Penalty notice u/s 271AAB without specifying ground and default in the show cause notice u/s 274 held not valid – ITAT quashed the order passed
ABCAUS Case Law Citation:
ABCAUS 3118 (2019) (08) ITAT
Important case law relied upon by the parties:
CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karnataka)
Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka)
Shevata Construction Co. Pvt. Ltd
CIT vs. SSA’s Emerald Meadows 73 taxmann.com 248 (SC)
Ravi Mathur vs. DCIT
The instant appeal by the assessee was directed against the order of CIT (A) arising from the penalty order passed under section 271AAB of the Income Tax Act, 1961 (the Act).
The assessee had inter alia challenged the validity of the notice issued by assessing officer for initiating the penalty u/s 271AAB of the Act being not specifically pointing out the default for which the AO sought to impose penalty u/s 271AAB.
During the course of search and seizure action, the assessee had disclosed undisclosed income as an additional business income. The assessee filed his return of income under section 139(1) including the said additional income offered to tax in the course of search.
The assessment under section 143(3) read with section 153B(1)(b) of the Act was completed by the AO accepting the returned income.
Subsequently, the AO initiated the penalty proceedings under section 271AAB of the Act by issuing show cause notices. The assessee raised objection against the levy of penalty by filing the reply and written submissions and mainly contended that the additional income was disclosed and offered to tax to buy peace and avoid litigation and, therefore, the penalty cannot be levied under section 271AAB of the Act. The AO did not accept the contention of the assessee and levied the penalty @ 10% of the undisclosed.
The CIT (A) did not accept this contention of the assessee and held that the levy of penalty under section 271AAB is mandatory in nature. Accordingly, the appeal of the assessee was dismissed.
Before the Tribunal, the assessee submitted that the AO while issuing the show cause notice under section 274 read with section 271AAB had not specified the default of the assessee in terms of clause (a) to (c) of section 271AAB of the Act. Therefore, the initiation of penalty proceedings is illegal due to show cause notice was defective. Therefore, the notices were issued in routine manner without mentioning under which clause of section 271AAB(1) of the Act the assessee was liable for penalty.
The assessee pointed out that even in the assessment order the AO had not specified under which clause the penalty was liable to be imposed but the AO had mentioned that the penalty proceedings under section 271AAB of the Act are being initiated.
It was alleged that there was no application of mind at the time of issuing the show cause notices as the AO had not specified the undisclosed income on which the assessee is required to show cause. Even the AO had not given any ground for levy of penalty for which the assessee could put his defence.
Thus it was the case of the assessee that in the absence of specific charge against the assessee, the assessee was not given the proper opportunity to counter the show cause notice issued by the AO as well as to file the cogent reply to the same. In the absence of any grounds specified in the show cause notice as well as any amount to be treated as undisclosed income of the assessee for the purpose of levy of penalty under section 271AAB, the initiation of penalty was not valid and, therefore, the consequential order passed under section 271AAB of the Act is also liable to be quashed.
Penalty notice u/s 271AAB without specifying ground & default invalid
The Tribunal noted that the validity of initiation of penalty proceedings for not specifying the ground and default in the show cause notice issued under section 274 has been considered by the Coordinate Bench wherein it was held that the notice issued u/s 274 r.w.s. 271AAB of the Act, was not valid.
Further, the Tribunal noted that in the case in hand, the AO in the show cause notice had neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty was proposed to be levied.
The Tribunal clearly observed that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB were very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied.
The Tribunal noted that even the Hon’ble Jurisdictional High Court had concurred with the view taken by Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA’s Emerald Meadows, 242 taxman 180 (SC).
Accordingly, following the decision of the Coordinate Bench as well as Hon’ble Jurisdictional High Court, the Tribunal held that the initiation of penalty was not valid and consequently the order passed under section 271AAB was not sustainable and liable to be quashed.
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