TaxTMI 
TaxTMI 
2025 (6) TMI 652
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....of the assessee assailed the action of the Ld.CIT(A), by raising, inter-alia, legal issues, for appeals pertaining to AY 2018-19 & 2019-20, confirming the action of the AO levying penalty u/s. 270A of the Act for underreporting of its income by levying 50% of the total tax by contending that no specific fault/charge has been framed against the assessee in the show cause notice (SCN) dated 29.09.2021 for AY 2018-19 [Educational Trust] and by notices dated 28.09.2021 for AY 2018-19 & AY 2019-20 in the case of 'Institute of S & T Trust' and therefore, the impugned notices were bad in law and therefore, invalid and consequent penalty needs to be cancelled, by relying on several case laws to support the ibid legal issue raised before us. Likewise, the Ld.AR has also raised legal issue against levy of penalty u/s. 271AA(1A) of the Act for AY 2020-21 in both the Trust cases on similar grounds by pointing out that the SCN issued u/s. 271AAB of the Act dated 29.09.2021 in the case of 'Educational Trust' and SCN dated 28.09.2021 in the case of 'Institute of S & T Trust' are bad in law and therefore, invalid and consequent penalty be cancelled by relying on the decision of jurisdictional Madr....
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....n to initiate separately penalty u/s. 270A of the Act. 6. The AO thereafter is noted to have issued Show Cause Notice (SCN) dated 29.09.2021 u/s. 274 r.w.s. 270 of the Act calling upon the assessee-Education-Trust 'as to why' penalty for underreporting/misreporting of income should not be imposed u/s. 270A of the Act and the assessee objected to levy of penalty by pointing out, inter alia, that since the AO has accepted the returned income filed by the assessee pursuant to the notice u/s. 153A of the Act and didn't make any addition to the income returned, the proposed penalty should be dropped. But the AO is noted to have rejected the plea and proceeded to consider the entire voluntary contribution admitted by the assessee to the tune of Rs. 5,88,60,300/- as underreported income for the purpose of penalty u/s. 270A of the Act. 7. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to confirm the same. 8. Assailing the action of the Ld.CIT(A), the Ld.AR contended that a finding in the assessment proceedings that a particular receipt is income can't automatically be adopted to fasten penalty on the assessee. And according to him, during penalty procee....
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....derreporting as a consequence of misreporting of income'. Instead, according to the Ld.AR, in the present case, the AO had issued notice for AY 2018-19 in the 'Educational Trust' case on 29.09.2021 for both the faults i.e. 'underreporting of income'/'misreporting of income', which is bad in law for non-application of mind and not specifying the charge, which makes the notice vague qua the assessee. Moreover, drawing our attention to the assessment order for AY 2018-19 in the case of 'Educational Trust', he pointed out that the AO has merely made endorsement that "penalty proceedings u/s. 270A of the Act is initiated separately" without recording his satisfaction during the course of the assessment as to whether he is intending to proceed against the assessee for levy of penalty for 'underreporting of income' or 'misreporting of income' u/s. 270A of the Act. Therefore, according to the Ld.AR, the SCN issued by the AO dated 29.09.2021 for AY 2018-19 in the case of 'Educational Trust' is bad in law. 9. Likewise, he drew our attention to the case of 'Institute of S & T Trust' for AY 2018-19 wherein penalty notice issued u/s. 270A of the Act dated 28.09.2021 is found placed at Page No.....
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.... AO's failure to explicitly specify (by scoring out or mentioning) whether the penalty is for "under-reporting" or "misreporting", despite levying a 50% penalty. 3. Submission It is respectfully submitted that the penalty notice is valid and the assessee's challenge lacks merit for the following reasons: a. Penalty Rate of 50% Reflects Under-Reporting * Section 270A(7) prescribes a penalty of 50% of the tax payable on income under-reported under Section 270A(2), while Section 270A(8) imposes a 200% penalty for misreporting under Section 270A(3). * The AD levied a 50% penalty, which unequivocally signal with underreporting. Had the AO intended to penalize for misreporting (e.g., suppression of facts or falsification), the penalty would have been 200%. The quantum of penalty itself clarifies the limb under which it was imposed. * The omission to score out "misreporting" is a procedural irregularity, not a substantive defect, and does not invalidate the notice. b. Nature of Default Supports Under-Reporting * Section 270A(2) defines under-reporting as income omitted from the return or not reported. The search on 07.11.2017 revealed unaccounted capitation fees no....
