Penalty under Sec. 271AAB quashed due to defective notice lacking specific clause for imposition

The ITAT Chennai held that the penalty under Sec. 271AAB could not be sustained as the AO failed to specify the applicable clause for penalty imposition, rendering the notice defective. The tribunal relied on precedents requiring clear communication of the specific limb under which penalty is levied. Consequently, the penalty proceedings were quashed and the assessee's appeal allowed.

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ISSUES:

Whether a penalty under section 271AAB can be sustained if the show-cause notice does not specify the exact clause or limb under section 271AAB(1A) applicable to the case.Whether the penalty under section 271AAB is automatic upon acceptance of returned income or requires incriminating material evidencing undisclosed income.Whether loose sheets and digital data found during search proceedings constitute sufficient evidence to levy penalty under section 271AAB.

RULINGS / HOLDINGS:

The penalty under section 271AAB cannot be sustained where the show-cause notice is defective for failing to specify the specific limb of section 271AAB(1A) under which penalty is proposed, as this denies the assessee a reasonable opportunity to respond; such a notice is liable to be quashed.The penalty under section 271AAB is not automatic merely because income is returned and accepted; there must be incriminating material or evidence of undisclosed income to justify levy of penalty.Loose sheets and digital data found during search, without corroborative incriminating material, do not suffice to sustain penalty under section 271AAB.

RATIONALE:

The Court applied the procedural requirements under section 271AAB of the Income Tax Act, 1961, emphasizing that penalty proceedings are independent and require strict adherence to prescribed procedure, including clear specification of the applicable clause in the penalty notice.The Court relied on precedent from the Hon'ble High Court of Madras and various Tribunal decisions holding that a vague or defective penalty notice which does not specify the exact clause under section 271AAB(1A) is invalid, as it deprives the assessee of an effective opportunity to defend.The Court distinguished cases where the assessee's admission of undisclosed income during search attracts penalty automatically, noting that even then, the Assessing Officer must specify the relevant clause under section 271AAB in the penalty notice.The decision represents a reaffirmation of the principle that procedural safeguards in penalty proceedings cannot be bypassed and that penalty notices must be precise and clear to be valid.

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