SURESH KUMAR,DELHI V. ACIT, CENTRAL CIRCLE-5, NEW DELHI

ITA 1880/DEL/2023

AI Insights

The case involves an appeal by Suresh Kumar against the penalty levied by the Assistant Commissioner of Income Tax, Central Circle-5, under section 271AAB(1A) of the Income Tax Act, 1961, for the assessment year 2019-20. The penalty was confirmed by the Commissioner of Income Tax (Appeals)-24, New Delhi. The primary contention of the appellant was the vagueness of the penalty notice, which failed to specify the exact charge under which the penalty was being levied. The Tribunal examined the notice and found it lacking in detail, leading to the conclusion that the penalty was not justifiable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298840 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2019-2020
• Other Referred Cases: Jaina Marketing & Associates vs. DCIT, Sri. Mahaveer Prasad Agarwal Vs. The DCIT, Shri Ashok Bhatia vs. DCIT, Sushil Kumar Paul vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH
• Assessee Lawyers: PRANAV YADAV
• Keywords: Set aside; Opportunity of being heard; Principle of natural justice
• Section: 271(1)(c); 139(1); 274

Judgement Text

"आयकर अपीलीय अिधकरण िदʟी पीठ “एस एम सी”, िदʟी ŵी िवकास अव̾थी, Ɋाियक सद˟ IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”, DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER आअसं.1880/िदʟी/2023 (िन.व. 2019-20) ITA No.1880/DEL/2023 (A.Y.2019-20) Suresh Kumar, 1726/106 1st Floor, Ritco Rice Palace, Naya Bazar, Delhi 110006 PAN: AAIPK-3090-Q ...... अपीलाथᱮ/Appellant बनाम Vs. Assistant Commissioner of Income Tax, Central Circle-5, ARA, Centre Jhandewalan, Delhi 110055 ..... ᮧितवादी/Respondent अपीलाथŎ Ȫारा/ Appellant by : Shri Pranav Yadav, Advocate ŮितवादीȪारा/Respondent by : Shri Om Prakash, Sr. DR सुनवाई कᳱ ितिथ/ Date of hearing : 10.01.2025 घोषणा कᳱ ितिथ/ Date of pronouncement : : 31.01.2025 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-24, New Delhi (hereinafter referred to as 'the CIT(A)') dated 29.05.2023, for assessment year 2019-20 confirming levy of penalty u/s. 271AAB(1A) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’). 2. Shri Pranav Yadav, appearing on behalf of the assessee submits that the Assessing Officer (AO) while recording satisfaction for levy of penalty u/s. 271AAB(1A) of the Act has failed to clearly record the charge on which penalty is being levied. He pointed that as per provisions of section 271AAB(1A) of the Act the penalty can be levied: 2 ITA No. 1880/DEL/2023 (AY 2019-20) (a) at the rate of 30% of undisclosed income, if the assessee (i) in the course of the search, in a statement under sub-section (4) of section-132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) at the rate of 60% of the undisclosed income not covered under provision of clause a above. 3. Even, in the notice issued u/s. 274 r.w.s 271AAB of the Act, charge for levy of penalty has not been specified. Thus, making notice vague and ambiguous, hence, penalty levied on the basis of vague notice is unsustainable. In support of his contentions, he placed reliance on the decision rendered in the case of Jaina Marketing & Associates vs. DCIT in ITA No. 224, 225 & 226/Del/2023 decided on 20.03.2024 reported as 224(3) TMI 1007-ITAT Delhi. 4. Per contra, Shri Sanjay Kumar representing the department supported findings of the AO and the CIT(A) and prayed for dismissing appeal of the assessee. 3 ITA No. 1880/DEL/2023 (AY 2019-20) 5. Both sides heard, orders of the authorities below examined. The short issue in appeal is with regard to validity of notice dated 20.05.2021 issued u/s. 274 r.w.s 271AAB of the Act for levy of penalty under the aforesaid section. Before proceeding further it would be relevant to refer to provisions of section 271AAB of the Act, same are reproduced herein below: “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 President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section-132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section-132, does not admit the undisclosed income; and (ii) on or before the specified date— 4 ITA No. 1880/DEL/2023 (AY 2019-20) (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee— (i) in the course of the search, in a statement under sub-section (4) of section-132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).” 