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..... CIT [2013] 358 ITR 593 (SC), the Supreme Court upheld penalties despite procedural lapses, as the assessee was aware of the allegations and participated in proceedings. Burden on Assessee to Prove Misreporting The assessee must show that the AO intended to penalize for misreporting (200%) but failed to establish it. Absent evidence of falsification or misrepresentation under Section 270A(3), the 50% penalty must be presumed to correctly apply to under-reporting. 4. Conclusion The Revenue submits that the penalty notice under Section 270A is valid. The 50% penalty aligns with under-reporting under Section 270A(7), and the failure to score out "misreporting" is a procedural lapse cured by Section 2928, The assessee suffered no prejudice, and the notice's intent is evident from the penalty rate and search findings on 07.11.2017. Hence it is humbly and respectfully requested that the Hon'ble ITAT to uphold the penalty and dismiss the assessee's challenge. 12. In his rejoinder, the Ld.AR countering the submission of Ld.DR submitted as under: Your appellant humbly wishes to submit the rejoinder to the counter submissions made by the department on 03-04-2025 as ....
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....'ble ITAT - Chennai - ShriMelekandyPuthalathFarookVs ACIT - ITA No. 1890/CHNY/2024 dated 05-11-2024 * Hon'ble ITAT - Chennai - Enrica Enterprises P. Ltd. Vs. DCIT [2024] 163 taxmann.com 105 * Hon'ble ITAT- Delhi - Jaina Marketing & Associates Vs DCIT [2024] 162 taxmann.com 439 (Delhi - Trib.) Following the Hon'ble SC decision in the case of CIT Vs SSA Emerald Meadows [2016] 73 taxmann.com 241 (SC) Hence, it is settled issue, upheld in several judicial decisions, that the AO is required to indicate the limb of the charge, while initiating the penalty proceedings and failure to do so vitiate the penalty proceedings and renders the penalty order invalid. b) Nature of Default Supports Under-Reporting Our Submission The Ld. DR failed to appreciate again whether the nature of alleged default of the appellant is mentioned in the impugned penalty notice issued, as interpreted by the Hon'ble Supreme Court, various High Courts and the Benches of the Hon'ble ITAT. It is settled issue, upheld in several judicial decisions, that the AO is required to indicate the limb of the charge, while initiating the penalty proceedings and failure to do so vitiate the penalty proceedings and r....
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....We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff Case (supra) disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice." e) Search Evidence justifies Penalty The Ld. DR submitted that the under the search done u/s 132 of the Act, unearthed unaccounted cash transactions, which warrants penalty and the Ld.AO has taken an lenient approach of levying 50% instead of 200%. f) Holistic Interpretation of the Notice The Ld. DR submitted that the notice must be read in conjunction with the assessment order, penalty order and search proceedings. g) Assessee's Conduct Warrants Penalty The Ld. DR submitted that the ap....
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....d a proper show-cause notice. In the absent of any valid proceedings, the question of discharging the burden of proof by the appellant does not arise. In view of the above decisions, we humbly submit before Your Honours that the impugned penalty order is liable to be quashed. 13. We have heard both the parties on the legal issue and perused the records. The assessee has assailed the levy of penalty u/s. 270A of the Act for AY 2018-19 & 2019-20 [three appeals], inter alia, on the ground that (i) the AO while passing the assessment order has merely referred to initiation of penalty proceedings u/s. 270A of the Act without specifying the charge/limb u/s. 270A of the Act, which he is satisfied in the course of assessment proceedings, the assessee has committed to impose penalty u/s. 270A of the Act; and (ii) that the AO continued with the lapse by issuing notice of penalty without specifying the exact nature of fault committed by the assessee u/s. 270A of the Act i.e. the SCN issued by the AO against the assessee u/s. 274 r.w.s.270A of the Act dated 29.09.2021 [for 'Educational Trust' for AY 2018-19 & in the case of 'Institute of S & T Trust' SCN dated 28.09.2021 for AY 2018-19 and ....
