The Income Tax Tribunal (ITAT) Kolkata Bench ruled that the notice proforma of levy penalty under section 271AAB of Income Tax Act, 1961 without mentioning the charge is defective and invalid.
This appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals) [CIT(A)] for A.Y. 2016-17
The fact is that a search and seizure operation was conducted on the premises of assessee and consequence to that the assessee had disclosed a sum of Rs. 79,00,000.
In the interim, the assessee had written to the Assessing Officer (AO) asking him to alter his tax liability from Rs. 28,34,610 on his return to Rs. 36,00,000 of cash that had been confiscated.
Further, the AO started a penalty procedure under section 271AAB of the Income Tax Act and issued an order despite accepting the return submitted by the assessee and assessing the total income at Rs. 83,02,410.
Siddarth Agarwal, Counsel for the assessee submitted that before levying the penalty under section 271AAB of the Income Tax Act, the AO has to issue notice under section 274 of Income Tax Act as provided in section 271AAB(3) of the same Act.
Furthermore, in the notice issued to the assessee there is no mention about the various conditions provided under section 271AAB of Income Tax Act relating to levy of penalty @ 10% or 20% or 30%.
Ranu Biswas, Addl. CIT, Departmental Representative, angrily claimed that AO’s usage of the identical proforma for sending notice under sections 274 read with 271(1)(c) of the Income Tax Act was a clerical error.
On the merits, the assessee has no case because the alleged addition was surrendered during the course of the search, was not reported on the tax return, and no taxes were paid; as a result, the undisclosed income was properly penalised at 30% under the terms of section 271AAB(c) of the Income Tax Act.
The tribunal observed that for initiating the penalty proceedings under section 271AAB of the Income Tax Act, the first step to be taken by AO issue a valid notice under section 274 of the same 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.”
Further, to comply with this requirement the notice under section 274 should be clear enough to convey the assessee about charge which is to be levelled against him/her for levying penalty for contravention of the related provisions of the Act.
The bench of Girish Agarwal and Sanjoy Sarma agreed with the Coordinate Bench of Chennai’s ruling in the case of DCIT v. R. Elangovan, finding that the alleged notice was defective and invalid under the facts and circumstances of the case because it did not refer to the alleged violation of section 271AAB of the Income Tax Act. As a result, the alleged notice should be quashed.
Further, since the penalty proceeding itself has been quashed the impugned penalty of Rs. 83,02,410 stands deleted. Thus the assessee succeeds on legal ground challenging the validity of notice issued under section 274 read with section 271AAB of the Income Tax Act.
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