6. A bare perusal of provision of section 271AAB of the Act would show that the penalty under aforesaid section can be levied under different circumstances for 5 ITA No. 1880/DEL/2023 (AY 2019-20) different violations. Although, while recording satisfaction, the AO mentioned that penalty is being initiated u/s. 271AAB(1A) of the Act, however, no specific offence as mentioned under sub-section (1A) has been ambiguously specified by the AO. The vagueness and ambiguity in mind of the AO is writ large even while issuing notice u/s. 274 r.w.s 271AAB of the Act. While issuing notice the AO has not even bothered to mention sub section under which penalty has been levied. Hence, specific charge for levy of penalty in the notice is missing in the notice. This makes the notice vague. The Division Bench of the Tribunal in the case of Jaina Marketing & Associates vs. DCIT (supra) while dealing with similar issue deleted penatly levied u/s. 271AAB of the Act. For the sake of completeness the relevant extract of findings of the Division Bench are reproduced herein under: “17. Now, we take up the appeals are pertaining for A.Y 2018-19 & 2019-20. The impugned orders of penalty have been passed u/s 271AAB of the Act. The Ld. Counsel for the assessee submitted that the penalty notice issued u/s 271AAB of the Act in both the Assessment Years are not in manner depicting the charge against the assessee as to whether under which clause (a), (b) or (c) of Section 271AAB (1) or Clause (a) or (b) of 271AAB(1A) of the Act, penalty is leviable on the assessee. Thus, submitted that the notice initiating the penalty u/s 271AAB of the Act is a vague notice and therefore, illegal consequently, the order of penalty and the order of the Ld. CIT(A) thereon deserves to be set aside. The Ld Counsel for the assessee relied on various judicial precedents in support of the said submission. 18. The Ld. Departmental Representative has also produced various Judgments relying on the orders of the Lower Authorities submitted that the order of the Lower Authorities, are well reasoned, the assessee has been heard before passing the order of penalty and the assessee is not prejudiced in any manner in issuing the penalty notice in the manner which it has been issued, therefore, sought for dismissal of the Appeals filed by the assessee. 6 ITA No. 1880/DEL/2023 (AY 2019-20) 19. We have heard both the parties and perused the material available on record. In both the Assessment Years i.e. A.Y 2018-19 and 2019-20, the identical penalty notice u/s 271AAB has been issued. For the sake of convenience, the penalty notice for Assessment Year 2018-19 reproduced reads as under: “Whereas in the course of proceedings before me for the Assessment Year 2018-19. 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 02/07/2021 and show cause why an order imposing a penally on you should not be made under section 271AAB of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271AAB of the Income Tax Act, 1961.\" 20. A show cause notice was also issued on 09/09/2021 for imposing penalty u/s 271AAB for A.Y 2018-19 and identical show cause notice was also issued for A.Y 2019-20. The show cause notice dated 09/09/2021 reads as under:- “During the course of proceedings before me for the assessment year 2019-20, it was found that consequent upon search proceeding you were found to have undisclosed income. You were show caused vide letter ITBA/PNL/S/271AAB/2021- 22/1033245356(1) dated 02.06.2021 as to why an order imposing a penalty on you should not be made u/s 271AAB of Income Tax Act, 1961. You were requested to submit your reply by 02.07.2021 but no reply has been submitted by you till date. You are, hereby, given further opportunity to explain as to why an order imposing a penalty u/s 271AAB of the IT Act, on you should not be made. You are requested to submit your explanation in writing on or before 14.09.2021 which will be considered before any such order is made under section 271AAB of the Income Tax Act, 1961. Please note that in case of non- compliance, it will be assumed that you 7 ITA No. 1880/DEL/2023 (AY 2019-20) have nothing to explain in your support and penalty shall be imposed on the basis of material available on record.” 