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....ds, it doesn't specify which fault the AO is proposing the assessee to defend against levy of penalty. A perusal of the impugned notice (infra) doesn't reveal whether the AO has initiated penalty for under-reporting of income as per sub-section (1) to (7) of section 270A of the Act or misreporting of income as per section (8) to (9) of section 270A of the Act. It is noted that these are distinct faults with different consequences. Therefore, according to us, the AO was duty bound to put the assessee on proper notice as to what charge/fault, the assessee is supposed to defend against the proposed penalty. Instead, when the assessee is put to notice for both the charges/fault as discernable from the impugned notices, the assessee couldn't be expected to defend the omnibus faults and resultantly, the assessee would be unfairly treated and the fair hearing guaranteed u/s. 274 of the Act would stand defeated. As noted, the assessee won't be able to validly defend the omnibus charges; and absence of proper charge vitiates the penalty notices. In the instant case, the AO could have proposed to levy penalty for 'underreporting of income' which fault falls under sub-sections 1-7 of section ....
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....for 'misreporting of income', it shall be equal to 200% of the amount taxable on the 'underreported income'. Therefore, we find that as per the scheme of sec.270A of the Act itself it shows that there are two distinct faults/lapses for which different consequences/penalty is levied. Therefore, the AO was duty bound to put the assessee on notice as to which charge/lapse/fault which is alleged against him, so that assessee can defend it in accordance to law. According to us, the assessee should have been informed in the SCN with certainty and accurately of the exact nature of the fault alleged against it, which is absent in this case. Therefore, SCN proposing penalty are found to be vague and doesn't satisfy the requirement of law and therefore, consequent levy of penalty is fragile in the eyes of law and is held to be ab initio void. Thus, assessee's appeal for AY 2018-19 & AY 2019-20 are allowed i.e. ITA Nos.3293, 3295 & 3296/Chny/2024 and the penalty imposed for these three (3) appeals are directed to be deleted. ITA Nos.3294 & 3297/2024 for AY 2020-21 which assails the penalty levied u/s. 271AAB of the Act: 16. Since the facts are same, we will take up the appeal preferred by t....
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....ction of the AO which according to the Ld.AR is erroneous and pointed out that the penalty levied is bad in law on many grounds (infra), and especially on the ground that the SCN issued by the AO u/s. 274 r.w.s.271AAB of the Act dated 28.09.2021 is bad in law and filed the written submissions which is reproduced as under: Ground of Appeal 2 - PENALTY ORDER IS LIABLE TO BE QUASHED AS THE UNDERLYING NOTICE IS INVALID. The penalty order passed by the Ld. AO on 30-03-2022 based on the invalid notice initiating the penalty proceedings u/s 274 r.w.s. 271AAB(1) of the Act dated 29-09-2021 is void and hence, liable to be quashed. A. Provisions of the Act: 2.2. Chapter XXI of the Act deals with levy of penalty. Section 271AAB of the Act, levies penalty on the assessee where search has been initiated. The extract of Section 271AAB(1) of the Act is as follows: 271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under Section 132 on or after the 1st day of July, 2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the Pr....
