Revenue's Appeal Dismissed for Penalty Deletion under Section 271AAB - Defective Notice Invalidates Penalty Proceedings

The High Court dismissed the revenue's appeal challenging the deletion of penalty under Section 271AAB, as the income was disclosed before the search. The Court allowed the assessee's cross-objection, ruling the penalty proceedings invalid due to a defective notice lacking necessary particulars.

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Issues Involved:
1. Whether the undisclosed income under the disclosure petition made during search and seizure proceedings, subsequently taken to books, attracts penalty under Section 271AAB of the Income Tax Act, 1961.
2. Validity of the initiation of penalty proceedings under Section 271/274 of the Income Tax Act, 1961.

Summary:

Issue 1: Penalty under Section 271AAB

The revenue challenged the Tribunal's order which confirmed the CIT(A)'s decision to delete the penalty levied under Section 271AAB. The Assessing Officer had issued a show-cause notice to the assessee for under-valuation of physical stock amounting to Rs. 10.75 crore found during a search. The assessee argued that the excess stock was already accounted for in the books for FY 2014-15 and disclosed in a petition dated 06.05.2015. The Tribunal, after reviewing the facts and previous decisions, held that the income of Rs. 6,04,95,912/- did not constitute "undisclosed income" as it was identified and accounted for before the search. The Tribunal also noted that the Assessing Officer assessed the sum as "under-valuation" of stock, not "undisclosed stock."

Issue 2: Validity of Penalty Proceedings

The assessee filed a cross-objection questioning the initiation of penalty proceedings on the grounds of non-application of mind and defective notice. The Tribunal observed that the notice under Section 274 read with Section 271 was vague and lacked necessary particulars. The Tribunal referred to several judgments, including the Supreme Court's decision in Food Corporation of India Limited vs. State of Punjab, emphasizing that a vague notice does not provide a reasonable opportunity to the noticee. The Tribunal concluded that the show-cause notice was bad in law, rendering the initiation of penalty proceedings invalid.

Conclusion:

The High Court dismissed the revenue's appeal, finding no substantial question of law, and allowed the assessee's cross-objection, holding that the penalty proceedings were invalid due to a defective notice.

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