21. As could be seen from the above the notice issued u/s 271AAB of the Act, it does not depict the charge against the assessee as to under which Clause (a), (b) or (c) or Section 271AAB (1) or Clause (a) or (b) of 271 AAB (1A) of the Act penalty is leviable on the assessee. Therefore, we are of the opinion that the notice initiating penalty u/s 271AAB 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 have held that the penalty notice should be clear enough to convey the assessee about the charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act. 22. An Identical question came for consideration before the Jaipur bench of the Tribunal in the case of Sri. Mahaveer Prasad Agarwal Vs.The DCIT in ITA No.1218/JP/2019 vide order dated 02-06-2022, wherein the similar notice has been issued to the Assessee therein and the Tribunal held as under: “5.1 In case of Shri Padam Chand Pungliya vs. ACIT (supra), the Coordinate Bench has held at para 5 page 7 of its order as under :- \"It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) Itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to be considered and decided in the penalty Since the assessee has offered the said income in the return of income filed under section 139(1) of the Act, therefore, the question of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise and only when the AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided under section 271AAB. 8 ITA No. 1880/DEL/2023 (AY 2019-20) Therefore, the AO in the proceedings uno section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion tharth income disclosed by the assessee falls in the definition of undiscloses income as stipulated in the explanation to the said section. Therefore we do not agree with the contention of the Id. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after considering the fact that all the conditions provided under section 271AAB are satisfied.\" It is evident from the show cause notice issued under section 274 read with section 271AAB (APB Page 1) that the AO was not clear as to on what precise charge the appellant was asked to show cause, whether the assessee shall pay by way of penalty under clause (a), (b) or (c) of section 271AAB. The AO has just mentioned \"deliberately concealed the true income\". Thus the AO without mentioning specific default of the assessee in terms of clause (a), (b) or (c) of section 271AAB of the Act, the, show cause notice issued in routine manner cannot be considered a valid notice in the eyes of law and accordingly the levy of penalty against the assessee is held to be void ab initio. Further, the assessee has substantiated the undisclosed cash available, as to the extent of surrendered income of Rs. 8,73,000/-. 6. In view of the above, considering the peculiar facts, the grievance of the assessee is accepted as genuine and as such the order of the Id. CIT (A) sustaining the penalty is hereby quashed. 7. In the result, appeal of the assessee is allowed.” 22. The Indore Bench of the Tribunal in ITA No. 869/1nd/2018 in the case of Shri Ashok Bhatia vs. DCIT vide order dated 05.02.2020 held as under:- “8. From perusal of the above provision we observe that sub section 3 of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by 1.d. A.O is to issue a valid notice u/s 274 of the Act. Sub- section (1) to Section 274 of the Act provides a procedure that \"No order imposing a penalty under this Chapter shall he made unless the assessee has been heard, or has been given a reasonable opportunity of being heard\". To comply with this requirement the notice u/s 274 should be clear enough to convey the assessee about the charge which is to be leveled against him/her/it for levying the penalty for the contravention of the related provisions of the Act which in the instant case relates to not surrendering of 9 ITA No. 1880/DEL/2023 (AY 2019-20) undisclosed amount during the course of search which is subsequently admitted during the course of assessment and not challenged before the Ld. CIT(A). So it was incumbent for Ld. A.O that in the notice issued u/s 274 of the Act he should have mentioned that penalty u/s 271AAB of the Act may be levied na 10/20/30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assessees case falls under clause-c of section 271AAB of the Act, why she should not be visited by penalty (30% of the undisclosed income. Against this charge the assessee should have been given a reasonable opportunity of being heard. From going through the above three notices issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.2016, we find that there is no mention about various conditions provided u/s 271 AAB of the Act. The Ld. A.O has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the Section 271AAB of the Act in the notice it does not talk anything about the provision of section 271AAB. Certainly such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee. Hon'ble Jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra) dealt the issue of defective notice issued u/s 274 r.w.s. 271(1)(c) of the Act and Hon'ble court after relying judgment of Hon'ble Supreme Court in the case of CIT V/s Manjunatha Cotton Ginning Factory and CIT v/s SSA'S Emerald Meadows (supra) held that such show cause notices would not satisfy the requirement of law as notice was not specific. Merely issuing notice in general proforma will negate the very purpose of natural justice. Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 held that \"the quasi criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice\". 15. We, therefore respectfully following the judgment of jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra), decision of Coordinate Bench of Chennai in the case of DCIT V/s R. Elangovan (supra) and Jaipur Bench in the case of Ravi Mathur Vs DCIT (supra) and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs.64,22,348/- stands deleted. Thus assessee succeeds on legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act.” 10 ITA No. 1880/DEL/2023 (AY 2019-20) 23. The Kolkata Bench of the ITAT in the case of Sushil Kumar Paul vs. ACIT in ITA No. 2274/Ko1/2019 vide order dated 15.12.2022, held as under:- “From the perusal of the above proposition, we observe that sub section 3 of section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271 AAB of the Act, the first step to be taken by Id. Assessing Officer issue a valid notice u/s 274 of the Act provides a procedure that \"No order imposing a penalty under this Chapter shall be made unless the assessee has been heard. or has been given a reasonable opportunity of being heard.\" To comply with this requirement the notice u/s 274 should be clear enough to convey the assessee about charge which is to be leveled against him/her it for levying penalty for contravention of the related provisions of the Act. So it was incumbent for Id. AO that in the notice issued u/s 274 of the Act should have mentioned that penalty u/s 271AAB of the Act may be levied @ 10/20/30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assesseee's case falls under Clause-c of section 271AAB of the Act, why he should not be visited by the penalty (ee. 30% of the undisclosed income. Against this charge. the assessee should have been given reasonable opportunity of being heard. 10. From going through the above notice issued to the assessee on 28.12.2017. we find that there is no mention about various conditions provided u/s 27IAAB of the Act. The Id. AO has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the section 271AAB of the Act in the notice, it does not talk anything about the provisions of section 271AAB. Therefore, certainly such notice has a fatal error and technically' is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee”. 24. The similar views have been taken in the following orders of the Tribunal:- i) Hyderabad Bench of the Tribunal in ITA No. 756/Hyd/20 ACIT dated 04.01.2022 vs Smt. Pallem Reddy Sreelakshmi, Tirupati. ii) Indore Bench of the Tribunal in ITA No. 249/Ind/2021 dated 28.06.2022 ACIT vs. Shri. Arnit Tiwari iii) Jabalpur Bench of the Tribunal in ITA No. 1218/JP/2019 dated 02.08.2022 Shri Mahaveer Prasad Agarwal vs. DCIT. 11 ITA No. 1880/DEL/2023 (AY 2019-20) 25. For the detailed reasoning and discussion made above and considering the fact that no specific charge has been mentioned in the penalty notice issued u/s 271AAB of the Act and also following the principles laid down in the above judicial pronouncements, we delete the penalty imposed by the A.O. On this technical grounds for the Assessment Years 2018- 19 & 2019-20.” 7. The contents of notice for levy of penalty in the instant case are identical. The notice has been issued by the AO in mechanical manner. For parity of reasons, penalty levied u/s. 271AAB is directed to be deleted. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open court on Friday the 31st day of January, 2025. Sd/- Sd/- (VIKAS AWASTHY) ᭠याियक सद᭭य/JUDICIAL MEMBER िदʟी/Delhi, ᳰदनांक/Dated 31.01.2025 NV/- ᮧितिलिप अᮕेिषतCopy of the Order forwarded to : 1. अपीलाथᱮ/The Appellant , 2. ᮧितवादी/ The Respondent. 3. The PCIT 4. िवभागीय ᮧितिनिध, आय.अपी.अिध., िदʟी /DR, ITAT, िदʟी 5. गाडᭅ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, DELHI "