TaxTMI 
TaxTMI 
2017 (11) TMI 1760
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....rties, the matter pertaining Sh. Mahesh Kumar Jain has been taken as a lead case for the purpose of present discussion and adjudication of the issues that have been raised before us. In this case, the respective grounds of appeal taken by the assessee and the Revenue are as under:- Assessee's Grounds of appeal (ITA No. 630) "1.1 The penalty order passed u/s 271AAB is bad in law as well as on facts and hence, the same may please be quashed. 1.2 The ld. AO erred in law as well as on the facts of the present case in levying penalty u/s 271AAB (1)(c) @ 30% of undisclosed income and the ld. CIT(A) has also erred in modifying the same @ 10% of undisclosed income u/s 271 AAB (1)(a) of the Act, the same may please be deleted in toto." Revenue's Ground of appeal (ITA No. 651) "1. Whether on the facts and in the circumstances of the case the CIT(A) was right in deleting the penalty of Rs. 42,12,360/- imposed by the AO u/s 271AAB (1)(c) of the Income Tax Act, 1961 on undisclosed income disclosed during the search." 3. The facts of the case are that the search and seizure operation was carried out at the residential and business premises of Jain Agarwal Group at Kishangarh including t....
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....t was further held by the AO that above discloser was discovered by action u/s 132(4) and otherwise it could never be disclosed by the assessee. It was held that since the discloser was not voluntarily but based on seized documents as well as search action, the assesses is liable for penalty u/s 271AAB (1)(c) and accordingly penalty proceedings u/s 271 AAB(1)(c) were being initiated separately. The assessed income was determined at Rs. 1,48,24,560/-, the same as the returned income which includes the undisclosed income of Rs. 1,40,41,210/- and the assessment order u/s 143(3) was passed on 29.03.2016 and on the same date, notice u/s 274 r.w. sec 271 AAB (1)(c) was issued to the assessee to show cause why penalty u/s 271 AAB(1)(c) should not be imposed upon the assessee for the undisclosed income found and finally assessed in his hands. 4. During the course of penalty proceedings, the assessee submitted that no penalty can be levied since the assessee during the course of search in his statement recorded u/s 134(2) specifically mentioned that the said surrendered was made to buy peace and avoid litigation with the department and was made on the condition that no penalty can be levi....
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.... at. But during the course of assessment as well as penalty proceedings, the assessee has completely failed to furnish desires details, sources of undisclosed income and failed to substantiate the manner in which undisclosed income was arrived at as required u/s 271AAB of the Act. It was further held that even otherwise the assessee has failed to explain the sources and manner of deriving of above undisclosed income as appearing in the seized material while recording statement u/s 132(4) of the Act and offered the same for taxation. It was further held that during the course of penalty proceedings the assessee has also not submitted any evidences to substantiate his claim on record. It was accordingly held that the assessee has completely failed to explain the issues raised during the assessment as well as penalty proceeding, therefore penalty u/s 271 AAB (1)(c) of the Act is imposable in respect of the unaccounted income. Regarding reliance placed by the assessee on case laws in the context of section 271AAA, the Assessing Officer held that the facts and circumstances in those cases are different with the facts and circumstances of the assessee's case in as much as the assessee's ....
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....ing the business, the manner of earning income is substantiated from the fact that the assessee is in the business and has paid tax together with interest on the income disclosed by him. It was accordingly contended that the penalty levied @ 30% instead of 10% is not justifiable in the present case. It was further contended that since the AO has levied penalty u/s 271AAB(1)(c) which are not applicable provision, it would not be proper for the appellate authority to sustain any penalty even u/s 271AAB(1)(a) of the Act. 7. The ld. CIT(A) considered the above contentions raised by the assessee as well as the comparative position of provisions contained in section 271AAA and 271AAB, and thereafter, confirmed the levy of penalty @ 10% of undisclosed income u/s 271AAB(1)(a) of the Act and his relevant findings are contained at para 4.3 to 4.8 of his order which are reproduced as under:- "4.3 There is no dispute as to the fact that assessee has offered the income in the statement recorded u/s 132(4), offered the same in the return and paid the due tax thereon. Therefore, I agree with the submission of the A/R of the appellate that in the present case, all these assessee have satisfied ....
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....the action of the AO levying penalties at the rate of 30% of undisclosed income disclosed during search in all these cases u/s 271AAB(1)(c) of IT Act stand modified/ reduced 10% of undisclosed income disclosed during search 271AAB(1)(a) of IT Act. In nut shell the penalty levied by the AO are confirmed to the extent of one-third and cancelled to the extent of two-third. Accordingly the Ground of appeal in all these appeals are partly allowed." 8. During the course of hearing, ld. AR submitted that the assessee has admitted the undisclosed income, paid taxes and filed returns. The provisions of section 271AAB (1)(a) read as under: "271AAB Penalty where search has been initiated (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,-- (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under sub- section (4) of sectio....
