ITAT deleted penalty u/s 271AAB as show cause notice did not specify limb of penalty applicable to the assessee.
In a recent judgment, ITAT Chandigarh has deleted penalty under section 271AAB as the show cause notice issued did not specify applicable limb of penalty.
ABCAUS Case Law Citation:
4703 (2025) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty u/s 271AAB of the Income Tax Act, 1961 (the Act).
Pursuant to search action on assessee, the assessee made surrender of cash and bullion. Subsequently, the assessee filed return of income which was accepted by the Assessing Officer (AO).
However, AO initiated penalty u/s 271AAB on the allegation that the assessee failed to substantiate the manner in which the undisclosed income was derived. During the course of penalty proceedings, a show-cause notice was issued to the assessee proposing levy of penalty.
The assessee assailed proposed penalty on the ground that sources of investment / cash were explained at the time of search, AO levied penalty u/s 271AAB(1) which was computed at 30% of undisclosed income.
During first appeal, the assessee assailed impugned penalty on merits as well as on legal grounds by contending that there was no valid satisfaction for the default for which penalty proceedings were initiated against the assessee.
It was contended that the three alternative clauses (a), (b) & (c) of Section 271AAB(1) had distinct implication qua the default committed by the assessee and the quantum of penalty would vary under each of the clauses. Therefore, it was imperative for AO to communicate to the assessee as to the applicability of specific clause of Section 271AAB(1) under which AO had proposed to impose the penalty.
It was also contended that the provisions of Sec.271AAB(3) specifically stipulate issuance of notice u/s 274 wherein specific charge has to be framed. Nothing was specified in the notice as to specific clause which was applicable to the case of the assessee.
Therefore, the assessee contended that the impugned notice was liable to be quashed since the notice did not meet the requirement of law. Reference was made to the decision of Hon’ble High Court of Madras deleting penalty on similar facts. Similar was stated to be decision of Hon’ble High Court of Calcutta. The assessee also referred to similar decision of Chandigarh Tribunal deleting penalty on similar grounds. Reference was made to various other decisions of Tribunal taking the same view and deleting the penalty on legal grounds.
The CIT(A) did not concur with the aforesaid submissions on the ground that rates of penalty vary according to the level of compliance made by the assessee with respect to undisclosed income and thus specifying the limb in the penalty notice is not a requirement since penalty notice was for the concealment of income. The assessee failed to justify the sources of undisclosed income surrendered during search operations.
The CIT(A) held that the AO also mentioned that the assessee failed to substantiate the manner in which the undisclosed income was derived. Therefore clause (a) or (b) was not applicable but only clause (c) was applicable. Accordingly, the penalty was confirmed by the CIT(A).
The Tribunal observed that in the penalty notice, it had been alleged that the assessee had concealed the particulars of income or furnished inaccurate particulars of income. Though penalty had been proposed u/s 271AAB which has specific clauses, the exact charge which was applicable to the case of the assessee had not been specified in the show-cause notice.
The Tribunal observed that it is trite law that a valid initiation of penalty proceedings under the act is sine-qua-non for validity of penalty proceedings. Before imposing penalty, there should be an application of mind by AO as to specific clause which was applicable to the case of the assessee.
The Tribunal noted that the notice so issued to the assessee did not show any such application of mind and was a vague notice. The notice did not specify the exact charge against the assessee and did not specify the relevant clause of Section 271AAB as applicable to the case of the assessee. The Tribunal opined that this being so, the impugned penalty could not be sustained in law on this score only.
The Tribunal further observed that the Chandigarh Tribunal, on identical facts, after considering several other decisions held that since no specific charge was mentioned in the penalty notice issued u/s 271AAB of the Act, the penalty was to be deleted.
Accordingly, the Tribunal deleted the impugned penalty.
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