Tribunal cancels penalty under Income Tax Act for lack of specificity, deems penalty order void ab-initio.

The Tribunal allowed the appeal, canceling the penalty levied under section 271AAB of the Income Tax Act, 1961, for the assessment year 2015-16. The penalty order was deemed void ab-initio as the Assessing Officer failed to specify grounds for penalty, did not properly apply the definition of undisclosed income, and did not exercise discretion judiciously. The Tribunal found the penalty unsustainable due to lack of specificity in the show cause notice, rendering the entire penalty proceedings unlawful.

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Issues Involved:
1. Validity of penalty order under section 271AAB of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) while issuing show cause notice.
3. Definition and substantiation of "undisclosed income".
4. Discretionary vs. mandatory nature of penalty under section 271AAB.

Issue-wise Detailed Analysis:

1. Validity of Penalty Order under Section 271AAB:
The appeal concerns the validity of the penalty order passed under section 271AAB for the assessment year 2015-16. The assessee argued that the penalty order was void ab-initio and deserved to be quashed. The Tribunal noted that the penalty was levied based on a search conducted on 30th October 2014, where the assessee disclosed and surrendered an income of Rs. 7,01,00,000. The AO imposed a penalty of Rs. 70,10,000 under section 271AAB, which was confirmed by the CIT (A) without considering the assessee's submissions. The Tribunal found that the penalty order was not sustainable due to the lack of specific grounds and clauses mentioned in the show cause notice, rendering the notice invalid.

2. Application of Mind by the Assessing Officer:
The Tribunal observed that the AO issued show cause notices in a routine manner without specifying under which clause of section 271AAB the penalty was to be imposed. This lack of specificity indicated a lack of application of mind by the AO. The Tribunal referenced the decision of the Hon’ble Karnataka High Court in CIT vs. Manjunatha Cotton & Ginning Factory, which held that a show cause notice must specify the grounds for penalty to allow the assessee to mount a proper defense. The Tribunal concluded that the AO's failure to specify the grounds and clauses in the show cause notice rendered the penalty proceedings unlawful.

3. Definition and Substantiation of "Undisclosed Income":
The Tribunal emphasized that for a penalty under section 271AAB to be valid, the income must qualify as "undisclosed income" as defined in the explanation to the section. The assessee argued that no undisclosed income was found during the search, and the income disclosed was under pressure. The Tribunal noted that the term "undisclosed income" includes income not recorded in the books of accounts or other documents maintained in the normal course. In this case, the transactions were recorded in a diary, which was considered as maintained in the normal course, thereby not qualifying as undisclosed income. The Tribunal referenced similar cases, including DCIT vs. Madan Lal Beswal, where it was held that income recorded in other documents maintained in the normal course does not constitute undisclosed income.

4. Discretionary vs. Mandatory Nature of Penalty:
The Tribunal analyzed whether the levy of penalty under section 271AAB is mandatory or discretionary. It concluded that the use of the word "may" in the section indicates that the AO has discretion in imposing the penalty. The Tribunal referenced the decision of the Visakhapatnam Bench in ACIT vs. Marvel Associates, which held that the penalty under section 271AAB is not mandatory but discretionary, requiring the AO to consider the facts and circumstances of each case. The Tribunal further noted that the AO must provide a proper opportunity of hearing to the assessee, and the penalty is not automatic but subject to the AO's judicious decision.

Conclusion:
The Tribunal allowed the appeal, canceling the penalty levied under section 271AAB, as the AO failed to specify the grounds for penalty, did not properly apply the definition of undisclosed income, and did not exercise discretion judiciously. The penalty order was found to be unsustainable in law.

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