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....ing the same by making assessment at the returned income and further as stated that the ld. AO has also observed that the assessee is earning income from capital gain and other sources. Therefore, this clearly suggests that the ld. AO was completely satisfied with manner and substantiation of the undisclosed income declared by it. Therefore, the ld. AO was incorrect in giving finding that the assessee failed to substantiate the undisclosed income. 8.4 It was further submitted that as already explained that the assessee made a surrender of undisclosed income and the same was assessed by the ld. AO on the same figure. Now once there is quantification of amount of undisclosed income by the assessee followed by acceptance by the investigation team and subsequent assessment of the same amount by the ld. AO, it is full proof evidence that the undisclosed income was duly substantiated by the assessee. Hence, no question could be raised by the ld. AO in the order of penalty. 8.5 It was further submitted that the term manner of deriving undisclosed income and its substantiation is not defined in the Act. So it was otherwise incumbent upon the ld. AO to explain to the assessee what constit....
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....e searches carried out before 1-7-2012 read as under: "SECTION 271AAA Penalty where search has been initiated (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent. of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply if the assessee,- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1)." We may submit that the pro....
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....lhi Bench in case of Neeraj Singal vs. ACIT in ITA No.337/Del/2013 reported in 2015(3)-TMI-680-ITAT, Delhi which is identical to the present case. Accordingly, we uphold the order of ld. CIT(A). 6. In the final result, the appeal filed by the department is dismissed." Thus the case of the assessee is squarely covered by the above decision of Hon'ble Delhi High Court in as much as in the present case also, absolutely no question was asked by the ld. AO regarding the manner of deriving of undisclosed income & substantiating the same. As would appear from the statement, after making of surrender of undisclosed income by the assessee, the ld. AO stopped and on this issue, the ld. AO did not ask any further question from the assessee. Therefore, there being identical facts, following the verdict of Hon'ble Delhi High Court penalty u/s 271AAB(1)(c) cannot be sustained and as such the ld. CIT(A) was fully justified in deleting the same. 8.10 It was further submitted that the Hon'ble Jaipur ITAT is taking an identical and consistent view as has been taken by the Hon'ble Delhi High Court in its recent decision in Emirates Technologies Pvt. Ltd. (supra). In case of Late Sudha Patni vs. A....
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.... of the above principles laid down, we are of the opinion that immunity provided under s/s. (2) of section 271AAA is applicable and accordingly, the order of CIT(A) does not require any modification. Revenue's grounds are rejected. " Respectfully following the decision of the coordinate benches, we set aside the orders of the authorities below. The AO is directed to delete the addition. The appeal of the assessee is allowed. 5. In the result, appeal of the assessee is allowed. Thus the case of the assessee is squarely covered by the decisions of Hon'ble Jaipur ITAT in as much as there being identical facts in the present case and hence, the penalty u/s 271AAB(1)(c) rightly deleted by the ld. CIT(A) 8.11 It was further submitted that there is almost consensus between various benches of Hon'ble ITAT that no adverse inference could be taken where the department has not raised any question regarding the manner and substantiation of undisclosed income. Few such decisions are as under: * DCIT vs. Babu Lal Motawat ITA No.93/JU/2014 dt.7-5-2014 (Jodh)(Tri) * DCIT vs. Piyush Maru ITA No.21/Jodh/2014 dt.9-6-2014 (Jodh)(Tri) * DCIT vs. Sulochana Devi A Agarwal ITA No. 1052/Ahd/201....
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....ase scenario maximum a penalty u/s 271AAB(1)(b) could have been levied as has also been discussed in para 1.4 above. Therefore the penalty order passed by the ld. AO was bad in law and on the facts of the present case. So once the order itself is held to be bad in law, the same cannot be revived by the ld. CIT(A) so as to bring in penalty with some different section. 8.16 Reference was drawn by the ld AR to section 251 which deals with the power of Commissioner (Appeals) while disposing of an appeal, reads as under: Powers of the Commissioner (Appeals) (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a) in an appeal against an order of assessment he may confirm, reduce, enhance or annul the assessment; (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 24 HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his r....
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....e of CIT vs. SSA EMERALD MEADOWS SLP 11485/2016 DT.5-8-2016 (SC) wherein the Hon'ble Karnataka High Court has dismissed the following substantial question of law filed by the department in the case of CIT vs. SSA EMERALD MEADOWS ITA NO.380/2015 DT.23-11-2015 (Kar)(HC) wherein the Hon'ble High Court has followed the judgement of the same court in the case of CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar): "Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?" In the present case also, the notice have been issued under the provisions of section 271AAB(1)(c) of the Act and not 271AAB(1)(a) and hence, covered by the above decision of Hon'ble Supreme Court and hence, sustenance of penalty under different section was bad in law 8.20 It was further submitted that even the ld. CIT(A) could not have levied the penalty in a different section. It has been held by some....
