1 A.F.R. Reserved Court No. - 4 Case :- INCOME TAX APPEAL No. - 122 of 2017 Appellant :- Principal Commissioner Of Income-Tax, Kanpur Respondent :- Shri Sandeep Chandak Counsel for Appellant :- Manu Ghildyal Counsel for Respondent :- Abhinav Mehrotra And Case :- INCOME TAX APPEAL No. - 128 of 2017 Appellant :- Principal Commissioner Of Income-Tax, Kanpur Respondent :- Mrs. Shakuntala Chandak Counsel for Appellant :- Manu Ghildyal Counsel for Respondent :- Abhinav Mehrotra And Case :- INCOME TAX APPEAL No. - 129 of 2017 Appellant :- Principal Commissioner Of Income-Tax, Kanpur Respondent :- Shri Kamal Kishore Chandak Counsel for Appellant :- Manu Ghildyal Counsel for Respondent :- Abhinav Mehrotra Hon'ble Abhinava Upadhya, J. Hon'ble Ashok Kumar,J. (Delivered by - Ashok Kumar, J.) These Income Tax Appeals arise from decision of Income Tax Appellate Tribunal (in short 'ITAT') dated 2.1.2017 passed in I.T.A. No. 416/Lucknow/2016 (Assessment Year 2014-15), I.T.A. No.417/Lucknow/2016 (Assessment Year 2014-15) and I.T.A. No.418/Lucknow/2016 (Assessment Year 2014-15). Since issue is same and appeals arise against common order and judgment, same are decided by us by common judgment. Following questions of law have been framed by assessee : (A) Whether on facts and circumstances of case and in law, Ld. ITAT has erred in not 2 appreciating facts that notice was issued for imposition of penalty u/s 271AAB and not for imposition of penalty u/s 271(a)(c) of Act ? (B) Whether on facts and circumstances of case and in law, Ld. ITAT has erred in not appreciating facts that specific charge 'have in statement under sub section 4 of section 132 during course of search and seizure operation admitted undisclosed income' was mentioned in notice ? (C) Whether benefit of Section 292BB was correctly denied to AO/appellant by ITAT? We have heard Sri Manu Ghildyal, learned counsel for appellant and Sri Abhinava Mehrotra, learned counsel for assessee respondent. brief facts of present case are that search operation has been held and M/s. Chandak group of cases was searched under Section 132 of Income Tax Act, 1961 (hereinafter referred to as 'Act') on 24.10.2013. During course of search father of assessee Sri Kamal Kishore Chandak has surrendered undisclosed income of Rs.12 crores on behalf of himself, his wife and his son, namely Kamal Kishore Chandak, Smt. Shakuntala Chandak and Sri Sandeep Chandak. This statement of Sri Kamal Kishore Chandak has been recorded under Section 132(4) on 25.10.2013. During course of recording of statement assessee Sandeep Chandak has submitted that whatever investment was made in his name was looked after by his father Sri Kamal Kishore Chandak and in fact, he knew nothing about same. documents further indicates that on 13.11.2013, Sri Sandeep Chandak along with his both parents had admitted that each of them had surrendered Rs.4 crores each as undisclosed income and fact that is surrender of undisclosed income of Rs.4 crores of Sandeep 3 Chandak was again submitted by his authorised representatives on behalf of all assessees during assessment proceedings on 9.1.2015. It is further noticed that assessee, Sri Sandeep Chandak had explained that said amount was earned from trading of F&O and derivatives and was advanced for purchase of land. During course of search operation various incriminating items were found and same were seized, which relates to all assessees of M/s Kamal Chandak Group. In result, it was pursuant to that surrender of Rs.4 crores by all three assesses as undisclosed income, assessing officer has initiated penalty proceedings under Sections 271AAB of Act. notice dated 24.9.2015 has been issued of which assessee has filed their reply, however Assessing Officer did not find it satisfactory and therefore, he has imposed penalty under Section 271AAB upon all three assessee amounting to Rs.40 lakhs each. penalty order under Section 271AAB of Act has been passed on 29.9.2015, which has been challenged by assessees, as assessees were not satisfied, in appeal before CIT (Appeals)-4, Kanpur. CIT (Appeals) vide its order dated 31.5.2016 has dismissed appeal and has affirmed penalty order passed under Section 271AAB of Act. Against order of CIT (Appeals) appeals are filed before ITAT, Lucknow, which are heard and are decided by common judgment dated 2.1.2017 and ITAT has allowed appeal filed by assessees and set aside penalty order as well as order of CIT (Appeals). Against order of ITAT, Lucknow dated 2.1.2017 4 instant appeals are filed by Commissioner of Income Tax. We have heard learned counsel for appellants and learned counsel representing assessee. Learned counsel for appellant has submitted that order impugned passed by ITAT are wholly illegal, arbitrary as well as order which has been passed without application of mind. Learned counsel for appellant has placed relevant paragraph of impugned order of Tribunal namely para 8, which is quoted hereinbelow : penalty proceeding has been initiated by issuing notice u/s 274 read with section 271(1) (c) of Act (1)(c) on 23/09/2015 asking assessee to appear before Assessing Officer at 10:30 A.M. On 28/09/2015. Counsel for appellant has submitted that penalty proceedings are being initiated under Section 271AAB of Act and not under Section 271 (1)(c) of Act. He has pointed out that Tribunal has wrongly proceeded on basis of fact that impugned penalty proceedings are being carried out under Section 271(1)(c). He has submitted that from perusal of penalty notice dated 23.9.2015 it is crystal clear that notice has been issued under Section 274 read with section 271 of Act. Counsel for appellant (Revenue) has submitted