TaxTMI 
TaxTMI 
2026 (10) TMI 350
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....rgued the ground no. 3 which read as under:- "That the penalty proceedings are void ab initio as the show cause notice did not specify the applicable clause, charge and default for which penalty was proposed, thereby violating principles of natural justice" 3. The brief facts of the case are that assessee is a company incorporated under Companies Act,1956. The assessee company filed the return of income for the year under consideration on 28-11- 2014 declaring a total income of Rs. 2,84,44,386/- under the normal provisions of the Act. A search and seizure action under section 132 of the Act was carried out on M/s Rama and Param Group and other related cases on 28-02-2014 at the various residential and business premises. During t....
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....of the Bench as under:- "Whereas in the course of proceedings before me for the Assessment Year 2014-15, it appears to me that a search was conducted in your case and you were found to have undisclosed income." 5. The Ld. AR stated that the penalty notices were legally defective and therefore the consequential penalty was invalid in the eye of law. 6. The Ld. DR relied on the orders of the authorities. 7. We have heard both parties and gone through the material available on record. Reliance is placed on the following decisions;- (i) PCIT v. Shri R. Elangovan IN tax Appeal No. 770& 771 of 2018 dated 30-03-2021(Madras) (ii) Manchukonda Yethiraja Subrahmanyam V ACIT in ITA No.724 of 2025 dated 09-09-2026 ....
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..... 6.2 The assessee has now approached the ITAT with grounds challenging the penalty levied and also challenging the fact that the exact limb of the section was not specified in the notice issued. 6.3 Before us the Ld. AR again requested that the issue of not specifying the limb of the section which was proposed to be utilized for levying the penalty, needed to be taken up before proceeding any further in the matter. It was argued that the notice for the impugned penalty was extracted on pages 4 & 5 of the impugned order. It was pointed out that in neither of these two notices dated 27.03.2025 and 25.07.2025 was the exact limb of the penalty specified. The Ld. AR read out the first paragraph of the notice dated 25.07.2025 for the be....
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....ws that the AO, while initiating penalty proceedings u/s 271AAB(1A) of the Act, is legally bound to clearly specify, in the show-cause notice, the precise limb i.e., whether clause (a) or clause (b), under which the proposed penalty is sought to be levied. Such specification is essential, as the consequences of each clause differ both in terms of rate and the underlying conditions of applicability. 105. In the present case, however, the AO has failed to discharge this mandatory obligation, inasmuch as the show cause notice dated 27.03.2022 issued to the assessee does not delineate whether the penalty is proposed under clause (a) or under clause (b) of Section 271AAB(1A) of the Act. This omission, in our considered view, renders the....
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....ause (a) or (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, the Ld. CIT(A) in our opinion was not justified in distinguishing the decision of the Hon'ble Bombay High Court in the case of Mohd. Farhan A. Sheikh (supra). Even otherwise also, since the Hon'ble Madras High Court has taken a view directly on this issue and no contrary decision of any other Hon'ble High Court was brought to our notice, therefore, the decision of the Hon'ble Mad....