2019 (4) TMI 1300 - AT - Income Tax

Tribunal overturns penalties in IT Act case due to defective notices and discretionary penalty provision

The Tribunal ruled in favor of the assessee, finding the initiation of penalty proceedings under section 271AAB of the IT Act invalid due to defective ... Penalty u/s 271AAB - in SCN u/s 274 r.w.s 271AAB default has not been specified - HELD THAT:- The penalty u/s 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision of the AO. Accordingly following the earlier decision of this Tribunal in the case of Ravi Mathur vs. DCIT , [2018 (6) TMI 1128 - ITAT JAIPUR] we hold that the levy of penalty u/s 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB . All the SCN issued by the AO for initiation of penalty proceedings u/s 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. See M/S SSA'S EMERALD MEADOWS [2016 (8) TMI 1145 - SUPREME COURT]  this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed u/s 271AAB is not sustainable and liable to be quashed. Levy of penalty u/s 271AAB  being unjust and against the provisions of law - undisclosed income as perexplanation to section 271AAB(1)  - HELD THAT:- The entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB. Accordingly, the penalty levied under section 271AAB by the AO and confirmed by the  CIT (A) is not sustainable and liable to be deleted. Excess cash found in search and seizure  - Having considered the facts and circumstances of the case that out of ₹ 21,20,000/-, the department has accepted ₹ 1,20,000/- as petty pocket money and from remaining ₹ 20,00,000/-, the assessee already stated that ₹ 7 to 8 lacs were already recorded in the books of account of the family members as well as of the assessee, then the balance amount of ₹ 12 lacs has to be considered in the light of the fact that the cash was found at the residential premises and from different rooms and, therefore, the past savings of the family members cannot be ignored while considering said amount of ₹ 12 lacs as undisclosed income of the assessee. Accordingly, in the absence of any clear cut finding about the cash not representing and belonging to the other family members as their past savings, the same cannot be treated as undisclosed income of the assessee for the year under consideration. Hence the penalty levied by the AO in respect of the cash found during the search is deleted. Excess Jewellery found - HELD THAT:- The order passed by the AO u/s 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded u/s 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO u/s 271AAB  is deleted. - Decided in favour of assessee. Issues Involved:1. Validity of initiation of penalty proceedings under section 271AAB of the IT Act.2. Levy of penalty under section 271AAB of the IT Act.Issue-Wise Detailed Analysis:1. Validity of Initiation of Penalty Proceedings:The assessee challenged the validity of the initiation of penalty proceedings under section 271AAB, arguing that the notice issued by the Assessing Officer (AO) did not specify the default as per clause (a) to (c) of section 271AAB(1) of the IT Act. The Tribunal noted that the AO had issued show cause notices without specifying under which clause of section 271AAB(1) the penalty was being imposed. The Tribunal emphasized that the principles of natural justice require the assessee to know the specific grounds they need to address. The Tribunal referred to various judicial precedents, including CIT vs. Manjunatha Cotton & Ginning Factory, which held that vague notices do not satisfy legal requirements. The Tribunal concluded that the initiation of penalty proceedings was not valid due to the defective notices, leading to the quashing of the consequential penalty order.2. Levy of Penalty under Section 271AAB:The Tribunal examined whether the levy of penalty under section 271AAB is mandatory or discretionary. It referred to previous decisions, including the Visakhapatnam Bench of the Tribunal in ACIT vs. Marvel Associates, which held that the levy of penalty under section 271AAB is not mandatory but discretionary. The AO must issue a show cause notice and consider the assessee's explanation before deciding on the penalty. The Tribunal reiterated that the AO must determine whether the disclosed income qualifies as 'undisclosed income' per the definition in section 271AAB.Analysis of Specific Penalty Instances:a. Advances for Land:The Tribunal noted that the seized documents contained entries for advances for land, but there was no evidence of the actual transactions or the existence of corresponding assets. The Tribunal held that vague entries alone do not constitute undisclosed income. It emphasized the need for the AO to conduct inquiries to ascertain the particulars of the transactions and the persons involved. Without such inquiries, the entries could not be considered undisclosed income, leading to the deletion of the penalty.b. Excess Cash:The Tribunal considered the explanation provided by the assessee regarding the source of the cash found during the search. The assessee claimed that part of the cash was recorded in the books of account and the remaining amount represented past savings of family members. The Tribunal accepted the explanation for a portion of the cash and noted that the AO had not adequately refuted the assessee's claims. Consequently, the penalty related to the excess cash was deleted.c. Excess Jewellery:The Tribunal observed that the jewellery found during the search belonged to the family members and was not acquired solely by the assessee. It emphasized that the jewellery was likely acquired over time and included inherited items. The Tribunal criticized the department for not investigating the timing and source of the jewellery acquisition. It concluded that the jewellery could not be treated as undisclosed income for the specified previous year, leading to the deletion of the penalty.Conclusion:The Tribunal allowed the appeal, holding that the initiation of penalty proceedings was invalid due to defective notices and that the levy of penalty under section 271AAB was not mandatory but discretionary. The AO failed to establish that the disclosed income qualified as undisclosed income, resulting in the deletion of the penalties imposed.