that in said notice dated 23.9.2015 assessing authority of assessee has categorically and clearly mentioned and has requested assessee to appear before him and clearly indicated therein that as to why order imposing penalty be not made under Section 271 of Act and has further mentioned that in case of failure on part of assessee in not appearing and not availing opportunity of being heard in person or through authorised representative on or before date indicated in notice and also indicated that assessee 5 may show cause through authorised representative in writing on or before date indicated and his reply will be considered before any such order is made under Section 271AAB. We find that in show cause notice assessing authority has clearly indicated that penalty proceedings are related to penal proceeding of Section 271AAB and surprisingly, we find that ITAT has proceeded by considering said notice issued under Section 271(1)(c). Learned counsel for appellant has submitted that findings recorded by ITAT namely that issuance of notice under Section 271(1)(c) of Act will not automatically deem that assessing authority has initiated proceedings for imposition of penalty under Section 271AAB and accordingly given opportunity to assessee is wholly irrelevant. ITAT has further held that departmental representative has conceded before Tribunal that penalty proceedings have not been initiated under Section 271AAB therefore, no penalty can legally be imposed against assessee. In this regard, Tribunal has observed as follows : notice since does not relate to provision of section 271AAB therefore, I cannot agree with Learned D.R. That notice issued u/s 271(1)(c) of Act was valid for initiation of proceedings u/s 271AAB. Initiation of penalty proceedings, in my view, is foundation for validity of imposition of penalty u/s 271AAB. On this basis itself, penalty can be cancelled. This is also fact on record that no penalty proceedings either u/s 271(1)(c) of Act (1)(c) or 271AAB has been initiated during course of assessment proceedings. ITAT has further held that assessing authority should record satisfaction report before proceeding under Section 271AAB which in present case is disappeared. 6 ITAT at end has recorded as follows : No opportunity has been given to assessee in respect of penalty to be levied u/s271AAB of Act. On this basis also, order passed by Assessing Officer is against principles of natural justice of providing proper opportunity to assessee and accordingly I quash order of Assessing Officer. I have also gone through provisions of section 271AAB and noted that this section specifies three different situations under which penalty can be imposed on assessee under different clauses (a), (b) and (c), penalty has to be imposed on different rate. Assessing Officer has not specified in notice in respect of which clause penalty is going to be levied on assessee. On this basis also, in my opinion, penalty cannot be sustained. At end Tribunal has held that since provisions of Section 271AAB are not mandatory therefore, levy of penalty in each and every case where ever assessee has made default is unjustified. On other hand, learned counsel for assessee has submitted and has relied upon findings recorded by ITAT and has emphasised that in present case unless satisfaction is recorded and in present case since same has not been recorded by assessing authority and notice has been issued under Section 274 read with Section 271, as such impugned penalty proceedings under Section 271AAB are wholly illegal and unjustified therefore, he assailed judgment of Tribunal. After hearing parties at length, on inquiry, counsel for appellants has placed copy of assessment order which has been passed in cases of all assessees for Assessment Year 2014-15 as individual status dated 31.3.2015 under Section 143 (3) of 7 Act. We have noticed that in assessment proceedings assessing authority has observed as below : assessee, has e-filed return of income u/s 139(1) on 30.09.2014 vide acknowledgment No.37789163100914. In said return assessee has declared total income Rs.4,16,39,320/-. case is to be completed under compulsory scrutiny as per provisions of Section 153A(b) of I.T. Act, 1961, accordingly notice u/s 143(2) of I.T. Act, 1961 dated 17.1.2014 was issued and duly served upon assessee. Thereafter, further notices u/s 143(2)/142(1) of I.T. Act 1961 along with detailed questionnaire dated 01.12.2014 were issued and served upon assessee on 01.12.2014 fixing date of compliance on 08.12.2014. During course of assessment proceedings assessee (namely Sri Sandeep Chandak) has shown his income for Assessment Year 2014-15 being total income of Rs.4,16,39,315/- which assessee earned as Salary Income, Rental Income from Property at City Centre, Kanpur, Dividends, interest on PPF/bank on Saving Bank and FDR Account/Bonds. assessing authority has also mentioned in assessment order that assesee has also earned non-taxable share of profit from partnership firm Chandak Infratech, where he is partner. It has further mentioned in assessment order that assessee offered to tax on income of Rs.4 crores and accordingly, assessment is completed at total income as indicated hereinabove of Rs.4,16,39,320/- under Section 143(3) of Act. We find that while passing assessment order under Section 143(3), assessing authority has not initiated penalty proceedings under Section 271(1)(c) of Act. Section 271 provides procedure in case of failure to 8 furnish return, comply with notice, concealment of income etc. Sub clause (c) of Section 271(1) provides that if assessing authority in course of any proceedings under Income Tax Act