Penalty is imposed when a search is started using Section 271AAB rather than Section 271(1). (c)

Fact and issue of the case

The brief fact of the case is that search and seizure operation under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) was carried out on 03.09.2014 at the business and residential premises of Jagdamba Group and the respondent is one of the members of the said group. During the course of search, no incriminating material was found in the case of the respondent. The Assessing Officer, subsequent to the said search, on 25/26.02.2015 had issued notice under Section 153A of the Act to the respondent to furnish return of income of the respondent. In response to the said notice, the respondent filed its return of income on 07.03.2016 showing loss at Rs. 2,40,73,444/-. In order to verify the genuineness of the aforesaid return of the respondent, the Assessing Officer on 10/11.08.2016 issued notice under Section 143(2) of the Act to the respondent. The Assessing Officer also issued a notice under Section 142(1) of the Act to the respondent on 15.11.2016 seeking information from the respondent in respect of the audited financial statements of the respondent up-loaded on the Income Tax website on 30.11.2014. The respondent, upon receipt of the said notice, filed a subsequent return of income manually before the Assessing Officer on 18.11.2016 showing now a loss of Rs. 92,68,340/- for the same concerned period. Again on 21.11.2016, the respondent filed another return of income manually before the Assessing Officer showing now an income of Rs. 19,73,110/-. The respondent revised its return of income from showing a loss of Rs. 2,40,73,444/- to the income of Rs. 19,73,110/- when the Assessing Officer confronted the respondent with the audited financial statements of the respondent for the concerned period wherein it was shown that the respondent had a profit of Rs. 18,95,065/- during the concerned period. As the respondent revised its return of income from loss of Rs. 2,40,73,444/- to income of Rs. 19,73,110/-; after issuance of notice under Section 143 (2), questionnaire along with notice under Section 142(1), the penalty proceedings were initiated for concealment of the particulars of income and/or inaccurate particulars of income to the tune of Rs. 2,60,46,553/- and notice under Section 274 read with section 271 of the Act was issued on 27.12.2016. Thereafter, the penalty proceedings continued and the Assessing Officer, after giving adequate opportunity of hearing to the Assesse and after due application of mind, passed the penalty order dated 29.06.2017 imposing penalty amounting to Rs. 1,69,01,620/- under Section 271(1) (c) of the Act on the respondent for concealing the particular of its income and for furnishing inaccurate particulars of such income.

The Assesse preferred an appeal against the said penalty order dated 29.06.2017 before the Commissioner of Income Tax (Appeals) (hereinafter referred to as “CIT (Appeals)”). The said appeal was registered and the learned CIT (Appeals), vide its order dated 11.10.2018, allowed the said appeal of the Assesse on the ground that no penalty could have been imposed on the respondent under Section 271 (1) (c) of the Act as the penalty on the respondent could have been imposed under Section 271AAB of the Act.

Aggrieved by the said order dated 11.10.2018 passed by the Learned CIT(Appeals), the Revenue preferred an appeal before the Learned ITAT. The said appeal preferred by the Revenue was registered for the A.Y. 2014-15. The Learned ITAT vide its order dated 05.01.2021, has dismissed the said appeal and sustained the order of CIT (Appeal).

Observation of the court

From the plain reading of Section 271AAB, it is clear that where a search u/s.132(1) was initiated on or after the 1st day of July, 2012, penalty is leviable on the undisclosed income at the rate and conditions specified under section 271AAB(1) for the specified previous year. Further, the section also defines the term “undisclosed income” and “specified previous year”. Moreover, the section starts with non abstante clause and excludes the applicability of section 271(1)(c), if the undisclosed income pertains to the specified previous year.

Viewed from the above, the facts of the case of the Assessee is squarely covered by section 271AAB as the search was conducted on 03.09.2014 i.e., after 01/07/2012. On the date of search the due date to furnish the return for A.Y.2014-15 has not expired and the respondent has furnished the return on 30.11.2014. Further the respondent has not admitted any income in a statement recorded under section 132(4) nor paid any taxes on the admitted income. Therefore, the case of the respondent is not governed by Section 271AAB (1)(a) and Section 271AAB(1)(b). The respondent’s case clearly falls under section 271AAB(1)(c) where the minimum penalty prescribed is 30% and maximum penalty is 90% of undisclosed income. Thus, as per clause (2) of section 271AAB, 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) of Sub Section (1A) of section 271AAB. Accordingly, the AO should have initiated and levied penalty under section 271AAB(1)(c) instead of section 271(1)(c).

From the order passed by the CIT (Appeals), it clearly transpires that he has deliberated the issue of initiation of proceeding under section 271 AAB in details which in our view is in accordance with law. We further find that the learned tribunal after examining the order passed by the CIT (Appeal) sustained the same. We do not find any infirmity in the order as stated hereinabove. At the cost of repetition, a case where a search has been initiated under section 132 (1) of the Act on or after 1st day of July, 2012, the penalty, if any, should be levied under section 271 AAB and not under section 271 (1)(c) of the Act as the case falls under specified previous year.

The argument of learned counsel for the revenue does not stand in the eye of law because the penalty proceeding was initiated pursuant to a search conducted on 03.09.2014 i.e., after the amendment made in the Act; as such whether incriminating document was found or not is immaterial because the law mandates that the penalty if any should have been taken under section 271 AAB of the Act where search has been initiated on or after first day of July 2012.

In view of the aforesaid discussions, both the questions of law are decided against the revenue. Consequently, the instant appeal is dismissed being devoid of merit.