Section 271AAB Penalty Quashed for Failure to Specify Applicable Limb: ITAT Hyderabad

Kishan Kumar Agarwal Vs ACIT (ITAT Hyderabad)

Summary: ITAT Hyderabad allowed the assessee’s appeal and quashed penalty of Rs.12,76,800/- levied under Section 271AAB of the Income Tax Act, 1961 for AY 2018-19, holding that the notice issued under Section 274 read with Section 271AAB was invalid because the Assessing Officer failed to specify the particular limb or category under which penalty was proposed. Assessment under Section 143(3) had been completed on 26.12.2019, wherein penalty proceedings under Section 271AAB were initiated. The AO thereafter issued notice dated 31.12.2019 and ultimately passed the penalty order on 26.10.2021. The CIT(A) upheld the penalty. Before the Tribunal, the assessee specifically challenged the validity of the notice, contending that failure to identify the applicable limb deprived him of a reasonable opportunity to meet the precise charge.

The Tribunal examined the notice and found that the AO had not specified the particular limb or category under which penalty proceedings were proposed. It considered its Coordinate Bench decision in Kavya Boppana Vs. ACIT, which had examined an identical defect. That decision, relying upon the Madras High Court judgment in PCIT Vs. Shri R. Elangovan, held that Section 271AAB contemplates different contingencies carrying different rates of penalty and therefore the AO must inform the assessee of the specific clause under which penalty is proposed. A notice which does not identify the charge or category suffers from a foundational defect because the assessee is denied an effective opportunity to defend himself.