2020 (12) TMI 211 - AT - Income Tax

Tribunal reduces penalties under Income Tax Act, finds 30% unjustified.

The tribunal found that penalties imposed at 30% of alleged undisclosed income under Section 271AAB of the Income Tax Act were unjustified. The ... Penalty u/s 271AAB - assessee had failed to substantiate the manner of having actually derived the undisclosed income during the course of search - Defective notice as per assessee - HELD THAT:- As decided in Smt. Rashmi Jalan [2020 (10) TMI 353 - ITAT KOLKATA] Penalty in question is bad in law as the show-cause notice issued by the Assessing Officer does not specify the charge/s against the assessee for levy of penalty, as required by law. Thus, on this ground, the penalty is quashed. Even otherwise, Section 271AAB of the Act, contemplates imposition of a penalty pursuant to the disclosure of income in statement recorded u/s. 132(4) of the Act by the assessee. It is an admitted fact that no such statement has been recorded from the assessee. Thus, on this ground also, the levy of penalty fails. Nowhere in the assessment order it is stated that undisclosed income has been assessed. The assessment was made u/s. 143(3) of the Act and the returned income was accepted. Thus, for all these reasons, we quash the penalty levied u/s. 271AAB of the Act and allow this appeal of the assessee. Issues Involved:1. Imposition of penalties under Section 271AAB of the Income Tax Act, 1961.2. Definition and scope of 'undisclosed income' under Section 271AAB.3. Validity of penalty proceedings and notices issued by the Assessing Officer.4. Satisfaction of conditions under Section 271AAB(1)(a) for reduced penalty rate.Issue-wise Detailed Analysis:1. Imposition of Penalties under Section 271AAB of the Income Tax Act, 1961:The primary issue in the appeals was the correctness of penalties imposed under Section 271AAB of the Act. The Assessing Officer (AO) had levied penalties at 30% of the alleged undisclosed income of Rs. 1,49,76,784/- for the assessment years 2013-14 and 2014-15. The Commissioner of Income Tax (Appeals) [CIT(A)], however, restricted the penalties to 10% each. The CIT(A) found that the income in question, admitted during the search, was disclosed in the return of income and taxes were paid accordingly. The CIT(A) concluded that the conditions for a reduced penalty rate under Section 271AAB(1)(a) were satisfied, and thus, the penalty should be restricted to 10%.2. Definition and Scope of 'Undisclosed Income' under Section 271AAB:The CIT(A) examined the definition of 'undisclosed income' as per Explanation (c) to Section 271AAB. The term includes income represented by money, bullion, jewellery, or other valuable articles not recorded in the books of account or other documents maintained in the normal course of business. The CIT(A) noted that the income of Rs. 1,49,76,784/- did not represent any unexplained money or assets. Instead, it was derived from commodity dealings recorded in seized loose documents, which were not part of regular books of accounts. Therefore, the income fell within the definition of 'undisclosed income' under Section 271AAB.3. Validity of Penalty Proceedings and Notices Issued by the Assessing Officer:The appellant argued that the penalty proceedings were invalid due to improper notice. The CIT(A) and the tribunal noted that the AO's show-cause notices did not specify the relevant limb under which the penalty was sought to be imposed (i.e., 10%, 20%, or 30%). The tribunal referred to precedents, including the Jaipur Bench's decision in Padam Chand Pungliya and the Indore Bench's decision in Shri Ravi Mathur, which held that vague notices render penalty proceedings invalid. The tribunal concluded that the AO's failure to specify the charge in the notice invalidated the penalty proceedings.4. Satisfaction of Conditions under Section 271AAB(1)(a) for Reduced Penalty Rate:The CIT(A) found that the appellant satisfied all conditions under Section 271AAB(1)(a) for a reduced penalty rate of 10%. These conditions include admitting the undisclosed income in a statement recorded under Section 132(4), specifying and substantiating the manner in which the income was derived, paying tax and interest on the undisclosed income, and declaring such income in the return of income. The CIT(A) noted that the appellant's director admitted the income during the search, the income was disclosed in the return, and taxes were paid accordingly. The tribunal upheld this finding, noting that the AO's own records indicated satisfaction with the manner in which the income was derived.Conclusion:The tribunal concluded that the penalties imposed by the AO were not justified as the income in question was recorded in the regular books of accounts and the conditions for a reduced penalty rate were satisfied. The tribunal also found the penalty proceedings invalid due to improper notice. Therefore, the tribunal directed that the penalties be restricted to 10% of the undisclosed income, as determined by the CIT(A). The appeals were allowed, and the balance penalty amounts were deleted.