Case Law Details
Laxmi Narayan Agarwal Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the assessee’s appeal and cancelled the penalty imposed under Section 271AAB of the Income-tax Act arising from a search conducted at the assessee’s premises. The assessee had filed a return declaring income from capital gains, dividend, and interest. During the search, cash of ₹5.89 lakh and jewellery were found. In the assessment proceedings, additions were made under Section 69A for both cash and jewellery. While the Commissioner (Appeals) deleted the jewellery addition after holding that it belonged to the assessee’s mother, the addition relating to cash was sustained.
In the earlier quantum appeal, the ITAT accepted the assessee’s contention that the cash belonged to the assessee’s agriculturist father and also represented savings of the women members of the family. However, since evidence relating to sale of crops was not produced, the Tribunal granted partial relief of ₹2.50 lakh, comprising ₹1.50 lakh towards estimated agricultural income and ₹1 lakh towards household savings, while sustaining the balance addition of ₹3.39 lakh.
Based on the sustained addition, the Assessing Officer levied penalty under Section 271AAB at 60% on ₹3.39 lakh, amounting to ₹2,03,502. The Commissioner (Appeals) upheld the penalty, following which the assessee appealed before the ITAT. The assessee contended that the penalty proceedings were invalid because neither the show cause notices nor the penalty order specified the particular clause of Section 271AAB under which the penalty was initiated or imposed. It was also argued that the addition had been sustained only on an estimated basis and did not constitute “undisclosed income” within the meaning of Section 271AAB. The assessee further submitted that there was no admission of undisclosed income, no material showing the manner in which such income was derived, and no mala fide intention.
The Revenue relied upon the orders of the lower authorities. After considering the submissions, the Tribunal observed that the sustained addition did not satisfy the statutory definition of “undisclosed income” under Section 271AAB because it was based on judicial estimation rather than seized material or any admission by the assessee. The Tribunal further observed that the cash represented agricultural income of the assessee’s father and savings of the women members of the family, and that there was no undisclosed income or mala fide intention necessary for invoking Section 271AAB.
The Tribunal also examined the legal objection regarding the validity of the penalty proceedings. It found that the show cause notice did not specify the exact clause of Section 271AAB under which penalty was proposed, thereby failing to inform the assessee of the precise charge. Referring to its earlier decision in Jaina Marketing & Associates vs. DCIT, the Tribunal noted that a vague notice which does not indicate the applicable clause renders the penalty proceedings unsustainable because the assessee is not made aware of the exact charge. The earlier decision had held that such notices are legally defective and that penalties imposed pursuant to such notices are liable to be deleted on technical grounds.
Following the same reasoning, the ITAT held that the penalty order could not survive. It cancelled the penalty imposed under Section 271AAB and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)-29, New Delhi [hereinafter referred to as `1d. CIT(A)] dated 11.12.2025 for the Assessment Year 2021-22.
2. At the time of hearing, ld. AR of the assessee brought to our notice relevant facts and submitted that assessee is an individual and regularly files his return of income. During the year, he had earned income in the nature of capital gains, dividend income and interest from FDs saving account and accordingly, he filed return of income declaring total income of Rs.17,07,170/-.
3. He further submitted that a search and seizure action was carried on Manoj Kumar Singh and his various transacting parties including M/s Era Infra Engineering on 14.10.2020 and the assessee was associated with M/s. Era Infra Engineering in the past years and thus, premises of the assessee was also searched. He submitted that during the course of search operation at assessee’s premises, cash of Rs.5,89,170 was found out of which Rs.5 Lacs was seized and jewellery weighing 183 gms. valuing Rs.8,58,000/- kept in the HDFC Bank locker was also seized. Further, Assessee was subject to scrutiny assessment u/s 143(3) wherein addition of jewellery of Rs.10.67 Lacs and addition of cash of Rs.5,89,000/- was made u/s 69A. He submitted that on appeal before the ld. CIT (A), ld. CIT (A) deleted the entire addition with respect to the jewellery holding that the jewellery belonged to the mother of the assessee , however, addition with respect to cash was sustained.
4. He submitted that with respect to the cash seized, the assessee preferred an appeal before the ITAT in ITA No.1121/De1/2024 accepted the contention of the assessee that the cash seized belonged to the father of the Assessee who is an agriculturist and also accepted that even the ladies of the family i.e. the wife and mother of the assessee kept certain cash savings and placed a copy of the order of the ITAT He further submitted that however, the ITAT partly allowed the appeal by giving relief of Rs.2.50 lacs (Rs.1,50,000/-being agricultural income on an estimate basis and Rs.1,00,000being the savings of the ladies), out of the total cash seized of Rs.5.89 Lacs only on the reason that the assessee did not produce evidences for sale of crops. However, the ITAT acknowledged that the father of the Assessee was an agriculturist and kept his agricultural income in cash at the premises of the assessee.
