Search penalty under s.271AAB, but the notice used the ordinary s.271(1)(c) printed form. Is that valid?
No. Section 271AAB has different rates under different clauses, so the notice must tell you which clause and which rate is proposed. A mechanical s.271(1)(c) form bears no relation to the ingredients of s.271AAB and cannot support the penalty.
Decided by the ITAT (ITAT Kolkata Bench 'C' — Shri Sonjoy Sarma (Judicial Member) and Shri Girish Agrawal (Accountant Member)) on 2022-12-15, reported as ITA No. 2274/Kol/2019, assessment year 2016-17, order pronounced 15 December 2022 (Kolkata Bench 'C'). It bears on section 271AAB, section 274, section 275 of the Income Tax Act 1961, in Penalty matters.
It extends the Manjunatha Cotton principle — tell me the charge — from s.271(1)(c) to search penalties, where the stakes are higher and the printed-form habit is just as common.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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A search under s.132 took place on 28 March 2016, in which the assessee disclosed undisclosed income of Rs 79,00,000 and later returned total income of Rs 83,02,410 on 31 January 2017. The Assessing Officer accepted the returned income but issued a notice under s.274 on 28 December 2017 and levied penalty of Rs 23,70,000, about 30% of the undisclosed income, under s.271AAB.
The penalty was quashed. The s.274 notice was fatally defective: it used the standard s.271(1)(c) proforma reciting concealed particulars or furnished inaccurate particulars, and made no mention of the conditions in s.271AAB or of the clause and rate under which penalty was proposed.
Section 271AAB(3) requires the procedure in ss.274 and 275 to be followed, and s.274 permits penalty only after the assessee has had a reasonable opportunity of being heard. Because s.271AAB prescribes different rates under clauses (a), (b) and (c) depending on distinct conditions, a valid notice must tell the assessee which clause is invoked and at what rate, so that a meaningful reply is possible. The officer instead used a mechanical s.271(1)(c) form which bore no relation to the ingredients of s.271AAB. A notice that seeks to penalise without spelling out the charge violates natural justice.
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.
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Handle my notice → Ask a CA on WhatsAppNo. Section 271AAB has different rates under different clauses, so the notice must tell you which clause and which rate is proposed. A mechanical s.271(1)(c) form bears no relation to the ingredients of s.271AAB and cannot support the penalty. This was decided by the ITAT (ITAT Kolkata Bench 'C' — Shri Sonjoy Sarma (Judicial Member) and Shri Girish Agrawal (Accountant Member)) and bears on section 271AAB, section 274, section 275 of the Income Tax Act 1961. It is reported as ITA No. 2274/Kol/2019, assessment year 2016-17, order pronounced 15 December 2022 (Kolkata Bench 'C'). It extends the Manjunatha Cotton principle — tell me the charge — from s.271(1)(c) to search penalties, where the stakes are higher and the printed-form habit is just as common. If it applies to you, the first step is this: Check whether the s.274 notice names s.271AAB at all, or only recites the s.271(1)(c) language.
A search under s.132 took place on 28 March 2016, in which the assessee disclosed undisclosed income of Rs 79,00,000 and later returned total income of Rs 83,02,410 on 31 January 2017. The Assessing Officer accepted the returned income but issued a notice under s.274 on 28 December 2017 and levied penalty of Rs 23,70,000, about 30% of the undisclosed income, under s.271AAB. The matter was decided on 2022-12-15 by the ITAT (ITAT Kolkata Bench 'C' — Shri Sonjoy Sarma (Judicial Member) and Shri Girish Agrawal (Accountant Member)). On those facts the ITAT held as follows. The penalty was quashed. The s.274 notice was fatally defective: it used the standard s.271(1)(c) proforma reciting concealed particulars or furnished inaccurate particulars, and made no mention of the conditions in s.271AAB or of the clause and rate under which penalty was proposed.
Section 271AAB(3) requires the procedure in ss.274 and 275 to be followed, and s.274 permits penalty only after the assessee has had a reasonable opportunity of being heard. Because s.271AAB prescribes different rates under clauses (a), (b) and (c) depending on distinct conditions, a valid notice must tell the assessee which clause is invoked and at what rate, so that a meaningful reply is possible. The officer instead used a mechanical s.271(1)(c) form which bore no relation to the ingredients of s.271AAB. A notice that seeks to penalise without spelling out the charge violates natural justice. In the words reproduced by the source cited on this page: "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."
