2019 (2) TMI 1631 - AT - Income Tax

Penalty Upheld Despite Defective Notice: Assessee's Participation Key

Ganpati Industrial Pvt. Ltd., Jekay International Pvt. Ltd. Versus DCIT, Circle-4 (2), Kolkata.

The Tribunal upheld the penalty imposed under section 271AAB despite a defective penalty notice issued under section 271AAA. It found the assessee's ... Penalty u/s 271AAB - Penalty where search has been initiated - penalty was issued by the AO u/s 271AAA of the Act while the penalty was finally imposed u/s 271AAB - AO clearly stated that the assessee admitted as undisclosed income derived from the activity under commodity profit which was disclosed under section 132(4) of the Act and prayed to confirm the order of CIT (A) - HELD THAT:- On reading of the provision u/s 271AAB, explains that in a search case the AO may direct the assessee to pay penalty as computed at the rates specified in the clauses (a), (b) & (c) of sub section (1) of 271AAB and the assessee shall pay penalty in addition to the tax on undisclosed income disclosed by the assessee made at the stage of making statement u/s 132(4) of the Act or during the assessment proceedings. In the present case the assessee accepted disclosure of ₹ 5,00,00,000/- as its undisclosed income from undisclosed source. It is also noted that the same has been computed as disclosure u/s 134(2) in the computation of total income in the assessment order. There is no dispute regarding the payment of tax together with interest in respect of such undisclosed income and the specified date of filing return of income. So, therefore, it is clear from the record that the assessee admitted undisclosed income and the statement was recorded u/s 132(4) of the Act to that effect. The assessee also explained the manner of such earning i.e. out of commodity profit at page No.18 of AO’s order. In our opinion, the assessee is liable to pay penalty as the facts and circumstances of the present case fulfilled the conditions that required to attract penalty @ 10% in terms of clause (a) of sub-section (1) of section 271AAB The Hon’ble Supreme Court has upheld the above judgement and is reported as Sandeep Chandak vs Pr.CIT [2018 (6) TMI 106 - SC ORDER] pleased to hold that the provisions of Section 271AAB automatically attracts and the proceedings are to be carried out/completed where a search and seizure operation is carried out in which the assessee have surrendered the amount u/s 132(4) statement of undisclosed income, specify the manner in which this income was derived, filed return of income, admit the same and had paid taxes and interest on the same. As discussed above we find no infirmity in the order of CIT(A) and it is justified. Thus, ground no-1 raised by the assessee is dismissed. Issues Involved:1. Validity of penalty notice issued under section 271AAA instead of 271AAB.2. Applicability of section 271AAB for undisclosed income.3. Substantiation of the manner in which undisclosed income was derived.4. Compliance with procedural requirements under section 271AAB.5. Jurisdiction of the Assessing Officer (AO) in imposing the penalty.Detailed Analysis:1. Validity of Penalty Notice Issued Under Section 271AAA Instead of 271AAB:The assessee contended that the penalty notice issued by the AO under section 271AAA was defective, rendering the penalty imposed under section 271AAB unsustainable. However, the respondent argued that despite the incorrect reference to section 271AAA, the body of the notice clearly mentioned section 271AAB, and the assessee responded to it, indicating an understanding of the charge. The Tribunal referenced case laws, including Galaxy Nirman Private Limited and Ram Sundar Ram, to support the view that mentioning the wrong provision does not invalidate an order if the authority had the requisite jurisdiction. The Tribunal concluded that the defect in the notice did not invalidate the penalty proceedings, as the assessee participated in the proceedings and the intent of the notice was clear.2. Applicability of Section 271AAB for Undisclosed Income:The Tribunal noted that a search was conducted on the Jallan Group on 06.09.2012, and the assessee admitted to an undisclosed income of Rs. 5 crores derived from commodity profit. The AO determined the total income, including the undisclosed income, and imposed a penalty under section 271AAB. The Tribunal held that the penalty provisions of section 271AAB were applicable as the conditions of admission of undisclosed income, specifying the manner of earning, payment of tax, and filing of return were met. The Tribunal referenced the Allahabad High Court's decision in Sandip Chandak, which held that the provisions of section 271AAB automatically attract in such cases.3. Substantiation of the Manner in Which Undisclosed Income Was Derived:The assessee argued that since the undisclosed income was disclosed in the return of income, it should not attract penalty. However, the Tribunal emphasized that under section 271AAB, the predominant condition is the admission of undisclosed income, specifying and substantiating the manner of earning, paying the tax, and filing the return. The Tribunal found that the assessee met these conditions, and therefore, the penalty provisions under section 271AAB were rightly attracted.4. Compliance with Procedural Requirements Under Section 271AAB:The Tribunal examined whether the procedural requirements under section 271AAB were followed. It noted that the AO issued a notice, the assessee responded and participated in the penalty proceedings, and the conditions for imposing penalty under section 271AAB were met. The Tribunal referenced the Allahabad High Court's decision in Sandip Chandak, which upheld the penalty proceedings despite procedural challenges, emphasizing that the provisions of section 271AAB automatically attract when the conditions are met.5. Jurisdiction of the Assessing Officer (AO) in Imposing the Penalty:The respondent argued that the AO had the requisite jurisdiction to impose the penalty under section 271AAB, and the Tribunal agreed. It was noted that the AO discussed the facts and circumstances leading to the initiation of penalty proceedings and the assessee's admission of undisclosed income. The Tribunal concluded that the AO had the jurisdiction to impose the penalty, and the order was not vitiated by the incorrect reference to section 271AAA in the notice.Conclusion:The Tribunal dismissed the appeals, upholding the penalty imposed under section 271AAB. It found no infirmity in the order of the CIT(A) and held that the conditions for imposing penalty under section 271AAB were met. The Tribunal emphasized that procedural defects in the notice did not invalidate the penalty proceedings, as the assessee participated and the intent of the notice was clear. The Tribunal's decision was consistent with the principles laid down in relevant case laws, including the Allahabad High Court's decision in Sandip Chandak.