Penalty notice invalidated due to lack of specificity, discretionary penalty, and unproven undisclosed income. Appeal allowed.

The Tribunal held that the penalty notice under section 271AAB was invalid as it lacked specificity, the penalty is discretionary, and the surrendered income was not proven as "undisclosed income." Therefore, the imposed penalty of Rs. 2,50,000 was deleted, and the appeal of the assessee was allowed.

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Issues Involved:
1. Validity of penalty notice u/s 271AAB.
2. Discretionary nature of penalty u/s 271AAB.
3. Classification of admitted income as "undisclosed income" u/s 271AAB.

Summary:

1. Validity of Penalty Notice u/s 271AAB:
The assessee challenged the penalty notice issued by the AO for not specifying under which clause of Section 271AAB the penalty was sought to be levied. The Tribunal observed that the notice did not satisfy the requirement of law as it failed to specify the exact default. Reliance was placed on the judgment of CIT Vs. SSA's Emerald Meadows, where the Karnataka High Court held that a penalty notice must clearly specify the limb under which the penalty is initiated. The Tribunal concluded that the vague notice violated principles of natural justice, making the penalty unsustainable.

2. Discretionary Nature of Penalty u/s 271AAB:
The assessee argued that the penalty u/s 271AAB is not mandatory but discretionary, as indicated by the use of the word "may" in the statute. The Tribunal referred to the Supreme Court's decision in CIT Vs. Smt. P.K. Noorjahan, which held that "may" gives discretion to the AO. The Tribunal also cited ITAT Kolkata's decision in DCIT Vs. Manish Agarwal, which affirmed that penalty u/s 271AAB is not mandatory and must be imposed based on the merits of each case. The Tribunal agreed that the AO and CIT(A) erred in treating the penalty as mandatory.

3. Classification of Admitted Income as "Undisclosed Income" u/s 271AAB:
The assessee contended that the surrendered income of Rs. 25,00,000 during the search was declared to buy peace and was included in the return of income. The Tribunal noted that no incriminating material was found during the search to prove the income as "undisclosed." Citing the case of ACIT Vs. Marval Associates, the Tribunal held that penalty u/s 271AAB requires the income to be substantiated as "undisclosed" based on evidence. The Tribunal found that the AO failed to establish the surrendered income as "undisclosed income" within the meaning of Section 271AAB.

Conclusion:
The Tribunal concluded that the penalty notice was invalid due to lack of specificity, the penalty u/s 271AAB is discretionary, and the surrendered income was not substantiated as "undisclosed income." Consequently, the penalty of Rs. 2,50,000 imposed by the AO and confirmed by the CIT(A) was deleted. The appeal of the assessee was allowed.

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