2018 (9) TMI 1742 - AT - Income Tax

Tribunal Invalidates Penalty under Section 271AAA for Lack of Search Operation

The Tribunal upheld the Commissioner (Appeals)'s decision to delete a penalty of Rs. 74,00,477 imposed under section 271AAA of the Income Tax Act, 1961, ... Penalty u/s 271AAA - Assessment u/s 153C - search and seizure proceedings u/s 132(1) not carried out against the assessee - Held that:- The primary condition for initiating penalty proceeding is, a person concerned must have been subjected to a search and seizure operation under section 132(1) of the Act. Undisputedly, in the facts of the present case, no search and seizure operation under section 132(1) of the Act was carried out in case of the assessee. This fact is clearly evident from the initiation and completion of proceedings under section 153C of the Act. Thus, the primary condition of section 271AAA remains unsatisfied. Even otherwise also, if penalty proceedings under section 271AAA of the Act is initiated against a person who is not subjected to search action under section 132(1) the provision itself becomes unworkable as no declaration under section 132(4) of the Act is possible from any person other than the person against whom the search and seizure under section 132(1) is carried out. Thus, in such circumstances, sub–section (2) to section 271AAA of the Act cannot be given effect to. In view of the aforesaid, we agree with the learned Commissioner (Appeals) that initiation of penalty proceedings under section 271AAA of the Act in the instant case is invalid. - Decided in favour of assessee. Issues:1. Validity of penalty imposed under section 271AAA of the Income Tax Act, 1961 for the assessment year 2008-09.Analysis:The appeal filed by the Revenue was against the order deleting a penalty of Rs. 74,00,477 imposed under section 271AAA of the Income Tax Act, 1961. The key issue raised was whether the penalty imposed under section 271AAA was valid. The assessee, an individual, was subjected to proceedings under section 153C of the Act after a search and seizure operation in certain business concerns. The Assessing Officer made additions resulting in a total income of Rs. 7,40,04,778 and initiated penalty proceedings under section 271AAA. The assessee's explanation was rejected, leading to the imposition of the penalty. The Commissioner (Appeals) deleted the penalty based on the absence of a search and seizure operation in the assessee's case, following a Tribunal decision, and the Revenue appealed to the Tribunal.The Tribunal considered the statutory provision of section 271AAA, which requires a search and seizure operation under section 132(1) of the Act to initiate penalty proceedings. Since no such operation was conducted in the assessee's case, the primary condition for initiating penalty proceedings under section 271AAA was not met. The Tribunal emphasized that the provision becomes unworkable if penalties are imposed without a search and seizure operation, as no declaration under section 132(4) is possible from a person not subjected to the search. Relying on precedent and the facts of the case, the Tribunal upheld the Commissioner (Appeals)'s decision, deeming the initiation of penalty proceedings under section 271AAA invalid.The Departmental Representative's arguments were considered, but the Tribunal found that the penalty proceedings were not valid due to the absence of a search and seizure operation in the assessee's case. The Tribunal dismissed the Revenue's appeal, affirming the Commissioner (Appeals)'s decision to delete the penalty. The judgment highlighted the importance of meeting the statutory conditions for imposing penalties under section 271AAA and upheld the principle that penalties cannot be imposed without the requisite search and seizure operation as mandated by the Act.