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Case Law Details

Case Name : Landcraft Developers (Pvt.) Ltd Vs ACIT (ITAT Delhi)
Appeal Number : ITA No. 1062/Del/2019
Date of Judgement/Order : 08/01/2024
Related Assessment Year : 2013-14

Landcraft Developers (Pvt.) Ltd Vs ACIT (ITAT Delhi)

Introduction: In the case of Landcraft Developers (Pvt.) Ltd Vs ACIT, the issue of penalty u/s 271AAB of the Income Tax Act was contested. The appeal arose from the order of the Commissioner of Income Tax (Appeals)-29, New Delhi, concerning the Assessment Year 2013-14. The primary question before the Income Tax Appellate Tribunal (ITAT) was whether the penalty levied under section 271AAB was justified.

Detailed Analysis: The crux of the matter revolved around the validity of the show cause notice issued by the Assessing Officer (AO) on 31/03/2015 for initiating penalty proceedings under section 271AAB of the Income Tax Act. The notice failed to specify the offense committed by the assessee and did not mention the rate of penalty to be levied, rendering it defective. The ITAT observed that the notice used the format meant for initiating penalty proceedings under section 271(1)(c) of the Act, which was inappropriate for section 271AAB.

Furthermore, the notice did not comply with the provisions of section 271AAB(2) of the Act, which stipulate that no penalty under section 271(1)(c) could be levied in cases where undisclosed income is offered pursuant to a search conducted on or after 01/07/2012. The lack of specificity and failure to adhere to statutory requirements rendered the notice defective and the penalty proceedings void ab initio.

The ITAT cited judicial precedent, including the case of Sushil Kumar Paul vs. ACIT, to support its decision that a defective notice vitiates penalty proceedings. As the show cause notice did not comply with statutory provisions and failed to specify the charge against the assessee, the penalty levied under section 271AAB was deemed unsustainable in law.

Conclusion: The ITAT, Delhi, in the case of Landcraft Developers (Pvt.) Ltd Vs ACIT, emphasized the importance of issuing proper show cause notices in penalty proceedings. A defective notice that fails to specify the offense and the rate of penalty renders the penalty proceedings void. Therefore, the ITAT deleted the penalty imposed under section 271AAB of the Income Tax Act, highlighting the significance of procedural compliance in tax matters.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-29, New Delhi, [hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.03/2018- 19/CIT(A)-29 dated 08/01/2019 against the order passed by Ld. Asst. Commissioner of Income Tax, Central Circle-27, New Delhi (hereinafter referred to as the ‘Ld. AO’) u/s 271AAB of the Income Tax Act (hereinafter referred to as ‘the Act’) on 29.03.2018 for the Assessment Year 2013-14.

2. The only issue to be decided in this appeal is as to whether the CIT(A) was justified in confirming the levy of penalty u/s 271AAB of the Act in the facts and circumstances of the instant case.

3. We have heard the rival submissions and perused the materials available on The assessee company is engaged in the business of development of land. A search and seizure operation u/s 132 of the Income Tax Act was carried out on 23/08/2012 in M/s Landcraft Group of cases. During the course of search, statement u/s 132(4) of the Act was recorded from the Director of the assessee, wherein sum of Rs.6,42,57,474/- and Rs.40,00,000/- was surrendered as undisclosed income by the assessee. The sum of Rs.6,42,57,474/- was surrendered with respect to specific income as detailed in the statement u/s 132(4) of the Act and Rs.40,00,000/- was surrendered to cover up any other deficiency found during the course of search and the assessment. The assessee duly included the aforesaid disclosure of income while filing its return of income on 29/11/2013 and paid the requisite taxes due thereon. The assessment was completed u/s 143(3) of the Act for AY 2013-14 determining total income at Rs.80,05,205/- after making addition on account of unexplained cash credit Rs.10,00,000/- and addition of Rs.3,98,235/- made u/s 69A of the Act in respect of transactions with M/s Pandav Developers Pvt. Ltd.. The penalty proceedings u/s 271AAB of the Act were initiated on completion of assessment proceedings itself on 31/03/2015. A show cause was issued u/s 274 r.w.s 271AAB of the Act on 31/03/2015. The said show cause is enclosed at Page 1 of the Paper Book filed before us. The said show cause only mentioned the offence committed by the assessee by mentioning that assessee has concealed the particulars of income or furnished inaccurate particulars of income. This show cause notice is meant for initiating penalty proceedings u/s 271(1)(c) of the Act. The Ld. AO has used the same show cause notice in the same format for initiating penalty proceedings u/s 271AAB of the Act on 31.03.2015. Later, another penalty notice dated 13/03/2018 u/s 271AAB of the Act was issued to the assessee in the form of letter show causing the assessee as to why penalty u/s 271AAB of the Act should not be imposed on the assessee. In this letter dated 13/03/2018, the Ld. AO had duly referred to the penalty proceedings already initiated u/s 271AAB of the Act on 31/03/2015. Hence, triggering point for the impugned penalty proceedings u/s 271AAB of the Act is show cause issued on 31/03/2015.

