2020 (9) TMI 532 - AT - Income Tax

Penalty proceedings quashed for defective notices; Revenue's appeal dismissed.

The Tribunal quashed the penalty proceedings initiated under Section 271AAB due to defective notices issued under Section 274 r.w.s. 271AAB, which did not ... Penalty u/s 271AAB - Defects in the notice issued u/s 274 - undisclosed income surrendered during the course of search conducted u/s 132 - penalty notice under the heading of Section 274 r.w.s. 271AAB of the Act pre printed format of issuing notice u/s 271(1)(c) - HELD THAT:- Tribunal in the case of Dr. Rajesh Jain [2020 (2) TMI 946 - ITAT INDORE] and after examining the fact find that the facts are verbatim similar wherein defective notice was issued u/s 274 r.w.s. 271AAB of the Act, without specifying the charges for which penalty proceedings were initiated. In other words in the notice issued u/s 274 r.w.s. 271AAB assessee has not been given an opportunity to offer explanation against the type of penalty to be levied i.e. whether the penalty is to be under Clause (a), (b) or (c) of Section 271AAB. In the instant case defect is much more grave because in the penalty notice under the heading of Section 274 r.w.s. 271AAB of the Act pre printed format of issuing notice u/s 271(1)(c) is appearing which relates to levy of penalty for concealment of particulars of income or furnishing inaccurate particulars of income. In the assessee’s case Ld. A.O ought to have mentioned the specific charges provided u/s 271AAB of the Act rather than the charges of Section 271(1)(c) of the Act. CIT(A) reduced the penalty to 10% applying provisions of Section 271AAB(a) of the Act as against penalty levied @30% by the Ld. A.O u/s 271AAB(c) of the Act but to our surprise Ld. CIT(A) has not taken pain to issue a fresh notice before reducing the penalty thus not giving reasonable opportunity of being heard as mandated under the proviso to Section 275. We find that similar issue came up before us in the case of Shri Vivek Chug [2019 (4) TMI 1163 - ITAT INDORE] wherein the appeal was decided in favour of the assessee and penalty proceedings were quashed since Ld. CIT(A) partly deleted the penalty by confirming the penalty @10% as against 20% levied by Ld. A.O u/s 271AAB of the Act without affording reasonable opportunity to the assessee to make necessary submission of the explanation. Since the penalty notice issued u/s 274 r.w.s. 271AAB is vague and does not fulfill the requirement of law since no specific charges provided u/s 274 r.w.s. 271AAB of the Act are appearing in the body of penalty notice. Since the penalty proceedings has been quashed and legal ground allowed in favour of the assessee. Issues Involved:1. Validity of Penalty Proceedings Initiated Under Section 271AAB.2. Penalty Levied on Additional Income Offered in Return Filed Under Section 153A.3. Specific Charges and Defects in Penalty Notice Issued Under Section 274 r.w.s. 271AAB.4. Classification of Undisclosed Income and Application of Different Clauses Under Section 271AAB.5. Reduction of Penalty by CIT(A) and Lack of Fresh Notice for Opportunity of Hearing.6. Revenue's Appeal Against Relief Granted by CIT(A).Issue-wise Detailed Analysis:1. Validity of Penalty Proceedings Initiated Under Section 271AAB:The assessee challenged the initiation of penalty proceedings under Section 271AAB on the grounds that the penalty notice issued under Section 274 r.w.s. 271AAB was invalid and defective. The notice mentioned charges applicable for penalty under Section 271(1)(c) rather than specifying the charges under Section 271AAB. The Tribunal found that the notice issued was vague, not in conformity with the law, and did not specify the particular clause of Section 271AAB under which the penalty was levied. This defect rendered the initiation of penalty proceedings void ab initio, leading to the quashing of the penalty proceedings.2. Penalty Levied on Additional Income Offered in Return Filed Under Section 153A:The assessee argued that the penalty levied under Section 271AAB was unwarranted as the additional income was offered in the return filed under Section 153A, which included income already disclosed during a survey under Section 133A. The Tribunal noted that the additional income offered was accepted as business income without any objections or discrepancies pointed out by the Assessing Officer. The Tribunal emphasized that the penalty proceedings were initiated merely based on the income offered by the assessee without any adverse findings, making the penalty unwarranted.3. Specific Charges and Defects in Penalty Notice Issued Under Section 274 r.w.s. 271AAB:The Tribunal observed that the penalty notices issued under Section 274 r.w.s. 271AAB were defective as they mentioned irrelevant and inapplicable charges under Section 271(1)(c) instead of specifying the charges under Section 271AAB. The Tribunal relied on various judicial precedents, including the decisions of the Hon'ble Karnataka High Court in the case of Manjunath Cotton Ginning Factory and the Hon'ble Supreme Court in the case of SSA’s Emerald Meadows, which held that such defective notices do not satisfy the requirement of law and vitiate the penalty proceedings.4. Classification of Undisclosed Income and Application of Different Clauses Under Section 271AAB:The Tribunal examined the classification of undisclosed income and the application of different clauses under Section 271AAB. It was noted that the penalty could be levied under different clauses (a), (b), or (c) of Section 271AAB(1) depending on the default and charge against the assessee. The Tribunal found that the Assessing Officer levied the penalty under clause (c) without specifying the manner in which the undisclosed income was derived, which was not communicated to the assessee through the penalty notice. This lack of specificity and proper communication led to the conclusion that the penalty proceedings were not validly initiated.5. Reduction of Penalty by CIT(A) and Lack of Fresh Notice for Opportunity of Hearing:The CIT(A) reduced the penalty to 10% by applying the provisions of Section 271AAB(a) as against the 30% levied by the Assessing Officer under Section 271AAB(c). However, the Tribunal noted that the CIT(A) did not issue a fresh notice to the assessee before reducing the penalty, thus not affording a reasonable opportunity of being heard as mandated under the proviso to Section 275. The Tribunal quashed the penalty proceedings on this ground as well, emphasizing the requirement of issuing a fresh notice for a fair hearing.6. Revenue's Appeal Against Relief Granted by CIT(A):The Revenue challenged the relief granted by the CIT(A) in reducing the penalty. However, since the Tribunal had already quashed the penalty proceedings on the grounds of defective notice and lack of proper initiation, the Revenue's appeal was rendered infructuous. The Tribunal dismissed the Revenue's appeal, upholding the relief granted by the CIT(A).Conclusion:The Tribunal quashed the penalty proceedings initiated under Section 271AAB due to defective notices issued under Section 274 r.w.s. 271AAB, which did not specify the charges and clauses under which the penalty was levied. The Tribunal emphasized the importance of issuing specific and clear notices to ensure fair opportunity for the assessee to respond. Consequently, the penalties sustained by the CIT(A) were deleted, and the Revenue's appeal was dismissed.