is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty. In present case, regular assessment proceedings are being carried out under Section 143(3), which is proceeding of assessment as so stipulated under Section 143 and sub section (3) of Section 143 provides procedure to be adopted by assessing authority during course of assessment proceedings. Section 271AAB provides procedure for penalty where search has been initiated. In present case, admittedly search and seizure operation is carried out in which assessees have surrendered amount of Rs.4 crores each (Rs.4 lakh each by all three assessees) and therefore, in view of provisions of Section 271AAB assessees are required to pay, by way of, penalty in addition to tax, if any, sum computed @ 10% of undisclosed income of specified period or previous years. In case where assessee in course of search in statement (under Section 4 of Section 132) admits undisclosed income and specified manner in which such income has been derived, than provisions of Section 271AAB automatically attracts and proceedings are to be carried out/completed. We have noticed that penalty notice has been issued under Section 274 read with section 271. Section 274 provides that no order imposing penalty shall be made unless assessee has been heard or has been given reasonable opportunity of being heard. In instant case penalty notice issued clearly indicates 9 that opportunity of being heard is provided to assessee and therefore, penalty notices has been issued under Section 274 read with section 271 calling upon assessee to show cause in writing or in person which fulfill requirement of Section 274 of Act. In present case, provisions of Section 271AAB are fully applicable as of conditions so stipulated or attracts as search has been initiated under Section 132 and during course of search statement of assessee has been recorded under sub section (4) of Section 132, in which assessees admit undisclosed income and specifies manner in which such income has been derived. We have gone through contents of penalty notice and we find that in penalty notice, which has been issued under Section 274 read with Section 271, assessing authority has clearly indicated that proceedings under Section 271AAB being initiated and reply to show cause notice in writing on or before date so as indicated will be considered before any such order is made under Section 271 AAB. We find substance in submission of learned counsel for department and we noticed that orders passed by CIT (Appeals), affirming orders of penalty, are fully justified where CIT (Appeals) has recorded categorical finding with regard to statement of Sri Kamal Kishore Chandak during search and issuance of penalty notices under Section 271AAB, which is relevant. We have noticed that this fact has not been considered by Tribunal. In this regard, we may reproduce relevant finding of CIT (Appeals) hereinbelow : From above provisions, it may be seen that 10 AO may impose penalty under this section if following ingredients are fulfilled. 1. Search action u/s 132 of Income Tax Act, 1961 should be initiated u/s 132 on or after 01.06.2012. 2. assessee has made disclosure of undisclosed income during course of search action, has paid tax together with interest and has filed return of income. 3. assessee substantiates manner in which he has earned undisclosed income. From analysis of above Provisions of Act, it is clear that action of imposition of penalty u/s 271AAB(a) is independent of enquiries made and subsequent additions made during course of assessment proceedings. In other words, this penalty is not based upon facts gathered during course of assessment proceeding. It is dur to this reason, in my opinion, satisfaction of AO is not required to be recorded by AO during assessment proceedings or at time of completion of proceedings. Thus, initiation of penalty after completion of assessment proceeding is not vitiated by law. Ld. A.Rs have also challenged that caption of notice mentioned only Section 271 and not 271AAB. In this respect, copy of notice has been produced by Ld. A.R. before me. It is seen that Ld. A.R. is correct in observing that section of penalty has not been correctly mentioned by AO in caption. However, AO will get benefit of section 292BB of Income Tax Act, 1961 because firstly, assessee has raised no objection before AO in this regard. Secondly, last line of notice clearly mentions section 271AAB. Thirdly, assessee has given reply to said notice which shows that assessee fully comprehended implication of notice that it is for section 271AAB. assessee has also challenged that principles of natural justice has not followed by AO. detailed submissions of A.R. in this regard has already been reproduced above. A.R. did not produce any evidence to show 11 that he was not given proper opportunity of hearing. It is clear from penalty order that AO has given penalty notice and which was also replied by assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of Act is confirmed. Since admittedly, no proceeding under Section 271(1)(c) are initiated by assessing authority during course of assessment proceeding under Section 143(3), impugned penalty proceedings under Section 271AAB are fully justified and are initiated in accordance with law. We find that order of ITAT cannot sustain, therefore, same is set aside and penalty orders under Section 271AAB passed by assessing authority, confirmed by CIT (Appeals), are affirmed and are restored. appeals filed by Revenue are allowed. Order Date :- 27.11.2017 S.S. . (Ashok Kumar, J.) (Abhinava Upadhya, J.) Principal Commissioner of Income-tax, Kanpur v. Sandeep Chandak