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.... 271AAB r.w.s. 274 of the Act. Such distinction is very crucial to be mentioned in the notice since each ground carries different penalty rates. Hence, the assessee ought to have been informed about the probable result/ consequence of penalty proceedings being conducted. Only then it can be deemed that reasonable opportunity of being heard has been given to the appellant before imposing penalty as per Section 274(1) of the Act. Hence the notice is an invalid notice and as such an order (dated 30.03.2022) passed based on an invalid notice is void-ab-initio. In this regard, we wish to rely on the following judicial precedents: 1) R. P. Wood Products Private Limited, Naya Bazar, Ajmer VS. DCIT Central Circle, Ajmer - Hon'ble ITAT, Jaipur He also submitted that satisfaction for levy of penalty has to be recorded at the time of initiation of the penalty and not at the time of levying of penalty. The Id. AR of the assessee also submitted that the Id. AO has not specified the limb under which the penalty can be levied. Based on above the Tribunal held that there is no case for imposing penalty u/s 271AAB of the Act. Other relevant rulings in the same lines: 1. Chandr....
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....icer and in both the notices, the Assessing Officer had only directed the assessee to reply with regard to 'under reporting of income. But the penalty had been levied ultimately for both 'under reporting' and 'misreporting of income' at the rate of 200% in terms of section 270A(9) for which show cause notice was never issued to the assessee. Hence, the Assessing Officer is directed to delete the penalty levied under section 270A. ii) Hon'ble Chennai ITAT in the case of Enrica Enterprises (P.) Ltd vs. DCIT, Chennai It is undisputedly clear that satisfaction of the AO should be discernable from the show cause notice issued by the AO under section 274 r.w.s.270A. In absence of any particular charge for which, the assessee is directed to pay penalty under section 270A, entire penalty proceedings become invalid and liable to be quashed. In this view of the matter, the show cause notice issued by the AO under section 274 r.w.s.270A is vogue, non-specific to charge and thus, is illegal and liable to be quashed. Thus, the order passed by the AO imposing penalty under section 270A(9) is quashed. Ground of appeal #4: PENALTY LEVIABLE UNDER SECTION 271AAB IS OPTI....
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....ed income without taking cognizance of the fact that the appellant has duly recorded its income found in the course of search operations and had offered the same in the ROI fled for the subject AY 2020-21. 2.8 Section 271AAB of the Act considers a person to have undisclosed income in the following cases: "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year, or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous ....
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....nt from the order. 2. The Ld. AO erred in computing undisclosed income as assessed vide the search assessment order u/s 153A of the Act dated 29-09-2021, without giving effect to the application of income as claimed u/s 11 of the Act. 3. Without prejudice to the above grounds of appeal, the Ld. AO erred in levying penalty on the voluntary donations of INR 24,00,000/- duly recorded in the books of accounts and offered to tax in the Return of Income fled by the appellant. 2.10 A) The total income received by the appellant is Rs. 1,02,75,000/- which have been duly recorded in the books and disclosed in the return of income filed on 15.01.2021. But the Learned AO has erroneously added a sum of INR 24,00,000/- as part of the total additions of INR 1,26,75,000/- as undisclosed income based on the order dated 29-09-2021. This sum of INR 24,00,000/- is already a part of the income offered of INR 1,02,75,000/-. A rectification petition in this regard has been filed on 12-04-2022 but the same has been ignored while passing the penalty order dated 30-03-2022. This amounts to double taxation of the same income. B) Furthermore, the Learned AO has made additions of INR 1,26,75,000/- wi....
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....ppeals) to add/ alter and supplement the grounds of appeal as well as file additional grounds of appeal to support the case of the appellant. 2. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the assessing officer be modified accordingly. 2.13 The appellant does not wish to stress further on this ground. III. PRAYER 3.1 Considering the facts and submissions made above, it is humbly requested that the underlying notice initiating the penalty proceedings is itself void ab initio and hence, is liable to be quashed on the following grounds: i) There are no undisclosed income by the appellant as the entire amount which is the basis for the penalty levied has been appropriately recorded in the books of accounts and disclosed in the return of income for the relevant AY. ii) The learned AO has not made any reference to the specific limb under Section 271AAB(1) under which penalty is leviable. iii) The Learned AO has levied penalty under Section 271AAB(1A) in his penalty order without issuing any notice for levying such penalty. 3.2 Further, even if your Honour confirm the penalty, it is hereby reiterated that ther....
