2024 (6) TMI 1486 - AT - Income Tax

Penalty Notice Under Section 271AAB(1) Must Clearly Specify Charges or Be Set Aside

The ITAT Chandigarh held that the penalty notice issued under section 271AAB(1) was vague as it failed to specify the exact clause under which the penalty ... Levy of penalty u/s 271AAB(1) - addition of undisclosed investment in stock - as argued no specific charge has been made out nor any satisfaction was recorded while issuing the penalty notice - HELD THAT:- As can be seen from the notice issued u/s 271AAB assessee rightly contends that it does not depict the charge against the assessee, as to under which clause (a), (b) or (c) of Section 271AAB (1), or clause (a) or (b) of 271AAB (1 A) of the Act, penalty is leviable on the assessee. Therefore, we are of the opinion that the notice initiating penalty u/s 271 AAB of the Act is vague and the assessee was not made aware of the actual charge on which the penalty proceedings will be initiated on the assessee. The various judicial precedents, as discussed in the following paras have held that the penalty notice should be clear enough to convey to the assessee, the exact charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act. Appeal of assessee allowed. ISSUES: Whether the penalty imposed under Section 271AAB(1) of the Income Tax Act, 1961 is valid when the penalty notice does not specify the exact clause (a), (b), or (c) under which the penalty is levied.Whether the penalty under Section 271AAB(1) is barred by limitation if the assessment order was passed before the penalty notice.Whether a general surrender of income during search proceedings qualifies as 'undisclosed income' attracting penalty under Section 271AAB(1).Whether the Assessing Officer's satisfaction and specific charge are mandatory prerequisites for issuing a valid penalty notice under Section 271AAB(1). RULINGS / HOLDINGS: The penalty notice issued under Section 271AAB(1) is vague and defective because it does not specify under which clause (a), (b), or (c) of Section 271AAB(1) the penalty is proposed; such defect denies reasonable opportunity to the assessee and renders the penalty invalid.The penalty is not sustainable if the notice initiating penalty proceedings under Section 271AAB(1) fails to clearly convey the exact charge, notwithstanding the assessment order date; the issue of limitation was not upheld as a ground for penalty deletion in this case.A general surrender of income without specific identification does not necessarily fall within the definition of 'undisclosed income' under Section 271AAB(1), and thus may not attract penalty under that section.The Assessing Officer must record satisfaction and specify the precise limb of Section 271AAB(1) under which penalty is proposed before issuing a penalty notice; failure to do so violates principles of natural justice and statutory procedure. RATIONALE: The Court applied the procedural requirements of Sections 271AAB and 274 of the Income Tax Act, 1961, emphasizing that penalty proceedings are quasi-criminal and must comply with the principles of natural justice, including clear and specific notice of charges.Precedents from various benches of the Tribunal and High Courts were relied upon, including the Madras High Court's decision in Principal Commissioner of Income Tax v. Shri R. Elangovan, which held that the penalty notice must specify the exact clause of Section 271AAB to enable effective defense.The Court distinguished decisions related to penalty under Section 271(1)(c) from those under Section 271AAB(1), noting that the latter requires specific procedural compliance due to its distinct statutory scheme introduced by the Finance Act, 2012.The Court rejected reliance on decisions where penalty was upheld despite general surrender of income, underscoring that the Assessing Officer must first determine and communicate that the surrendered income qualifies as 'undisclosed income' as defined in the Explanation to Section 271AAB(1)(a).No contrary binding authority was presented, and the Court followed a consistent line of jurisprudence holding defective penalty notices under Section 271AAB(1) as invalid.