Section 271AAA – Penalty proceeding u/s. 271AAA can be initiated only if the person has been subjected to search u/s.132(1) If penalty proceedings u/s. 271AAA are initiated against a person who is not subjected to search action u/s. 132(1) of the Act, the provision itself becomes unworkable as no declaration u/s. 132(4) of the Act is possible from any person other than the person against whom search and seizure action u/s. 132(1) is carried out.

7.  [2018] 97 taxmann.com 460 (Mumbai-Trib.)

DCIT
vs. Velji Rupshi Faria

ITA
No.: 1849/Mum/2017

A. Y.:
2008-09
Dated: 31^st August, 2018

Section 271AAA – Penalty proceeding u/s. 271AAA can be initiated
only if the person has been subjected to search u/s.132(1)

If penalty proceedings u/s. 271AAA are initiated against a person
who is not subjected to search action u/s. 132(1) of the Act, the provision
itself becomes unworkable as no declaration u/s. 132(4) of the Act is possible
from any person other than the person against whom search and seizure action
u/s. 132(1) is carried out.

FACTS

The assessee, an individual, was a
key person of certain firms and companies which were subjected to search and
seizure operation. The Assessing Officer (AO) initiated proceedings u/s. 153C
of the Act. In the course of proceedings for assessment u/s. 153C of the Act,
the AO referring to incriminating material found in the course of search and
seizure operation made a number of additions as a result of which total income
was assessed at Rs. 7,40,04,778. He also initiated proceedings for imposition
of penalty u/s. 271AAA of the Act. The AO, rejecting the explanation filed by
the assessee, levied penalty of Rs. 74,00,477 u/s. 271AAA of the Act.

Aggrieved, the assessee preferred
an appeal to the CIT(A) who having found that no search and seizure action was
carried out in the case of the assessee, followed the decision of the Ahmedabad
Bench of the Tribunal in the case of Dy. CIT vs. K. G. Developers, ITA No.
1139/Ahd./2012, dated 13^th September, 2013, and deleted the
penalty imposed.

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD

At the outset, the Tribunal noted
that the Department is not disputing that the penalty has been levied u/s.
271AAA of the Act. The Tribunal held that the primary condition for initiating
penalty proceeding is, a person concerned must have been subjected to a search
and seizure operation u/s. 132(1) of the Act. Undisputedly, in the facts of the
present case, no search and seizure operation u/s.132(1) of the Act was carried
out in case of the assessee. This fact is clearly evident from the initiation
and completion of proceedings u/s. 153C of the Act.

Thus, the primary condition of section 271AAA of the Act remains
unsatisfied. Even otherwise also, if penalty proceedings u/s. 271AAA of the Act
is initiated against a person who is not subjected to search action u/s. 132(1)
of the Act, the provision itself becomes unworkable as no declaration u/s.
132(4) of the Act is possible from any person other than the person against
whom the search and seizure u/s. 132(1) is carried out.

Thus, in such circumstances, sub-section (2) to section 271AAA of the Act
cannot be given effect to. The Tribunal agreed with the CIT(A) that initiation
of penalty proceedings u/s. 271AAA of the Act in the instant case is invalid.
The Tribunal observed that its decision gets support from the decision relied
upon by the Authorised Representative.

The Tribunal upheld the order
passed by the CIT(A). The appeal filed by the revenue was dismissed.