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....this case occurred on 07.11.2017, which is after 15.12.2016, and the AD levied a 60% penalty, clearly aligning with Section 271AAB(1A)(b). * The reference to "Section 271AAB(1)" in the notice is a clerical error. Section 271AAB(1) applies to searches before 15.12.2016 and imposes penalties of 10%-30%. which does not match the 60% penalty levied here. The AO's intent to invoke Section 271AAB(1A) is evident from the penalty rate. b. Section 292B Cures the Defect * Section 292B of the Income Tax Act states that no notice shall be deemed invalid due to a mistake or defect if it is in substance and effect in conformity with the Act. * The incorrect citation of "271AAB(1)" instead of "271AAB(1A)" is a minor technical error. The notice's substance imposing a 60% penalty for undisclosed income from a search after 15.12.2016-complies with Section 271AAB(1A). * The Bombay High Court in CIT v. Kaushalya [1995] 216 ITR 660 held that technical defects do not invalidate notices when the intent and purpose are clear. c. No Prejudice Caused to the Assessee * The assessee was fully aware of the basis for the penalty: undisclosed capitation fees unearthed during the 07.11.2017 ....
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....ons of the Ld.DR, which is reproduced as under: Rejoinder to the counter filed by the Department Your appellant humbly wishes to submit the rejoinder to the counter submissions made by the department on 03-04-2025 as under: The main issue in the appeal is with regard to the validity of the impugned penalty notice issued under section 271AAB(1) of the Act dated 29-09-2021, which has been issued for the search initiated on 07-11-2019, instead of section 271AAB(1A) of the Act and also without mentioning the specific limb under which the penalty proceedings has been initiated. At the outset, it is submitted that the report of the Ld. DR has not addressed this issue of fact and has fairly conceded that the penalty notice has been issued without mentioning the specific limb under of charge. The report of the Ld. DR has also not addressed the issues raised in the submissions made by the appellant in the light of the various judicial decisions cited, including the decisions of the Jurisdictional High Court/ Tribunal. The Ld. DR has submitted that the penalty notice is valid on the following grounds: a) Penalty rate of 60% aligns with 271AAB(1A)(b) The Ld. DR has submitted tha....
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....ed that the omission of mentioning the specific limb of charge in the impugned penalty is a curable defect, under section 292B of the Act and the impugned penalty notice shall not be regarded as invalid. The Ld.DR has also relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs Kaushalya (1995) 216 ITR 660 (Bom). Our Submission As held by the Hon'ble Supreme Court, various High Courts and the Benches of the Hon'ble ITAT in several decisions, mentioning of the specific limb which specifying the charge in the penalty notice is "sine-qua-non for levy of penalty". Hence, if the penalty notice is vague and not specific, it is a "Jurisdictional defect", which goes to the root of the matter, which cannot be cured by section 292B of the Act. For this proposition, we place our reliance on the jurisdictional decisions of the Hon'ble ITAT In the case of PVP Ventures Ltd Vs DCIT dated 08-06-2022 in ITA No.778/Chny/2019, wherein it has been held as under: "6.............Framing of specific charges is sine-qua-non for levy of penalty since the assessee must be put to allegations for which the penalty was being levied. In the absence of such a specific charge, the ....
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.... under the search done u/s 132 of the Act, unearthed unaccounted cash transactions, which warrants penalty of 60%. Invalidating the notice on technical issue, would defeat the intent of the legislature. e) Holistic Interpretation of the Notice The Ld. DR submitted that the notice must be read in conjunction with the assessment order, penalty order and search proceedings. f) Assessee's Conduct Warrants Penalty The Ld. DR submitted that the appellant has concealed the income, hence, the Ld.AO is justified in levying penalty Our Submissions Again, the Ld. DR is jumping the gun by justifying the action of the Ld.AO by passing the penalty order levying penalty of 60% of undisclosed income. The issue is not whether the action of the assessee, evidence gathered during search justifies or warrants levying of penalty or not. There is a no provision under the Act, which specifies that the penalty notice must be read in conjunction with assessment order and penalty order and there is no jurisprudence relied upon by the Ld.DR for such a proposition. Rather, there are several decisions, wherein it has held that penalty is independent of the assessment proceedings and a valid penal....
