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During the course of search operation various incriminating items were found and the same were seized, which relates to all the assessees of M/s Kamal Chandak Group.

In result, it was pursuant to that surrender of Rs.4 crores by all the three assesses as undisclosed income, the assessing officer has initiated penalty proceedings under Sections 271AAB of the Act. A notice dated 24.9.2015 has been issued of which the assessee has filed their reply, however the Assessing Officer did not find it satisfactory and therefore, he has imposed penalty under Section 271AAB upon all the three assessee amounting to Rs.40 lakhs each. The penalty order under Section 271AAB of the Act has been passed on 29.9.2015, which has been challenged by the assessees, as the assessees were not satisfied, in appeal before the CIT (Appeals)-4, Kanpur.

Counsel for the appellant has submitted that the penalty proceedings are being initiated under Section 271AAB of the Act and not under Section 271 (1)(c) of the Act. He has pointed out that the Tribunal has wrongly proceeded on the basis of the fact that the impugned penalty proceedings are being carried out under Section 271(1)(c). He has submitted that from the perusal of the penalty notice dated 23.9.2015 it is crystal clear that the notice has been issued under Section 274 read with section 271 of the Act. Counsel for the appellant (Revenue) has submitted that in the said notice dated 23.9.2015 the assessing authority of the assessee has categorically and clearly mentioned and has requested the assessee to appear before him and clearly indicated therein that as to why an order imposing the penalty be not made under Section 271 of the Act and has further mentioned that in case of failure on the part of the assessee in not appearing and not availing the opportunity of being heard in person or through an authorised representative on or before the date indicated in the notice and also indicated that the assessee may show cause through authorised representative in writing on or before the date indicated and his reply will be considered before any such order is made under Section 271AAB. We find that in the show cause notice the assessing authority has clearly indicated that the penalty proceedings are related to the penal proceeding of Section 271AAB and surprisingly, we find that the ITAT has proceeded by considering the said notice issued under Section 271(1)(c).

"The notice since does not relate to the provision of section 271AAB therefore, I cannot agree with Learned D.R. That the notice issued u/s 271(1)(c) of the Act was valid for initiation of proceedings u/s 271AAB. Initiation of penalty proceedings, in my view, is the foundation for the validity of the imposition of penalty u/s 271AAB. On this basis itself, the penalty can be cancelled. This is also fact on record that no penalty proceedings either u/s 271(1)(c) of the Act (1)(c) or 271AAB has been initiated during the course of assessment proceedings."

The ITAT has further held that the assessing authority should record the satisfaction report before proceeding under Section 271AAB which in the present case is disappeared. The ITAT at the end has recorded as follows :

"No opportunity has been given to the assessee in respect of the penalty to be levied u/s271AAB of the Act. On this basis also, the order passed by the Assessing Officer is against the principles of natural justice of providing the proper opportunity to the assessee and accordingly I quash the order of the Assessing Officer. I have also gone through the provisions of section 271AAB and noted that this section specifies three different situations under which the penalty can be imposed on the assessee under different clauses (a), (b) and (c), the penalty has to be imposed on different rate. The Assessing Officer has not specified in the notice in respect of which clause the penalty is going to be levied on the assessee. On this basis also, in my opinion, the penalty cannot be sustained."