Case Law Details
Chandra Suresh Kothari Vs DCIT (ITAT Nagpur)
The case of Chandra Suresh Kothari Vs DCIT highlights an important issue in tax law: the levy of section 271AAB penalty when no undisclosed income is found during search actions. This landmark ruling from the Income Tax Appellate Tribunal (ITAT) Nagpur provides an insightful legal precedent on the matter, offering a detailed exploration into the complexities of this section of the Income Tax Act.
The proceedings revolve around the imposition of penalties under sections 271(1)(c) and 271AAB of the Income Tax Act. The ITAT Nagpur’s order overturned the penalty levied by the lower authorities, citing several key reasons. It was argued that the Assessing Officer had not made specific charges clear in his notice and that there was a non-application of mind on the part of the AO. The lack of a clear-cut finding in the penalty notice was deemed a significant flaw, leading to the deletion of the penalty under section 271(1)(c). Moreover, the tribunal noted that the issuance of a casual notice for initiating penalty under section 271AAB, without the mention of specific charges, rendered the initiation of proceedings unsustainable in law, thus leading to the deletion of the penalty under section 271AAB as well.
Analyzing section 271AAB, it’s clear that it is a self-contained provision. No room for discretion exists for the Assessing Officer (AO) as the parameters that define the rate of penalty and circumstances for invoking this provision are clearly stipulated. The Co-ordinate Benches of the Tribunal have consistently affirmed that the term ‘undisclosed income’ has been given a precise definition, not open to a broader or elastic interpretation by tax authorities. Therefore, the interpretation of such penal provisions should be strict, specific, and restrictive. If the surrendered income does not align with the definition of “undisclosed income” as per section 271AAB of the Act, the penalty is unwarranted.
The penalty under section 271AAB can be initiated for undisclosed income found during the search action, separate from the assessment proceedings. While the explanation for the source of the ‘undisclosed income’ might be relevant for the final imposition of the penalty, the initiation of penalty proceedings, per the provisions of section 271AAB, are not dependent on the commencement or completion of the assessment proceedings.
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