4. The AO levied penalty on the undisclosed income offered in the sum of Rs.6,42,57,474/- with respect to specific income and of Rs.3,98,235/- made in respect of addition u/s 69A of the Act. Accordingly, the penalty @10% amounting to Rs.68,25,747/- was levied by the Ld. AO vide order u/s 271AAB of the Act on 29/03/2018. This action of the Ld. AO was upheld by the Ld. CIT(A).

5. Now, the short point that arises for our consideration is as to whether the preliminary show cause notice issued on 31/03/2015 for initiating penalty proceedings u/s 271AAB of the Act mentioning the inappropriate charge of offence committed by the assessee could be construed as defective notice or It is pertinent to note that that in the order passed u/s 271AAB of the Act on 29/03/2018 by the Ld. AO, in para-2, thereon, it has been categorically admitted by the Ld. AO that the penalty proceedings u/s 271AAB of the Act was started vide issuance of notice on 31/03/2015. As stated earlier, we find that the penalty notice dated 31/03/2015 issued by the Ld. AO was actually meant for initiating the penalty proceedings u/s 271(1)(c) of the Act. The said notice mentions the offence committed by the assessee i.e., to say whether the assessee has concealed the particulars of income or had furnished inaccurate particulars of income. Both these conditions are absolutely not relevant for initiating penalty proceedings u/s 271AAB of the Act. Moreover, the provisions of section 271AAB (2) of the Act very clearly state that no penalty u/s 271(1) (c) of the Act could be levied on the assessee in respect of undisclosed income offered by the assessee pursuant to search conducted on or after 01/07/2012. Hence, it goes to prove that the provisions of section 271(1) (c) and section 271AAB of the Act are mutually exclusive. Accordingly, the format for issuing show cause notice for penalty u/s 271(1)(c) of the Act cannot be used for initiating penalty proceedings u/s 271AAB of the Act. Further, we find that the provisions of section 271AAB of the Act contains various types of levy of penalty in the following manner:-

(i) 271AAB (1)(a)-10% of undisclosed income would be the penalty.

(ii) 271AAB (1)(b)- 20% of undisclosed income would be the penalty.

(iii) 271AAB(1)(c)-60% of the undisclosed income would be the penalty.

(iv) 271AAB(1A)(a)- 30% of undisclosed income would be the penalty.

(v) 271AAB (1A) (b)- 60% of the undisclosed income would be the penalty.

6. Further we find that the expression undisclosed income is also defined in Explanation-C to section 271AAB of the Act wherein it stipulates three conditions on which a particular income could be construed as an undisclosed income within the meaning of section 271AAB of the For the sake of convenience, the show cause notice for initiating penalty proceedings on 31/03/2015 is reproduced hereunder:

the show cause notice for initiating penalty proceedings

7. For the sake of convenience, the definition of undisclosed income as defined in Explanation to section 271AAB of the Act is reproduced below:-

(c) “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 “[Principal Chief Com missioner or] Chief Commissioner or [Principal 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.]

8. From the above, it could be seen that there is a greater onus casted on the Revenue to specifically mention in the show cause notice itself as to what offence the assessee has committed and also to mention the rate of penalty that is sought to be levied by the Assessing Officer on the assessee e., 10% or 20% or 30% or 60% of undisclosed income, as the case may be. If none of these preliminary informations are mentioned in the show cause notice, then the show cause notice issued by the Ld. AO becomes completely defective and consequentially fatal and would vitiate the entire penalty proceedings. This issue, in any case, is no longer res integra in view of the decision of Kolkata Tribunal in the case of Sushil Kumar Paul vs. ACIT in ITA No.2274/Kol/2019 for A.Y. 2016-17 dated 15/12/2022 wherein it was held as under:-

“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 271AAB 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.

9. In view of the aforesaid observations and respectfully following the judicial precedent relied upon herein above, we hold that the penalty notice issued on 31/03/2015 is defective and, accordingly, entire penalty proceedings gets vitiated. Hence, the penalty levied u/s 271AAB of the Act in the facts and circumstances of the instant case would have no legs to stand in the eyes of law. Accordingly, the grounds raised by the assessee are allowed on this technical aspect.

10. In the result, the appeal filed by the assessee is allowed.

Order pronounced in open Court on 8th January, 2024.

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