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....d 29.09.2021 u/s. 274 r.w.s.271AAB of the Act asking the assessee to show case as to why an order imposing a penalty under sub-section (1) of section 271AAB of the Act should not be imposed on the assessee, a copy of which is reproduced as under: NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961 PAN: AAMTS3888G Date: 29-09-2021 To M/s St. Joseph's Educational Trust, No.56-C, Old Mahabalipuram Road, Sholinganallur, Chennai 600 119. DIN: ITBA/AST/M/143(3)/2021-22/1035999658(1) Sir/Madam, Whereas in the course of proceedings before me for the Assessment Year 2020-21, it appears to me that a search was conducted in your case and you were found to have undisclosed income. You are hereby requested to appear before me either personally or through a duly authorized representative at 11:30 AM on 12/10/202....
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.... the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 24. A bare reading of the aforesaid penalty provision, and especially the opening words would reveal that the AO/Ld.CIT(A) "may" direct the assessee to pay by way of penalty under this section'', which conveys the meaning that the AO has discretion to initiate or not to initiate penalty under this provision. So levy of penalty u/s. 271AAB of the Act is not mandatory, because, the Parliament has not used the term "shall" instead used "may". Or else, the expression would have been viz., i.e. the AO or CIT(A) shall direct the assessee to pay by way of penalty u/s. 271AAB of the Act, which is not the wording of the statute. Therefore, it can be safely presumed that the AO has the discretion to levy of penalty or not u/s. 271AAB of the Act. Having said so, sub-section (1) provides that in a case where search has been initiated u/s. 132 of the Act on or after 01.07.2012 but before 14.12.2016, the assessee shall be liable to pay by way of penalty in addition to tax, if any, payable by him, a sum computed @10% of the undisclosed income of the specified previous year if he satisfies the conditions ....
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....ll be imposed, unless the assessee has been given a reasonable opportunity of being heard, which means that before levy of penalty under either sub-section (1) or (1A) of section 271AAB of the Act, reasonable opportunity has to be given to the assessee before imposition of the penalty by giving assessee proper, legally valid notice to the assessee. Hearing must be a genuine hearing and not an empty formality. When the statute requires the AO to give reasonable hearing before imposition of penalty, the AO was duty bound to give proper notice spelling out the charge/fault, under which, the AO intends to put the assessee on notice for levy of penalty, so that the assessee would be able to defend its case. Therefore, we are of the view that the AO was duty bound to issue notice spelling out the specific limb under which penalty proceedings has been initiated. In the instant case, as noted since the search was initiated on 07.11.2019, the AO ought to have issued notice under sub-section (1A) of section 271AAB of the Act and also mentioned the specific limb [clause (a) or clause (b) of sec.271AAB(1A) of the Act] under which the assessee is being proceeded against for levy of penalty. Dif....
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....w. Instead of answering the validity of impugned notice, he simply has referred to first & second para of the impugned notice and states that since the AO in the first para of notice referred to search carried out in AY 2020-21 & in second para referred to sub-section (1) of section 271AAB of the Act, the AO referred to sub-section (1A) of section 271AAB of the Act is misdirected, misconceived and flawed, because the assessee was challenging the jurisdiction of the AO to have issued the impugned notice u/s. 271AAB(1) of the Act. Thus, we find that the Ld.CIT(A) erred in dismissing the legal ground raised by the assessee challenging the jurisdiction of the AO to have issued notice under subsection (1) of section 271AAB, which provision of law was not in force for issuing such a notice in assessee's case as discussed. 26. And as noted, levy of penalty u/s. 271AAB of the Act is not mandatory and it is discretionary; and also the AO has discretion to levy of penalty at different rates meaning different consequences, provided the assessee is able to show that he satisfies certain conditions necessary for imposition of lesser penalty. In such a case, the AO was required to give proper n....