2025 (10) TMI 562 - AT - Income Tax

Penalty under section 271AAB invalid where notice invoked sections 274 and 271 without specifying undisclosed income; section 154 misuse rejected

Surinder Singh Ryait Versus The DCIT Central Circle II, Ludhiana

ITAT CHANDIGARH held that the penalty order imposing liability under section 271AAB was invalid because the show-cause notice invoked section 274 read ... Validity of order passed by CIT(A) u/s 154 wherein earlier order in which assessee appeal was allowed was reversed - notice issued u/s 274 r.w.s. 271 - HELD THAT:- In the instant case notice was found to be defective on the ground that it was issued u/s 274 r.w.s 271 and charge was “concealment of particular of income and furnishing of inaccurate particular of income” and that there was no mention of undisclosed income within the meaning of Section 271AAB of the Act. Since the impugned order of penalty of Ld. AO had travelled beyond the scope of allegation made in notice dt. 31/12/2016 issued u/s 274 r.w.s 271 and whereas penalty was imposed u/s 271AAB of the Act contrary to allegation levelled it was rightly set aside by the Ld. CIT(A) vide order dt. 21/12/2018 and that there was no justification to pass another order i.e impugned order to set at naught the earlier order dt. 21/12/2018 and that too u/s 154 solely on ground of Allahabad High Court order [2017 (12) TMI 70 - ALLAHABAD HIGH COURT] we deprecate such practice. ISSUES PRESENTED AND CONSIDERED 1. Whether an appellate order can be modified under Section 154 of the Act by the appellate authority on the basis of a later judicial decision where there was no 'mistake apparent from the record' in the original appellate order. 2. Whether a penalty imposed under Section 271AAB can be sustained where the penalty notice under Section 274 read with Section 271 alleges 'concealment of particulars of income and furnishing of inaccurate particulars of such income' but does not refer to 'undisclosed income' within the meaning of Section 271AAB (i.e., whether the AO travelled beyond the scope of the charge in the notice). 3. Whether reliance solely on a single High Court decision (distinguishable on facts) to reverse a reasoned appellate order that had considered multiple binding precedents is a legally sustainable exercise of power under Section 154. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Power to Rectify under Section 154 (mistake apparent from record) Legal framework: Section 154 permits rectification of 'mistake apparent from the record' in orders passed under the Act. The power is corrective, not revisory; it is limited to correcting clerical or manifest errors and cannot be used to re-examine reasons or findings on merits. Precedent treatment: The Tribunal noted that the original appellate order was rendered after consideration of binding precedents and facts. The impugned rectification relied primarily on a subsequent High Court decision. The Tribunal treated the original appellate order as a reasoned decision and not a document containing an apparent clerical/mathematical mistake. Interpretation and reasoning: The Tribunal held that an appellate authority ought to consider its own reasoned order and the body of precedents on which it relied before invoking Section 154. Where the earlier order reflects deliberation on facts and law, reversal by a rectification order on the basis of a later decision does not amount to correction of a 'mistake apparent from record' but to re-adjudication. The impugned order was found to have been made by the appellate authority 'solely' in reliance on a later High Court decision while 'totally ignoring' the submissions and precedents previously considered, which is contrary to the limited scope of Section 154. Ratio vs. Obiter: Ratio - Section 154 cannot be used to modify a reasoned appellate order on the basis of subsequent judicial decisions where no apparent mistake exists in the record; such a course constitutes impermissible re-appraisal. Obiter - Remarks criticizing the practice of using Section 154 to overturn deliberative appellate conclusions based on a single later decision. Conclusion: The rectification under Section 154 was not permissible as there was no 'mistake apparent from record' in the earlier appellate order; the impugned order was set aside on this ground. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of penalty under Section 271AAB given the scope of the penalty notice Legal framework: A penalty under Section 271AAB is predicated on the existence of 'undisclosed income' as defined in the Act and presumes that the initiating notice adequately frames the charge. Principles of fair notice require that the AO's allegations in the notice correspond to the charge on which penalty is ultimately imposed; an AO cannot travel beyond the scope of the charge contained in the notice. Precedent treatment: The earlier appellate order applied and relied on multiple judicial pronouncements (including Supreme Court and High Court authorities and an ITAT coordinate bench decision) holding that when two reasonable constructions exist the one favourable to the assessee must be adopted and that vague or mismatched notices invalidate penalty proceedings. The impugned rectification purportedly relied on a later High Court decision (factually distinguishable) to sustain the penalty. Interpretation and reasoning: The Tribunal examined the content of the notice and the charge framed therein: the notice alleged 'concealment of particulars of income and furnishing of inaccurate particulars of such income' under Section 274 read with Section 271, but did not specifically allege 'undisclosed income' as contemplated by Section 271AAB. The AO's penalty order imposed penalty under Section 271AAB - a charge exceeding the scope of the initiating notice. The appellate authority's original conclusion that the notice was defective for not specifying undisclosed income was held to be legally sound and supported by precedent; thus the penalty was unsustainable. The Tribunal agreed with the assessee that facts differ materially from the later High Court decision relied upon by the appellate authority in its rectification. Ratio vs. Obiter: Ratio - A penalty proceeding cannot be sustained where the penalty imposed goes beyond the scope of the charge in the notice; a notice that does not allege 'undisclosed income' cannot lawfully support a penalty under Section 271AAB. Obiter - Emphasis that factual distinguishability of later judicial decisions matters when invoked to alter an earlier reasoned decision. Conclusion: The penalty under Section 271AAB was rightly set aside by the original appellate order because the notice did not frame the charge of 'undisclosed income'; the Tribunal upheld that conclusion and set aside the subsequent rectification sustaining penalty. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Use of a single, factually distinguishable High Court decision to overturn a reasoned appellate order Legal framework: Appellate and rectification powers must be exercised judicially, taking into account the reasons previously recorded and relevant precedents. A later judicial decision can inform re-consideration but cannot, by itself and without addressing prior reasons and authorities, justify treating a prior reasoned order as a manifest error. Precedent treatment: The Tribunal observed that the appellate order had expressly relied on multiple authoritative decisions (including Supreme Court and High Court precedents and coordinate benches of the Tribunal). The impugned rectification gave decisive weight to a single High Court decision whose factual matrix materially differed from the case at hand. Interpretation and reasoning: The Tribunal found the appellate authority's approach legally untenable: it was 'incumbent' upon the appellate authority to consider its own order and the authorities relied upon therein rather than overturning that order solely on the basis of the later decision. Where facts are materially different, the later decision cannot automatically displace the prior reasoned conclusion. The Tribunal also noted the existence of other judicial decisions (including a coordinate bench decision) which had distinguished the later High Court authority and supported the original appellate conclusion. Ratio vs. Obiter: Ratio - Reliance exclusively on a single later decision to set aside a reasoned earlier appellate order (without addressing the earlier order's reasoning and authorities) is impermissible in exercising Section 154 powers. Obiter - Censure of the practice of using Section 154 as a vehicle for substantive re-adjudication in light of later decisions. Conclusion: The impugned rectification was procedurally and legally improper because it reversed a deliberative appellate order solely on the basis of a later, distinguishable High Court decision; the rectification was set aside. CONSOLIDATED CONCLUSION The impugned order under Section 154 reversing a reasoned appellate deletion of penalty was set aside because (a) there was no 'mistake apparent from the record' warranting rectification, (b) the penalty under Section 271AAB was unsupported by the initiating notice which did not allege 'undisclosed income,' and (c) reliance solely on a later, factually distinguishable High Court decision to overturn an earlier reasoned order was an impermissible exercise of rectification power. The original appellate deletion of the penalty therefore stands.