2022 (12) TMI 1000 - AT - Income Tax

Tribunal quashes penalty order, finds show cause notice invalid under Section 271AAB. Assessee's appeal allowed.

The Tribunal allowed the additional ground of appeal raised by the assessee, quashed the penalty order, and held that the show cause notice issued under ... Penalty u/s 271AAB - Non specification of charge - Penalty imposed on undisclosed income - surrender of income during search - As argued AO did not specify clause of section 271AAB of the Act under which the penalty was initiated i.e. whether it is for clause (a) or (b) or which clause (c) of section 271AAB(1) - HELD THAT:- As evident from the show cause notice u/s 274 read with section 271AAB of the Act that the AO was not clear i.e whether it is for the clause (a) or clause (b) or clause (c) of section 271AAB(1) - Where the ld. CIT(A) and the AO failed to note that the surrendered income is not always undisclosed income. In the present case the assessee declared income which includes surrendered income on 16.01.2017. There is no any doubt or question whether the income disclosed by the assessee is undisclosed income in the terms of definition u/s 271AAB(1) of the Act has to be considered. On perusal of the statement recorded u/s 132(4) we observe that the income incriminating materials were found during the search is admitted and the assessee on all occasions has voluntary surrendered income by simply accepting the figure has stated by the search team. CIT(A) and the AO failed to note that the assessee herself has explained the source of income by stating that out of cash surrender during the search at Rs. 50,000/- was withdrawn from the bank account of the assessee and Rs. 1,00,000/- was withdrawn by husband of the assessee and the remaining was past savings. We observe that as per the specific definition of undisclosed income in explanation (c) to section 271AAB of the Act.,the amount of Rs. 2,22,492/- being the cash available as consequences of her saving and gifts on various occasions cannot be considered as undisclosed income and the source of income explained by the assessee herself. In the statement recorded u/s 132(4) of the Act was not disputed or disproved by the AO. Thus grievance of the assessee is accepted as genuine and as such the order of the ld. CIT(A) sustaining the penalty is hereby quashed. - Decided in favour of assessee. Issues Involved:1. Validity of the order passed by the Assessing Officer (AO).2. Sustaining of penalty under Section 271AAB of the Income Tax Act.3. Observations in the appellate order contrary to law.4. Consideration of explanations and judicial decisions by the appellant.5. Raising of additional or alternative grounds.6. Validity of the show cause notice issued under Section 274 read with Section 271AAB.Detailed Analysis:1. Validity of the Order Passed by the AO:The assessee argued that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the validity of the order passed by the AO. The AO had completed the assessment under Section 143(3) read with Section 153B(1)(b) on 27.12.2017, accepting the total income as offered by the assessee. The assessee did not file any appeal against this assessment order.2. Sustaining of Penalty under Section 271AAB:The AO initiated penalty proceedings under Section 271AAB and issued a show cause notice under Section 274 read with Section 271AAB on 27.12.2017. The AO imposed a penalty of Rs. 66,748, which is 30% of the assessed undisclosed income of Rs. 2,22,492. The AO held that the penalty under Section 271AAB is mandatory, all essential requirements for invoking Section 271AAB were satisfied, the assessee failed to explain the source of income satisfactorily, and the income would not have been declared in the absence of a search.The CIT(A) confirmed the penalty, stating that the income of Rs. 2,22,492 falls within the definition of 'undisclosed income' as given in clause (c) of the explanation to Section 271AAB. The CIT(A) also noted that the return of income was filed belatedly on 16.01.2017, and therefore, the penalty was rightly levied under clause (c) of Section 271AAB.3. Observations in the Appellate Order Contrary to Law:The assessee contended that the observations made by the CIT(A) in the appellate order were contrary to the provisions of the law and against the law decided by the Hon'ble Courts. The assessee submitted that the penalty was levied only on the basis of findings recorded in the assessment orders and that the burden lay on the department to establish that the assessee had concealed income. The assessee argued that the AO failed to bring any material showing intentional concealment and that the surrendered income was not always undisclosed income.4. Consideration of Explanations and Judicial Decisions:The assessee argued that the CIT(A) erred in not considering the explanations and judicial decisions referred by the appellant. The assessee cited various judicial decisions to support the argument that the surrendered income was not undisclosed income and that the penalty under Section 271AAB was not automatic. The assessee also contended that the AO failed to prove the undisclosed income as per Section 271AAB and that the income declared was additional income, not undisclosed income.5. Raising of Additional or Alternative Grounds:The assessee sought permission to raise additional or alternative grounds at or before the time of hearing. The additional ground raised was that the show cause notice issued under Section 274 read with Section 271AAB(i) was vague and did not specify the specific clause under which the penalty was initiated.6. Validity of the Show Cause Notice:The assessee challenged the validity of the show cause notice issued under Section 274 read with Section 271AAB, arguing that it was vague and did not specify the specific clause of Section 271AAB under which the penalty was initiated. The Tribunal observed that the show cause notice was not clear whether it was for clause (a), (b), or (c) of Section 271AAB(1). The Tribunal noted that the surrendered income was not always undisclosed income and that the income declared by the assessee was additional income, not undisclosed income. The Tribunal also observed that the AO and CIT(A) failed to note that the assessee had explained the source of income and that the explanation was not disputed or disproved by the AO.Conclusion:The Tribunal allowed the additional ground of appeal raised by the assessee, quashed the penalty order, and held that the show cause notice issued under Section 274 read with Section 271AAB was vague and invalid. The Tribunal concluded that the income declared by the assessee was not undisclosed income and that the penalty under Section 271AAB was not sustainable. The appeal was allowed, and the order of the CIT(A) sustaining the penalty was quashed.