LATE SHRI RAJEEV SINGLA LH SMT. SONIA SINGLA,DELHI V. ACIT, CENTAL CIRCLE 1, FARIDABAD

ITA 1202/DEL/2024

AI Insights

This case involves an appeal by Smt. Sonia Singla, the legal heir of Late Shri Rajeev Singla, against the order of the Commissioner of Income Tax (Appeals)-3, Gurgaon, which confirmed the levy of penalty under section 271AAB of the Income Tax Act, 1961. The penalty was initially imposed following a search and seizure operation that uncovered undisclosed income. The primary legal issue was the validity of the penalty notice, which did not specify the exact provision under section 271AAB under which the penalty was being levied. The Tribunal referenced a decision by the Hon'ble Madras High Court, which supported the assessee's position that such a defect in the notice was fatal to the penalty proceedings.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 34536 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2016-2017
• Other Referred Cases: PCIT Vs. R. Elangovan, PCIT Vs. Sandeep Chandak, CIT Vs. Manjunatha Cotton and Ginning Factory, CIT Vs. SSA's Emerald Meadows, Babuji Jacob Vs. ITO, Non Corporate Ward 1(2), Chennai, CIT Vs. M/s. Vegetables Products Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR
• Assessee Lawyers: SURAJ BHAN NAIN
• Keywords: Search and seizure; Initiation of penalty proceedings
• Section: 143(3); 192; 139(1); 274; 73

