Tribunal rules penalty discretionary under section 271AAB, deletes unjustified penalty, appeal allowed.

The Tribunal allowed the appeal, determining that the penalty under section 271AAB is discretionary, not mandatory. It found the penalty of Rs. 60,28,500 unjustified as the surrendered income did not meet the definition of undisclosed income. The penalty was deleted as the transactions did not qualify under section 271AAB. The Tribunal did not address the validity of the penalty notice, deeming it irrelevant after ruling on the penalty's merits. The appeal was allowed on 23/09/2019.

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Issues Involved:
1. Validity of penalty order under section 271AAB without specifying the limb of the offence.
2. Justification for the penalty of Rs. 60,28,500/- under section 271AAB.
3. Nature of penalty under section 271AAB: mandatory or discretionary.

Issue-wise Detailed Analysis:

1. Validity of Penalty Order under Section 271AAB:
The primary issue raised by the assessee was that the CIT(A) erred in confirming the penalty order under section 271AAB without recording satisfaction regarding the specific limb of the offence committed by the assessee. The Tribunal noted that the penalty under section 271AAB is not automatic but requires the Assessing Officer (AO) to issue a show cause notice and provide an opportunity for the assessee to be heard. The AO must determine whether the conditions for levying the penalty are satisfied and whether the income disclosed falls within the definition of "undisclosed income" as per the explanation to section 271AAB. The Tribunal emphasized that the AO must take a discretionary decision based on the facts and circumstances of each case, rather than treating the penalty as mandatory.

2. Justification for the Penalty of Rs. 60,28,500/-:
The assessee argued that the penalty of Rs. 60,28,500/- was unjustified as the income surrendered during the search did not fall within the definition of "undisclosed income" under section 271AAB. The Tribunal observed that the notings in the diary found during the search represented advances given for land, which is an outflow of funds, not an inflow. The Tribunal held that mere entries of advances for land cannot be treated as undisclosed income unless there is evidence of actual acquisition of land or corresponding assets. The Tribunal also noted that the Revenue did not verify the contents of the loose sheet with the books of accounts or find any undisclosed assets. Therefore, the penalty was deemed unsustainable as the alleged transactions did not fall within the ambit of undisclosed income as defined in section 271AAB.

3. Nature of Penalty under Section 271AAB:
The Tribunal discussed whether the penalty under section 271AAB is mandatory or discretionary. It was concluded that the penalty is discretionary, as the AO must issue a show cause notice, provide an opportunity for the assessee to explain, and then decide based on the merits of the case. The Tribunal referred to various decisions, including those of the Visakhapatnam Bench and the case of Ravi Mathur vs. DCIT, which consistently held that the AO has discretion in levying the penalty and must consider the facts and circumstances before making a decision. The Tribunal also referenced the decision of the Hon'ble Allahabad High Court in Pr. CIT vs. Shri Sandeep Chandak, which supported the view that the penalty under section 271AAB is not automatic.

Conclusion:
The Tribunal allowed the appeal, holding that the penalty under section 271AAB is not mandatory but discretionary. It set aside the CIT(A)'s finding that the penalty was mandatory and deleted the penalty levied on the assessee, as the income surrendered did not fall within the definition of undisclosed income under section 271AAB. The Tribunal did not adjudicate the additional ground raised by the assessee regarding the validity of the penalty notice, as the issue became academic in light of the decision on the merits of the penalty.

Order Pronounced:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 23/09/2019.

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