It was decided by the ITAT on 2022-12-15 and is reported as ITA No. 2274/Kol/2019, assessment year 2016-17, order pronounced 15 December 2022 (Kolkata Bench 'C'). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 271AAB, section 274, section 275, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The penalty was quashed. The s.274 notice was fatally defective: it used the standard s.271(1)(c) proforma reciting concealed particulars or furnished inaccurate particulars, and made no mention of the conditions in s.271AAB or of the clause and rate under which penalty was proposed. It arises in Penalty matters, on section 271AAB, section 274, section 275 of the Income Tax Act 1961, and was decided by ITAT Kolkata Bench 'C' — Shri Sonjoy Sarma (Judicial Member) and Shri Girish Agrawal (Accountant Member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check whether it identifies the clause — (a), (b) or (c) — and the rate proposed. Raise the point below, not only in appeal; some benches decline to entertain it if raised for the first time on appeal.
Superseded by amendment. The cut-off is now confirmed against the bare Act. Section 271AAB(1A) applies where a search under s.132 was initiated on or after the date the Taxation Laws (Second Amendment) Bill, 2016 received assent 'but before the 1st day of September, 2024', so there is no penalty under the section to challenge for a search initiated on or after that date. Note also that the Income-tax Act 1961 is now shown as repealed, having been succeeded by the Income-tax Act 2025. For searches before 1 September 2024 the decision has been applied: the Delhi Bench in Jaina Marketing & Associates v. Dy. CIT [2024] 162 taxmann.com 439, decided 20 March 2024 (M. Balaganesh AM and Yogesh Kumar U.S. JM), sets out this order at its para 23 among the decisions it relies on, and at para 25 deletes the penalty following the principles laid down in them. The reasoning does face a headwind on the notice point, though a narrower one than previously stated: in Veena Estate (P.) Ltd. v. CIT [2024] 158 taxmann.com 341 / [2024] 461 ITR 483 (Bombay), decided 11 January 2024 (G.S. Kulkarni and Jitendra Jain, JJ., IT Appeal No. 302 of 2002), the High Court held that where the assessee had understood the notice, replied to both limbs and never objected, a defect in a s.271(1)(c) notice could not be raised for the first time in appeal in the absence of prejudice - that was a s.271(1)(c) case turning on the assessee's own conduct, not a decision on s.271AAB. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order itself could not be found in a subscription research database on three searches, so it remains single-sourced and the names of the Members are unconfirmed. What the database does confirm comes from a later decision that reproduces it: the Delhi Bench in Jaina Marketing & Associates v. Dy. CIT [2024] 162 taxmann.com 439, at its para 23, sets out a passage from Sushil Kumar Paul v. Asstt. CIT, IT Appeal No. 2274 (Kol.) of 2019, dated 15 December 2022, and that passage carries the sentence quoted on this entry as well as its own paragraph number, 10. So the appeal number, the date and the quotation are corroborated, but from a quotation in another Bench's order and not from the order, and the evidence grade has not been raised on that footing. Two corrections to what this entry previously said about the surrounding law. The 1 September 2024 cut-off is real and comes from the section itself: s.271AAB(1A) reaches only searches initiated before that date. And Veena Estate (P.) Ltd. v. CIT is dated 11 January 2024, is reported at [2024] 158 taxmann.com 341 / [2024] 461 ITR 483, and is a decision on s.271(1)(c), not s.271AAB; it turned on the assessee having replied to both limbs of the notice and never objected, so its reach is narrower than a general answer to defective-notice arguments. The order is not carried in a subscription research database, so the names of the Members and any reporter citation remain unconfirmed; the appeal number, the date and one paragraph of it are known only from the Delhi Bench's reproduction in Jaina Marketing & Associates. There is a substantial body of contrary reasoning holding s.271AAB penalty to be automatic once undisclosed income is admitted in a search. Limitation under s.275 will matter if a fresh notice is issued. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The penalty was quashed. The s.274 notice was fatally defective: it used the standard s.271(1)(c) proforma reciting concealed particulars or furnished inaccurate particulars, and made no mention of the conditions in s.271AAB or of the clause and rate under which penalty was proposed.
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