Judgement Text

"Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE, SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.1202/Del/2024 (ASSESSMENT YEAR 2016-17) Smt. Sonia Singla, Legal Heir of Late Shri Rajeev Singla 30/64, West Punjabi Bagh, New Delhi 11026 PAN No.ABIPS519H vs ACIT Central Circle Faridabad (Appellant) (Respondent) Appellant by Sh. Suraj Bhan Nain, Advocate Respondent by Rajesh Kumar CIT(DR) Date of Hearing 30/12/2024 Date of Pronouncement 30/12/2024 ORDER PER M. BALAGANESH, AM: This appeal of the Assessee arises out of the order of the Commissioner of Income Tax (Appeals)-3, Gurgaon [hereinafter referred to as ‘CITA(A)’] in Appeal No.10035/2020-21, dated 10/01/2024 against the order passed by ACIT, Central Circle -1, Faridabad u/s 271AAB of the Income Tax Act, 1961 (hereinafter ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 2 of 11 referred to as ‘the Act’) on 17/03/2020 for the Assessment Year 2016-17. 2. Though the assessee has raised several grounds of appeal, the only effective issue to be decided in this appeal is as to whether the learned CIT(A) was justified in confirming the levy of penalty u/s. 271AAB of the Act in the facts and circumstances of the instant case. 3. We have heard the rival submissions and perused the materials available on record. The return of income was originally filed for A.Y. 2016-17 u/s. 139(1) of the Act and on 17.10.2016 declaring total income of Rs.3,89,57,710/-. Pursuant to the search and seizure operation conducted on 29.12.2015, the assessee declared additional income of Rs.1,50,00,000/- on account of investment in construction / renovation of his H.No. 34/73, Punjabi Bagh, (West), New Delhi and additional income of Rs.8,82,500/- for cash found and seized during the search. The assessment was completed u/s. 143(3) r.w.s. 153B of the Act on 09.02.2018 declaring total income of Rs.3,95,46,330/-. The learned AO initiated penalty proceedings u/s. 271AAB of the Act on ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 3 of 11 additional income offered in the total sum of Rs.1,58,82,500/- pursuant to the search by treating the same to fall within the ambit of “undisclosed income” as defined in section 271AAB of the Act. For this purpose, the ld. AO issued penalty notice dated 09.02.2018 and 02.03.2020. In the said show cause notices, the Ld. AO had not specified under which limb he is initiating the penalty proceedings i.e. whether the penalty proceedings are initiated in accordance with section 271AAB (a) or (b) or (c) of the Act. 4. We find that the assessee had to pay different amount of penalty depending upon the specific limb where his case falls. Now, the moot question that arises for our consideration is as to whether non-mentioning of specific limb in the penalty show cause notice for which penalty proceeding u/s. 271AAB of the Act is initiated on the assessee would become fatal to the penalty proceeding per se. This issue is no longer res-integra in view of the decision of Hon’ble Madras High Court in the case of PCIT Vs. R. Elangovan in Tax Case Appeal Nos. 770 and 771 of 2018 dated 30.03.2021. The ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 4 of 11 relevant operation portion of the said order are reproduced here under :- 7. Be that as it may, the regular assessment under Section 143(3) of the Act was completed on 13.8.2014, in which, it has been mentioned that penalty proceedings under Section 271AAB of the Act would be initiated separately. Pursuant to that, a notice was issued to the assessee, for which, the assessee filed his objections. The first and foremost objection was that the notice was vague and that it did not specify as to under which limb of the said provision, the Assessing Officer proposed to take action. The assessee also touched upon the merits of the case and sought to demonstrate as to how the penalty was not leviable. 8. The Assessing Officer did not agree with the stand taken by the assessee and held that the notice was clear since, in the notice, it had been stated that it was issued under Section 274 read with Section 271AAB of the Act and that there was nothing vague in it. With regard to the merits of the case, the Assessing Officer did not agree with the same and referred to certain portions of the assessment order and ultimately imposed penalty at 30% in terms of Clause (c) to Sub- WEB COPY Section (1) of Section 271AAB of the Act vide order dated 03.2.2016. ) 9. Aggrieved by that, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-18, Chennai-34 [for short, the CIT(A)]. The first ground raised by the assessee before the CIT(A) was that the penalty proceedings themselves were without jurisdiction since there were gross infirmities in the notice while initiating penalty proceedings and that this would vitiate the entire order. The assessee also made submissions on the merits of the case. The CIT(A) chose to proceed further on the merits of the case and found that the Assessing Officer ought not to have imposed penalty at 30% and ought to have restricted to 10%. 10. Aggrieved by the order passed by the CIT(A) dated 23.1.2017, the Revenue filed an appeal before the Tribunal. The assessee filed a cross objection reiterating their stand that the notice was vague and consequently, the entire proceedings stood vitiated. The Revenue sought to sustain the order dated 03.2.2016 passed by the Assessing Officer. Ultimately, the Tribunal, by the impugned order, dismissed the appeal filed by the Revenue and allowed the cross ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 5 of 11 objection filed by the assessee. Thus, the Revenue is before us by way of these appeals. 11. The argument of Mr.T.R.Senthilkumar, learned Senior the Revenue is that the notice issued by the Assessing Officer while imposing penalty clearly stated that it was a notice issued under Section 274 read with Section 271AAB of the Act. Therefore, the assessee was aware that he had to face penalty proceedings initiated under Section 271AAB of the Act. That part, the assessee submitted two replies and was also heard in person and thereafter penalty was imposed. Hence, it is submitted that the order passed by the Tribunal setting aside the penalty in its entirety is not sustainable. The learned Senior Standing Counsel has also referred to Sections 274 and 275 of the Act. 12. In support of his contention, the learned Senior Standing Counsel has placed reliance on the decision of the Allahabad High Court in the case of PCIT Vs. Sandeep Chandak [reported in (2018) 93 Taxmann.com 405]. 