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Judgment
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals-24), New Delhi [hereinafter referred to as “CIT(A)”] vide order dated 28.10.2025 pertaining to A.Y. 2022-23 arising out of the penalty order passed u/s.271AAB of the Income-tax Act, 1961, (in short ‘the Act’).
At the time of hearing, Ld. AR for the assessee has filed an application for admission of additional grounds of appeal, alongwith additional grounds of appeal and copy of notices u/s. 274r.w.s 271AAB dated 30.3.2024 and 02.09.2024 and requested that in view of the Hon’ble Supreme Court decision in the case of NTPC vs. CIT [229 ITR 383], the following Additional Grounds may be admitted and adjudicate accordingly, as it goes to the root of the matter and would not require any fresh evidence.
A. That, on the facts and in the circumstances of the case and in law, the penalty order passed under section 271AAB of the Income Tax Act, 1961 dated 24.9.2024 and the appellate order passed by the CIT(A) are bad in law, void ab initio and liable to be quashed as the notice issued for initiation of penalty proceedings u/s. 271AAB is vague, defective and invalid.
B. That, on the facts and in the circumstances of the case and in law, the notice issued under section 271AAB fails to specify the exact charge against the appellant, namely whether the penalty was proposed under clause (a), clause (b) or clause (c) of section 271AAB(1), or under clause (a) or clause (b) of section 271AAB(1A), thereby rendering the initiation as well as the consequent penalty proceedings illegal, invalid and liable to be quashed.
We have heard rival contentions and perused the records placed before us. The legal issue by way of Additional Ground before us is that whether the notice issued u/s 274 r.w.s. 271AAB of the Act suffers from fatal error and technical defect thereby not providing an opportunity to the assessee to plead his case. Since the legal ground goes to the root cause of the issue levying penalty u/s 271AAB of the Act, we in view of the ratio held by the Hon'ble Apex Court in the case of National Thermal Power Company Limited (supra) admit the additional legal ground for adjudication. For levying penalty u/s 271AAB of the Act the A.O needs to primarily issue notice u/s 274 of the Act so for initiating proceedings u/s 271AAB of the Act the Ld. A.O has to first pass through the hurdle of Section 274 of the Act.
For better understanding we reproduce the provisions of Section 271AAB and 274 of the Act which reads as follows:-
Section 271AAB of the Act.
'271AAB. Penalty where search has been initiated.--(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, 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--
(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 which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub- section (1).
(3)The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.
Explanation.--For the purposes of this section,--
(a)"specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be;"specified previous year" means the previous year--(i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or
(ii)in which search was conducted;
(b)"undisclosed income" means--
(i)any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has-- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or
(ii)any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.'.
Section 274 of the Act (1) 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. (2) No order imposing a penalty under this Chapter shall be made-
(a)by the Income- tax Officer, where the penalty exceeds ten thousand rupees;
(b)by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.]
(3)An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer']
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 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 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 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 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 @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 he 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.
Now let us revert back to the fact of the instant case of the assessee and look into what has been mentioned in the alleged notices dated 30.02.2024 and 02.09.2024 issued u/s 274 r.w.s. 271AAB of the Act, which are reproduced below;
“GOVERNMENT OF INDIA, MINISTRYOF FINANCE INCOME TAX DEPARTMENT TO BRINDAVAN AGRO INDUSTRIES PRIVATE LIMITED, 3/16, WEST PATEL NAGAR, WEST PATEL NAGAR, PATEL NAGAR, WEST PATEL NAGAR, WEST CENTRAL DELHI-110008 DELHI INDIA PAN ASSESSMENT YEAR DIN & NOTICE No. Date AAACB0258J 2022-23 ITBAA/PNL/S/271AAB/ 30.3.2024 2023-24/1063734772(1)
“NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961
Sir/Madam,
Whereas in the course of proceedings before me for the assessment year 2022-23, 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 10.42 am on 26.4.2024 and show cause why an order imposing a penalty 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.
Mahendra Pratap Singh Visen, Central Circle 6, Delhi”
“GOVERNMENT OF INDIA, MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6, DELHI TO BRINDAVAN AGRO INDUSTRIES PRIVATE LIMITED, 3/16, WEST PATEL NAGAR, WEST PATEL NAGAR, PATEL NAGAR, WEST PATEL NAGAR, WEST CENTRAL DELHI-110008 DELHI INDIA PAN ASSESSMENT YEAR DIN & NOTICE No. Date AAACB0258J 2022-23 ITBAA/PNL/S/271AAB/ 02.09.2024 2024-25/1068260895(1)
“NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961
Sir/Madam,
Whereas in the course of proceedings before me for the assessment year 2022-23, 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 11.00 am on 13.9.2024 and show cause why an order imposing a penalty 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.
Akshay Anand Central Circle 6, Delhi”
From going through the above two notices issued to the assessee on 30.03.2024 & 02.09.2024, we find that there is no mention about various conditions provided u/s 271 AAB of the Act.
We find that Hon'ble Jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia 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 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".
Further in the case of DCIT V/s R. Elangovan Ltd, Co- ordinate Bench, Chennai while dealing with the legal ground challenging thevalidity of notice issued u/s 274 r.w.s. 271AAB of the Act had observed that ;
"It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for having undisclosed income within the meaning of Section 271AAB of the Act. Notice in our opinion was vague. Hon'ble Karnataka High Court in the case of SSA's Emerald Meadows (supra) relying in its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) had held as under:-
"2.This appeal has been filed raising the following substantial questions of law.
(1)Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?
(2)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.S. 271(1)(c) is bad in law and invalid despite the amendment of Section 271 (1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?
(3)Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order When the assessing officer has specified that the assessee has concealed particulars of income?
The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271 (1)(c) of the Income Tax Act, 1961 (for short 'the Act,) to be bad in law as it did not specify which limb of Section 271 (1)(c) of the Act, the penalty proceedings had been initiated i.e., Whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, While allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565.
In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed".
In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:-
"Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law;
The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings; The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings".
View taken by the Hon'ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon'ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA's Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, is not valid. Ex- consequenti, the penalty order is set aside.
The view taken by the Co-ordinate Bench of Chennai in the case of DCIT V/s R. Elangovan 1199/CHNY/2017 order dated 05.04.2018 has been subsequently followed by the Co-ordinate Bench of Jaipur in the case of Ravi Mathur Vs. DCIT, ITA No.969/JP/2017 holding that such show cause notice issued u/s 274 r.w.s. 271AAB of the Act are not sustainable in law.
We, therefore respectfully following the judgment of jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra), decision of Co-ordinate 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 stands deleted. Thus assessee succeeds on legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act.
Since the penalty u/s 271AAB has been dealt and deleted on the preliminary legal points, other arguments of the assessee dealing with the merits of the levy of penalty are not been dealt with, as the same are rendered academic in nature. Thus grounds raised on merits are dismissed as infructuous. Be that as it may, we conclude that given the fact that the learned Assessing Officer's not having satisfied the corresponding limb under section 271AAB hereinabove, the impugned penalty deserves to be deleted only. We order accordingly.
In the result the appeal of the assessee is allowed.