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....losed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty percent but which shall not exceed ninety percent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) or sub-section (1A). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.-For the purposes of this section,- (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the not....
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....0% is payable by him. It further provides that where the declaration of undisclosed income is neither made by the searched person in the course of search nor declared in the return of income furnished for the specified previous year and additions are made during the course of assessment proceedings, penalty which can vary from 30% to 90% is payable by him. 13. Both the provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c) thus provides for levy of penalty in cases where search has been initiated under section 132 on or after the 1st day of July, 2012 and quantum of penalty has been kept at 10% where there is declaration in the statement recorded during the course of search, and where there is neither a declaration in the statement u/s 132(4) recorded during the course of search nor a declaration in the return of income, the penalty has been kept at a higher pedestal which can vary from 30% to 90%. Further, it is noted that the provisions of section 271AAB overrides section 271(1)(c) which infact contain provisions for levy of penalty under two separate limbs- concealment of particulars of income or furnishing inaccurate particulars of income. Further, the decision of th....
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....ping Services reported in 199 ITR 1 where the Hon'ble Supreme Court was pleased to held that "In view of section 251(1)(b) it was also clear that the AAC was wrong in taking the view that he had no power to enhance the penalty in accordance with law on reaching the conclusion that the computation of penalty made by the ITO was illegal, and that he could only cancel even the lesser penalty which had been imposed by the ITO." Drawing support from the said legal proposition, in the instant case, the ld CIT(A) held that the AO was wrong in levying penalty @ 30% and on appreciation of the same facts, the ld CIT(A) reduced it to 10% which is clearly within his jurisdiction as laid down in section 251(1)(b) of the Act. 15. Further, as we have held above, both the clauses fall under same section 271AAB which provide for the same charge for levy of penalty. It is therefore not a case that the ld CIT(A) cancelled the penalty under clause (c) and levied the penalty under clause (a). All he has done is vary and reduced the levy of penalty for the same charge which remain undisputed. The Coordinate Bench decisions cited by the ld AR in this regard therefore doesn't support the case of the asse....
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....lain the manner of earning of income or to substantiate the undisclosed income declared by the assessee. It was submitted that the assessee surrendered the undisclosed income in response to question no.18, 21 & 22 and afterwards, there is no further question for the manner of earning the same or to substantiate the same. 21. It was further submitted that, and to which we agree, the provisions of Section 271AAB(1)(a) is pari materia to Section 271AAA(2) so far as it relates to satisfaction of condition whereby it requires specifying the manner of earning of undisclosed income as well as to substantiate the manner in which the undisclosed income was derived. 22. It was further submitted that there is consistent view of various Courts and Benches of the Tribunal that in case the department has not raised any specific query regarding the manner in which the undisclosed income has been derived and its substantiation, the ld. AO would not be justified in levy of penalty u/s 271AAA of the Act. It was submitted that the legal proposition so laid down continues to apply in context of section 271AAB(1)(a) with a variation of levy of penalty @ 10% as against discharge from levy of penalty u....
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....umstances of the case, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in which such income was derived would not make Explanation 5(2) inapplicable." 24. The Hon'ble Gujarat High Court in case of Mahendra C Shah reported in 299 ITR 305 in context of explanation 5 to section 271(1)(C) has held as under: "15. Insofar as the alleged failure on the part of the assessee to specify in the statement under section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded,....
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....hus equally applies in context of section 271AAB(1)(a) of the Act. 27. In light of above legal proposition, let's examine the statement of the assessee, recorded during the course of search, under section 132(4) of the Act with a view to determine whether any specific question(s) were raised to the assessee drawing his attention to the provisions of section 271AAB which require the assessee to specify the manner of earning of undisclosed income as well as to substantiate the manner in which the undisclosed income was derived. The relevant questions are question no. 3, 18, 19, 20, 21, 22 and 23 and the same are reproduced as under: 1 Rs.500000 Advance Dt.06/04/2013 2 Rs.450000 Advance Dt.13/04/2013 3 Rs.1000000 Advance Dt.27/04/2013 4 Rs.811000 Advance Dt.14/05/2013 5 Rs.750000 Advance Dt.30/05/2013 6 Rs.200000 Advance Dt.06/06/2013 7 Rs.721000 Advance Dt.29/06/2013 8 Rs.571000 Advance Dt.09/07/2013 9 Rs.300000 Advance Dt.09/07/2013 10 Rs.631000 Advance Dt.23/07/2013 11 Rs.455000 Advance Dt.01/08/2013 12 Rs.1172500 Advance Dt.26/09/2013 13 Rs.600000 Advance Dt.14/10/2013 14 Rs.350000 Advance Dt.28/10/2013 15 Rs.1100000 Adva....