13. Per contra, Mr.N.V.Narayanan, learned counsel appearing for the respondent assessee would submit that the notice issued prior to initiation of penalty proceedings did not specify as to under which limb of Section 271AAB of the Act, the Assessing Officer proposed to levy penalty, that this defect goes to the root of the matter and vitiates the entire proceedings and that the Tribunal was right in allowing the assessee's cross objection. In support of his contention, the learned counsel for the assessee has placed reliance on the decisions of the Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory [reported in (2013) 359 ITR 565] and in the case of CIT Vs. SSA's Emerald Meadows [(2016) 73 Taxmann. Com 241] and also the decision of this Court, to which, one of us (TSSJ) was a party, in the case of Babuji Jacob Vs. ITO, Non Corporate Ward 1(2), Chennai [reported in (2021) 124 Taxmann.com 363]. 14. In our considered view, the Tribunal is fully right In vacating the penalty on the ground that the notice was defective. The provisions of the Act have clearly laid down the procedure to be followed and adhered to while imposing the penalty. The proposal for such penalty proceedings was separately initiated upon completion of assessment and there may be cases where the assessee would not even contest the order of assessment. But, that would not preclude the assessee from challenging the penalty proceedings, as penalty proceedings are independent and the procedure required to be followed cannot be dispensed with. ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 6 of 11 15. As rightly pointed out by the learned counsel appearing for the assessee, assessee, Section S 271AAB of the Act, which deals with penalty consists of three contingencies. Therefore, the Assessing Officer should point out to the assessee as to under which of the three clauses, he chooses to proceed against the assessee so as to enable the assessee to give an effective reply. Since the same has not been mentioned, the assessee has been denied reasonable opportunity to put forth their submissions. The Tribunal, In paragraph 5 of the impugned order, has verbatim reproduced the penalty notice and we find that the notice is absolutely vague and none of the irrelevant portions had been struck off nor the relevant portions had been marked or indicated. Hence, the Tribunal is right in observing that the penalty could not have been levied based on such defective notice and more particularly, when the assessee has been strenuously canvassing the jurisdictional issue from the inception. 16. In so far as the decision of the Allahabad High Court in the case of Sandeep Chandak is concerned, the factual position is slightly different. This decision is for the principle that where the assessee, in the course of search, makes a statement, in which, he admits the undisclosed income and specifies the manner, in which, such income has been derived, then the provisions of Section 271AAB of the Act would automatically get attracted. There can be no quarrel over this proposition. But, once the provisions get attracted, it is incumbent on the part of the Assessing Officer to specify as to under which clause in Section 271AAB(1) of the Act, he intends to proceed against the assessee. In the instant case, in the absence of such material in the penalty notice, it has to be held that the notice is defective. 17. The decisions of the Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory and SSA's Emerald Meadows and the decision of this Court in the case of Babuji Jacob clearly support our above conclusion. For all the above reasons, we find no grounds to interfere with the common order passed by the Tribunal. 18. Accordingly, the above tax case appeals are dismissed confirming the common impugned order passed by the Tribunal. No costs. Consequently, the connected CMP is also dismissed. ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 7 of 11 6. For the sake of convenience , the show cause notice issued u/s. 274 r.w.s. 271AAB of the Act dated 09.02.2018 and 02.03.2020 are reproduced here in under :- ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 8 of 11 ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 9 of 11 7. From the notices it is very clear that the Ld. AO had not mentioned the specific limb on which the penalty proceedings u/s. 271AAB is sought to be initiated by him. The ratio laid down in the aforesaid decision of the Hon’ble Madras High Court squarely applies to the case before us. 8. The Ld. DR vehemently relied on the order of Hon’ble Allahabad High Court in the case of PCIT Vs. Sandeep Chandok reported in 93 taxmann.com 405 (All HC) which decision was rendered in favour of the revenue. We would like to state that this decision of Hon’ble Allahabad High Court has been duly considered and distinguished on facts by the Hon’ble High Court of Allahabad in the decision referred (supra). Further both the decisions of Hon’ble Madras High Court and Hon’ble Allahabad High Court, being non jurisdictional High Courts, qua the assessee before us, as per the decision of Hon’ble Supreme Court in the case of CIT Vs. M/s. Vegetables Products Ltd. reported in 88 ITR 192 (SC), the construction which is favourable to the assessee is to be adopted. Accordingly, the decision of Hon’ble Madras High Court (supra) needs to be followed in the instant case and respectfully following the same, the levy of penalty is hereby cancelled for issuance of defective penalty show cause notice in this case, thereby vitiating the entire penalty proceedings. Accordingly the grounds are allowed. ITA No.1202/Del/2024 Late Shri Rajeev Singhla LH Vs ACIT Page 10 of 11 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 30.12.2024 Sd/- Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: /12/2024 Neha, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "