Penalty Proceedings can’t be initiated without a specific Charge: ITAT [Read Order]

The Indore bench of the Income Tax Appellate Tribunal (ITAT) on Thursday ruled that no penalty proceedings can be initiated on a suspected defaulter assessee without specifying the charges levied against him. The aggrieved, Mr. Vivek Chugh had a search and seizure operation carried out in his business as well as his residential premises as per the provisions of section 132. Thereafter the assessee filed his return of income including additional income of Rs.35,00,000/- declared during the search.

The assessing officer observed that the assessee could not specify and substantiate the manner in which the said undisclosed income has been derived hence penalty proceedings u/s 271AAB(1)(b) was initiated. Subsequently, the assessing officer imposed a penalty of Rs.7,00,000/- i.e. 20% of the concealed income. On appeal to the Commissioner of Income Tax (Appeals), the penalty was reduced to 10% of the undisclosed income by using section 271AAB(1)(a) instead. The Assessee pleaded that the initiation of penalty was ex facie bad in law as the notice containing the same did not contain the specific wrong for which the penalty was imposed. Hence the appeal came up before ITAT Indore.

Judicial Member Shri Kul Bharat and Accountant Member Shri Manish Borad, while allowing the appeal and quashing the above erred order adjudged, “A bare reading of the above notice suggests that the notice has been issued in a casual fashion. The Assessing officer has not applied his mind and no specific charge is mentioned for which the assessee was required to be show caused. In the absence of the requisite contents of specific charge the initiation of proceedings cannot be sustained being bad in law. There is no ambiguity under the law so far powers of Ld. CIT(A) is concerned, he can modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. In the present case at the very inception notice initiating penalty is not in accordance with mandates of law.”