Penalty notice u/s 271AAB without specifying at what percentage the penalty will be levied makes it defective and invalid and deserved to be quashed-ITAT
ABCAUS Case Law Citation:
ABCAUS 3274 (2020) (02) ITAT
Important case law relied upon by the parties:
DCIT v/s R. Elangovan
Ravi Mathur vs. DCIT
Pr. CIT vs. Sandeep Chandak (2018) 405 ITR 648
PCIT v/s Kulwant Singh Bhatia
CIT v/s Manjunatha Cotton Ginning Factory
CIT v/s SSA’S Emerald Meadows
Dilip N Shraf 161 Taxmann 218
Penalty notice u/s 271AAB without specifying percentage clause invalid
In the instant case, the appeal was filed by the Branch Manager of LIC (the assessee) against the order of CIT(A) arising out of the order u/s 271AAB of the Income Tax Act, 1961 (the Act) in respect of alleged unaccounted cash.
The appellant assessee was a Doctor. Pursuant to a Search u/s 132 of the Act, assessment was completed u/s 153A r.w.s. 143(3) of the Act adding undisclosed cash found during the course of search & seizure operation.
Later penalty @ 30% of undisclosed income u/s 271AAB of the Act was also levied. The CIT(A) confirmed the levy of penalty.
Before the Tribunal the assessee submitted that before levying penalty u/s 271AAB, AO has to issue notice u/s 274 of the Act, as provided in Section 271AAB(3) of the Act. However, in the notice issued to the assessee there was no mention about the various conditions provided u/s 271AAB of the Act relating to levy of penalty @ 10% or 20% or 30% (as the case may be).
It was contended that nothing was specified in the notice about Clause-a, b & c of Section 271AAB of the Act as to at what percentage the penalty will be levied on the for the undisclosed income not surrendered during the course of search.
It was submitted that the assessee was deprived of the opportunity to plead before being visited with the penalty u/s 271AAB of the Act. The alleged notice issued u/s 274 r.w.s 271AAB of the Act was liable to be quashed since there was a technical defect in issuing the notice.
The assessee placed reliance on the decisions of Co-ordinate Benchs laying down the proposition that show cause notice issued u/s 274 of the Act without drawing requisite levy of penalty u/s 271AAB of the Act is a defective notice and is liable to be quashed.
On the other hand, the Revenue submitted that in the notice issued u/s 274 of the Act, the AO had specifically mentioned the section 271AAB of the Act and it might have been a clerical error to use the same proforma as used for issuing notice u/s 274 r.w.s. 271(1)(c) of the Act. The Department strongly relied on the judgment of jurisdictional High Court which had been confirmed by the Hon’ble Supreme Court.
The Tribunal observed that as per the relevant provisions of the Act, for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by the AO is to issue a valid notice u/s 274. Further sub-section (1) to Section 274 provides that no order imposing penalty shall be made unless the assessee is heard, or given a reasonable opportunity of being heard.
The Tribunal stated that to comply with the requirement of the Act, the notice u/s 274 should be clear enough to convey the assessee about the charge which is to be leveled against him/her/it for levying the penalty for the contravention of the related provisions of the Act. In the instant case, it was incumbent for the AO that in the notice issued u/s 274 of the Act he should have mentioned that penalty u/s 271AAB of the Act may be levied @10/20/30% since the assessee fall in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assessees case falls under clause-c of section 271AAB of the Act, why he/she should not be visited by penalty @30% of the undisclosed income. Against this charge the assessee should have been given a reasonable opportunity of being heard.
The Tribunal found that in the notice issued u/s 274 of the Act, there was no mention about various conditions provided u/s 271AAB of the Act. The AO had very casually used the notice proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. It did not talk anything about various clauses of section 271AAB of the Act for levying penalty @10%/20%/30%.
The Tribunal opined that such a notice had a fatal error and technically was not a correct notice in the eyes of law because it intended to penalize an assessee without spelling about the specific charge against the assessee.
The Tribunal noted that the Jurisdictional High Court dealt the issue of defective notice issued u/s 274 r.w.s. 271(1)(c) of the Act and the Hon’ble Court after relying judgment of Hon’ble Supreme Court in the case of Manjunatha Cotton Ginning Factory and SSA’S Emerald Meadows held that such show cause notices would not satisfy the requirement of law as notice was not specific.
Further it was noted that the Co-ordinate Bench, while dealing with the legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act had held that notice issued was not valid and quashed the penalty order. Another Coordinate Bench had also held that such show cause notice issued u/s 274 r.w.s. 271AAB of the Act are not sustainable in law.
Regarding the reliance placed by the Department on the judgment of the jurisdictional High Court, the Tribunal observed that the decision rendered by the Co-ordinate Bench had adequately dealt with and distinguished the judgment of the High Court.
Accordingly, the Tribunal allowed the legal ground raised by the assessee and quashed the alleged notice being defective and invalid.
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