessing officer imposed the penalty without issuing a proper show-cause notice as contemplated under the provisions of section 274 of the Income Tax Act, 1961.
2. That, without prejudice to the above, the learned Commissioner (Appeals) grossly erred in confirming the penalty of Rs. 3,50,000 out of total penalty of Rs. 7,00,000 imposed by the assessing officer under section 271 AAB of the Income Tax Act, 1961 without considering and appreciating the material fact that the appellant had fully admitted undisclosed income and also specified the manner, in a very unequivocal and unambiguous way, in which such undisclosed income has been derived during the course of search, in a statement of his father namely Shri Mohanlal Chugh recorded under section 132(4) of the Act.”
3. Briefly stated facts are that a search and seizure operation under section 132 was carried out on the business as well as residential premises of the Chugh Group of Indore including the assessee. Thereafter, a notice under section 153A was issued, in response thereto, the assessee filed his return of income on 22-12-2014 including additional income of Rs. 35,00,000 declared during the search. The assessing officer observed that the assessee could not specify and substantiate the manner in which the said undisclosed income has been derived hence penalty proceedings under section 271AAB was initiated. Subsequently, the assessing officer imposed a penalty of Rs. 7,00,000 @ 20% of the concealed income.
4. Aggrieved by this the assessee preferred an appeal before the learned Commissioner (Appeals) who however reduced the penalty and restricted the same @10% of the undisclosed income i.e. amounting to Rs. 3,50,000. The assessee is in present appeal against the order of the learned Commissioner (Appeals). At the outset, learned counsel for the assessee submitted that initiation of penalty under section 271AAB of the is ex facie bad in law. He drew our attention towards the notice dated 5-8-2015 and enclosed at page no.25 of the paper book. He submitted that the assessing officer initiated penalty proceedings in a casual mechanical manner. That goes to demonstrate that assessing officer has not made a specific charge. Further learned counsel for the assessee relied upon the various case laws more particularly in the case ofSandeep Chandak, v. ACIT in ITA Nos. 416,417 and 418/Lkw/2016, dt. 30-1-2017. Further reliance has made on the decision of the Hon’ble Supreme Court rendered in the case of CIT v. M/s. SSA’s Emerald Meadows in (Special Leave to Appeal (C)……/2016 (CC No.11485/2016, dt. 5-8-2016) : 2016 TaxPub(DT) 4242 (SC) , judgment of the Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2012) 83 CCH 282 (Kar. HC). Learned counsel has also placed reliance on the following decisions of the Tribunal rendered in the cases of:

S. No.	Citation
1.	Sandeep Chandak & Ors. v. ACIT (2017) 55 ITR 209 (Luck. Trib.)
2.	ShriAnuj Mathur v. DCIT in (ITA No. 971/JP/2017, dt. 13-6-2018)
3.	Shri Ravi Mathur v. DCIT in (ITA No. 969/JP/2017, dt. 13-6-2018)
4.	Shri Suresh Chand Mittal v. DCIT in (ITA No. 931/JP/2017, dt. 2-7-2018) : 2018 TaxPub(DT) 4557 (Jp-Trib)
5.	DCIT v. Manish Agarwala in (I.T.A. No. 1479/Kol/2015, dt. 9-2-2018) : 2018 TaxPub(DT) 1460 (Kol-Trib)
6.	DCIT v. Subhas Chandra Agarwala in (I.T.A. No. 1474/Kol/2015 and I.T.A. No. 1478/Kol/2015, dt. 25-5-2018) : 2018 TaxPub(DT) 2956 (Kol-Trib)
7.	Pankaj Jalan v. DCIT in (I.T.A No. 1923/Kol/2016, dt. 23-5-2018) : 2018 TaxPub(DT) 2921 (Kol-Trib)
8.	DCIT v. Sanwar Mal Agarwala and Adtam Saran Khemka in (I.T.A. No. 1472/Kol/2015 and I.T.A. No. 1477/Kol/2015, dt. 26-4-2018) : 2018 TaxPub(DT) 2545 (Kol-Trib)
9.	ACIT v. MIs. Amrit Hatcheries (P) Ltd. in (I.T.A Nos. 2304 and 2305/Kol/2016, dt. 23-2-2018) : 2018 TaxPub(DT) 1024 (Kol-Trib)
10.	DCIT v. Subhas Chandra Agarwala & Sons (HUF) in (I.T.A No. 1470/Kol/2015, dt. 19-2-2018)
11.	M Marvel ssociates v. ACIT in (I.T.A. No. 147/Vizag/2017 and C.O. No. 44/Vizag/2017, dt. 16-3-2018) : 2018 TaxPub(DT) 1929 (Visakhapatnam-Trib)

To buttress his contention that notice so issued is illegal and therefore, is not sustainable in the eyes of law.

5. On the contrary learned Departmental Representative opposes the submissions and supported the order of the authorities below. Learned Departmental Representative submitted that there no ambiguity under the law in case assessee admits amount being in disclosed then it is to be dealt with in the manner prescribed under 271AAB of the Act. In rejoinder learned counsel for the assessee submitted that even the learned Commissioner (Appeals) has sustained penalty under section 271AAB(1)(a) of the Act while the assessing officer had initiated penalty under section 271AAB(1)(b) of the Act. No notice of initiating penalty under section 271AAB(1)(a) was given to the assessee. This fact is sufficient to set aside the impugned order.
6. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the assessing officer had given a notice which enclosed in the paper book at page 25 for the sake of clarity notice is reproduced as under :–
7. A bare reading of the above notice suggests that the notice has been issued in a casual fashion. The Assessing officer has not applied his mind and no specific charge is mentioned for which the assessee was required to be show caused. In absence of the requisite contents of specific charge the initiation of proceedings cannot be sustained being bad in law. Admittedly, learned Commissioner (Appeals) reduced the penalty by applying the provisions of section 271AAB(1)(a). There is no ambiguity under the law so far powers of learned Commissioner (Appeals) is concerned, he can modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. However, in the present case at the very inception notice initiating penalty is not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable under section 292BB of the Act. Therefore, we hereby quash the penalty order.
8. In the result, the appeal of the assessee inITA No. 636/Ind/2017 is allowed.