2024 (10) TMI 1690 - AT - Income Tax

Penalty Notice under Section 271AAB(1A) Invalid Due to Lack of Specific Charges and Conditions

Yogender Mohan Rustagi Versus ACIT, Central Circle -28, Delhi.

The ITAT Delhi held that the penalty notice issued under section 271AAB(1A) was defective and invalid due to the absence of specific charges and failure ... Penalty u/s 271AAB(1A) - non specification of clear charge - HELD THAT:- We find that there is no mention about the various conditions provided u/s 271AAB - AO has very casually used the proforma for issuing notice before levying penalty u/s 271AAB for the undisclosed income. Except mentioning the section 271AAB of the Act in the notice it does not talk anything about the provision of section 271AAB. The notice issued by the AO has a fatal error and not a technically correct notice in the eyes of law. As relying on in the case of Ravi Mathur [2018 (6) TMI 1128 - ITAT JAIPUR] and the given facts and circumstance of the case wherein no specific charge has been mentioned in the penalty notice issued u/s 271AAB of the Act is defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty stands deleted. The assessee succeeds on legal ground challenging the validity of notice issued u/s 274. Assessee appeal allowed. ISSUES: Validity and jurisdiction of penalty notice issued under section 271AAB read with section 274 of the Income Tax Act, 1961.Whether the penalty under section 271AAB(1A) is automatic or discretionary/directory in nature.Requirement of specifying grounds or clauses under section 271AAB in the penalty notice to enable the assessee to effectively respond.Whether penalty proceedings under section 271AAB are independent and separate from assessment proceedings.Whether mere additions in assessment order ipso facto attract penalty under section 271AAB.Validity of additions sustained by appellate authority as basis for penalty, particularly when based on presumptions or unauthenticated documents.Whether penalty can be levied on estimated or new basis additions.Whether double additions in assessment order affect levy of penalty under section 271AAB.Application of principles of natural justice in penalty proceedings under section 271AAB.Effect of non-specification of default or charge attracting penalty at different rates under clauses (a), (b), or (c) of section 271AAB(1) in the penalty notice.Whether defect in penalty notice can be cured under section 292BB of the Act. RULINGS / HOLDINGS: The penalty notice issued under section 271AAB read with section 274 was held to be defective and invalid as it did not specify the grounds or clause under which penalty was imposed, thereby denying the assessee a reasonable opportunity to respond.Penalty under section 271AAB(1A) is not automatic but directory in nature, and cannot be levied merely because additions were made in the assessment order.Penalty proceedings under section 271AAB are separate and independent from assessment proceedings; findings in assessment do not operate as res judicata in penalty proceedings.Mere addition in the assessment order does not ipso facto lead to imposition of penalty under section 271AAB.Additions based on presumptions drawn from unauthenticated loose papers without credible material are unsustainable in law and cannot form basis for penalty.Penalty notice must specify the default attracting penalty at the specified rates under clauses (a), (b), or (c) of section 271AAB(1); failure to do so renders the notice invalid.Defect in penalty notice cannot be cured by section 292BB where the notice is vague and does not specify the charge clearly, as this offends principles of natural justice.Since the penalty notice was invalid, the penalty order was set aside and the appeal allowed on legal grounds.Grounds raised on merits of penalty levy were dismissed as infructuous due to cancellation of penalty on technical grounds. RATIONALE: The Court applied the provisions of section 271AAB of the Income Tax Act, 1961, which mandates that penalty proceedings must comply with procedural safeguards including issuance of a valid notice under section 274 of the Act.Precedents from various High Courts and Tribunals were relied upon, including judgments emphasizing that penalty proceedings are quasi-criminal and must comply with principles of natural justice by specifying the exact charge and grounds for penalty to enable effective defense.The Court noted that the penalty notice must clearly indicate under which clause of section 271AAB(1) the penalty is proposed, as the section contemplates different penalty rates based on specific defaults.The Court rejected the contention that mere mentioning of the section number in the notice suffices, holding that vague or generic notices offend natural justice and are liable to be quashed.Decisions of coordinate benches and High Courts were followed which held that penalty proceedings are independent of assessment proceedings and findings in assessment do not bind penalty adjudication.The Court recognized that section 292BB cannot validate a fundamentally defective notice that fails to inform the assessee of the specific charge, as this would negate the purpose of fair hearing.The Court observed that since penalty proceedings were quashed on procedural grounds, adjudication on merits of penalty became academic and was not undertaken.