5. He further submitted that considering the fact that out of Rs.Rs.5,89,170/- partial relief of Rs.2,50,000 was granted by the ITAT, the AO levied penalty u/s 271AAB of the Income-tax Act, 1961 (for short ‘the Act’) @ 60 % on the balance amount of Rs.3,39,170, holding it as undisclosed income Accordingly, penalty @ 60% on Rs.3,39,170 i.e. Rs.2,03,502 was levied which was sustained by the ld. CIT (A) and against that order, assessee is in appeal before the ITAT by raising following grounds of appeal :-
“1. The penalty order is bad in law and void-ab-initio and accordingly, ought to be quashed.
2. On the facts and circumstances of the case and in law, the Learned AO erred in levying penalty u/s 271AAB Without specifying the relevant clause of the Section 271AAB under which penalty has been initiated.
3. On the facts and circumstances of the case and in law, the Learned AO erred in levying penalty u/s 271AAB without appreciating that the addition has been confirmed by the Ld. ITAT on an estimate basis.
4. On the facts and circumstances of the case and in law, the Learned AO erred in levying penalty u/s 271AAB ignoring that there was no mala-fide intention of the Assessee.
6. Ld. AR for the assessee invited out attention to the provision of Section 271AAB of the Act in detail. He submitted that the show cause notice issued by the AO dated 29.07.2022 and 21.02.2025 does not mention under which limb or clause of Section 271AAB, the penalty proceedings have been initiated. In fact, even the penalty order does not mention under which limb the penalty has been levied. He submitted that this non-specification of which clause of Section 271AAB is invoked becomes more evident from the order of Ld. CIT(A) wherein he has confirmed the addition on the basis of conditions which were never satisfied in the case of the Assessee. Further he brought to our attention that the assessee never admitted any undisclosed income and there is no statement regarding the manner of deriving the same, hence, the conditions specified by the ld.CIT(A) are not applicable to the facts of the case. He submitted that this makes it apparent that neither the AO nor the ld. CIT(A) has specified which limb of Section 271AAB is invoked in the case of the assessee. Accordingly, he pleaded that the penalty order passed under section 271AAB is legally unsustainable as it fails to specify the precise clause i.e. either clause (a) or (b) under which the penalty has been initiated and imposed. He further submitted that this omission is not a mere procedural lapse but a substantive defect that violates the principles of natural justice. The assessee was not informed of the precise charge he was required to meet, thereby making the present penalty order void-ab-intio. In this regard, he relied on the following decisions :-
- Jaina Marketing & Associates, Delhi vs. DCIT ITA No. 224 & Ors. Dated 20.03.2024 ITAT Delhi
- Landcraft Developers (Pvt.) Ltd. (ITAT Delhi) in ITA No.1062/Del/2019 dated 08.01.2025
- Rahul Jain vs. DCIT (ITAT Chandigarh) ITA No.1219/CHANDI/2024 dated 18.08.2025
7. Further he submitted that the sustained addition does not meet the statutory definition of “undisclosed income” under section 271AAB. Since the addition is based on judicial estimation and not on any seized material or admission, the penalty imposed is without legal foundation and deserves to be quashed. Further he submitted that there is no undisclosed income of the Assessee. Whatever cash has been found is agricultural income of the father and the savings of the ladies. Hence, the instant penalty order ought to be cancelled as there is no undisclosed income or malafide intention which is mandatory for invoking section 271AAB.
8. Further he submitted that the impugned penalty order does not survive on technical grounds since the charge levied against the Assessee was not mentioned in the show cause notice. Even on merits, it is submitted that there is no undisclosed income of the Assessee and the addition has been confirmed on estimated basis, thus, there is no malafide intention of the Assessee, hence, it is prayed that the penalty order may be quashed.
9. On the other hand, ld. DR of the Revenue objected to the submissions of the ld.AR of the assessee and heavily relied on the decision of lower authorities.
10. Considered the rival submissions and material placed on record. We observed that the ITAT in the quantum appeal has made a part addition. Further we observed the sustained addition does not meet the statutory definition of “undisclosed income” under section 271AAB. We observed that the addition is based on judicial estimation and not on any seized material or admission and the penalty imposed is without legal foundation. Further we observed that there is no undisclosed income of the Assessee and whatever cash has been found is agricultural income of the father and the savings of the ladies. We observed that there is no undisclosed income or malafide intention which is mandatory for invoking section 271AAB.
11. Further we observed that assessee has taken a legal ground and the impugned penalty order does not survive on technical grounds since the charge levied against the assessee was not mentioned in the show cause notice. We observed that this legal issue is decided by various Courts and the ITAT in favour of the assessee. In this regard, we find force from the decision of Jaina Marketing & Associates vs. DCIT (supra), relief on by the ld.AR of the assessee, wherein coordinate Bench has decided the issue in favour of the assessee and the relevant findings are as under :
“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 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, 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 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.
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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. 26. Since, penalty is cancelled on technical ground, the adjudication of levy of penalty on merits becomes academic in nature. Hence, no opinion is rendered thereon and they are left open. Accordingly, Appeals filed by the assessee are allowed.”
12. In view of our above discussions and respectfully following the above decision, we are inclined to cancel the penalty order and delete the penalty.
13. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 4th day of June, 2026.
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