Not striking-off of limb of penalty u/s 271AAB – ITAT deleted penalty as assessee was not made aware of the specific charge on which the penalty proceedings will be initiated.
In a recent judgment, the ITAT Chandigarh has deleted penalty u/s 271AAB for non striking off the limb of penalty as notice u/s 274 initiating penalty u/s 271AAB was vague and assessee was not made aware of the specific charge on which the penalty proceedings will be initiated.
ABCAUS Case Law Citation:
ABCAUS 4080 (2024) (06) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming levy of penalty u/s 271AAB(1) of the Income Tax Act, 1961 (the Act).
A search and seizure operation u/s 132 of the Act was conducted at the business premises of the assessee company. During the search operation, physical stock was taken and stock was found to be excess. The statement of director was recorded u/s 132(4) of the Act, in which, he accepted the discrepancies in the stock and offered additional income over and above the normal business income. Subsequently penalty was imposed on the assessee u/s 271AAB(1) of the Act.
Before the Tribunal, the the assessee contended that the surrender made was general and was not with respect to any specific item as will be borne out from the reading of the statement and letter submitted before the DDIT; that it was only on the stock inventory drawn on the date of search and the tentative Trading Account prepared on the date of search, that the alleged difference was worked out; that the surrender made did not fall within the definition of “undisclosed income” and thus, no penalty was exigible u/s 271AAB of the Act.
The assessee further submitted that no specific charge had been made out by the Assessing Officer either while passing the assessment order, or while issuing impugned penalty notice; that in such circumstances also, no penalty was exigible u/s 271AAB. The assessee placed reliance on the Judgment of the Hon’ble Madras High Court and on the decision of the Delhi Bench of the Tribunal.
The assessee submitted that the penalty notice issued u/s 271AAB of the Act is not, in any manner, depicting the charge against the assessee as to under which clause, i.e., (a), (b) or (c) of Section 271AAB(1) or clause (a), or (b) of 271AAB(1A) of the Act, penalty is leviable on the assessee. It was submitted that thus, the notice initiating the penalty u/s 271AAB of the Act is a vague notice and it is, therefore, illegal, and consequently, the order of penalty and the order of the CIT(A) confirming the same deserve to be set aside. The Counsel for the assessee relied on various judicial precedents in support of the said submissions.
On the other hand, the Revenue contended that Finance Act, 2012 inserted Section 271AAB in the Act, which provided for levy of concealment of income and the rates of levy of penalty vary according to the level of compliance made by the assessee with respect to undisclosed income; hence, specifying the limb in the penalty notice is not a requirement in the present scenario, as the penalty notice is for the concealment of income and the difference is only with
respect to the rate at which the penalty has to be levied.
The Tribunal observed that as seen from the notice issued u/s 271AAB of the Act, the assessee rightly contended that it does not depict the charge against the assessee, as to under which clause (a), (b) or (c) of Section 271AAB (1), or clause (a) or (b) of 271AAB(1) of the Act, penalty is leviable on the assessee. Therefore, the notice initiating penalty u/s 271 AAB of the Act is vague and the assessee was not made aware of the actual charge on which the penalty proceedings will be initiated on the assessee.
The Tribunal further observed that various judicial precedents, have held that the penalty notice should be clear enough to convey to the assessee, the exact charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act.
The Tribunal noted that an Identical questions came for consideration before the Jaipur bench of the Tribunal, Indore Branch and Kolkata Bench, Jabalpur Bench and Hyderabad Bench.
The Tribunal further observed that the Hon’ble Madras High Court after considering the decision of Allahabad High Court and Karnataka High Court held that Section 271AAB of the Act, which deals with penalty consists of three contingencies. Therefore, the Assessing Officer
should point out to the assessee as to under which of the three clauses, he chooses to proceed against the assessee so as to enable the assessee to give an effective reply. The Revenue could not show any contrary decisions.
Accordingly, the Tribunal deleted the penalty u/s 271AAB of the Act in view of the fact that no specific charge had been mentioned in the penalty notice issued u/s 274 of the Act.
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