TaxTMI 
TaxTMI 
2019 (4) TMI 565
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....ld. Assessing Officer u/s 271AAB of the IT Act, 1961. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them." Ground No. 1 is regarding validity of initiation of penalty proceedings under section 271AAB of the IT Act for want of specifying the default as per clause (a) to (c) of section 271AAB(1) of the IT Act. 2. A search and seizure action under section 132(1) of the I.T. Act was carried out on 4th September, 2013 at various premises of Rambhajo group, Jaipur. The assessee is also one of the members of this group covered by the search and seizure action. During the course of search and seizure action, the assessee disclosed undisclosed income of Rs. 5,01,66,717/- being an additional business income. The said income was surrendered by the assessee on account unexplained expenditure on house construction of Rs. 2,44,63,575/-, undisclosed stock of Rs. 1,91,24,877/-, undisclosed jewellery of Rs. 60,16,265/- and undisclosed debtors/advances of Rs. 5,62,000/- total amounting to Rs. 5,01,66,717/-. The assessee filed his return of income on 28th November, 2014 under section 139(1) declaring total income of Rs. 5....
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.... @ 10%, 20% and 30% of undisclosed income of the specified previous year. The assessee should know the grounds which he has to meet specifically otherwise the principles of natural justice are violated. Even in the assessment order the AO has not specified under which clause the penalty is liable to be imposed but the AO has mentioned that the penalty proceedings under section 271AAB of the Act are being initiated. There is no application of mind at the time of issuing the show cause notices as the AO has not specified the undisclosed income on which the assessee is required to show cause. Even the AO has not given any ground for levy of penalty for which the assessee could put his defence. Thus in the absence of specific charge against the assessee, the assessee was not given the proper opportunity to counter the show cause notice issued by the AO as well as to file the cogent reply to the same. In the absence of any grounds specified in the show cause notice as well as any amount to be treated as undisclosed income of the assessee for the purpose of levy of penalty under section 271AAB, the initiation of penalty is not valid and, therefore, the consequential order passed under s....
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....losure from the assessee. Thus the objection raised by the assessee that the AO has not specified the clause under section 271AAB(1) of the Act has no merit when the assessee himself has explained the nature of income disclosed and surrendered and also paid the tax on the same. The ld. D/R has submitted that as per the explanatory note of Finance Bill, 2012, the provisions of section 271AAB are mandatory in nature and the AO has no discretion but the assessee shall pay the penalty in addition to the tax on the undisclosed income surrendered under section 132(4) of the Act. He has relied upon the orders of the authorities below. 4.1. The ld. D/R has also relied upon the decision of Hon'ble Allahabad High Court in case of Principal CIT vs. Sandeep Chandak and Others dated 27th November, 2017 in I.T. Appeal No. 122, 128 and 129 of 2017 and submitted that even otherwise if the show cause notice does not mention the section correctly it will not be invalid as the AO will get the benefit of section 292BB of the Act. The ld. D/R has also relied upon the decision of Kolkata Bench of the Tribunal in the case of DCIT vs. Amit Agarwal, 88 taxmann.com 288. 5. We have considered the rival sub....
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....n 271AAB are satisfied. At the outset, we note that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para 4 to 6 as under :- "4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of Rs. 10,02,00,000/- in pursuant to the entries of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lea....
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....losed income was derived; and (iii) on or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty 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 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 51[computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 52[(1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 rec....
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.... documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the 54[Principal Chief Commissioner or] Chief Commissioner or 54[Principal Commissioner or] Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.]" The section begins with the stipulation that the AO "may" direct the assessee shall pay by way of penalty if the conditions as prescribed under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose ....
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.... the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assessee is fit for levy of penalty under section 271AAB and then only the quantum of penalty being 10% or 20% or 30% has to be determined subject to the explanation of the assessee for the defaults. 5. Before we proceed further, the decisions relied upon by the ld. D/R are to be considered. In the case of Principal CIT vs. Sandeep Chandak & Others (supra) the issue before the Hon'ble High Court was the defect in the notice issued under section 271AAB on account of mentioning wrong provision of the Act being 271(1)(c) of the Act. The Hon'ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon'ble High Court has held as under :- " The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice ....
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.... The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not mandatory but discretionary. The provisions of section 271AAB of the Act is parimateria with that of section 158BFA of the Act relating to block assessment and accordingly argued that the levy of penalty under section 271AAB is not mandatory but discretionary. When there is reasonable cause, the penalty is not exigible. The Ld. A.R. taken us to the section 271AAB of the Act and also section 158BFA(2) of the Act and argued that the words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads 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 1 st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, pay....
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....d against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. 6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order impo....
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....on of the AO. Accordingly following the earlier decision of this Tribunal in the case of Ravi Mathur vs. DCIT (supra), we hold that the levy of penalty under section 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB of the Act. 5.1. The second limb of challenging the validity of initiation of penalty proceedings for not specifying the ground and default in the show cause notice issued under section 274 has been considered by the Coordinate Bench of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para in para 7 as under :- "7. As regards the validity of notice under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed income not recorded in the books of accounts does not exists, then the same has to be specified by the AO in the show cause notice and further the AO is required to give a finding while imposing the penalty under section 271AAB. Even if the AO is satisfied and come to the conclusion tha....
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....ective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the D....
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....e issued by the AO in the case of the assessee is not sustainable." We further note that in the case in hand, the AO in the show cause notice has neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty was proposed to be levied. For ready reference we reproduce the show cause notices issued by the AO under section 274 read with section 271AAB on 30th March, 2016 and 16th August, 2016 as under :- " No. ACIT/CC-1/JPR/2015-16 Dated : 30.03.2016. PENALTY NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. PAN - ABDPP 7196A To, Sh. Padam Chand Pungalia, 2372, MSB Ka Rasta, Johari Bazar, Jaipur. Whereas in the course of assessment proceedings before me for the A.Y. 2014-15, it appears to me that as per sections 274 and 275 read with section 271AAB of the Income-tax Act you are liable for penalty on assessed undisclosed income. ....
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.... income on which the penalty was proposed to be levied. Even the Hon'ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon'ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA's Emerald Meadows, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate Bench as well as Hon'ble Jurisdictional High Court, this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed. Ground No. 2 is regarding levy of penalty under section 271AAB of the Act being unjust and against the provisions of law. 6. The ld. A/R of the assessee has submitted that the AO while passing the penalty order under section 271AAB has not given a finding that the income disclosed by the assessee is an undisclosed income as per definition provided in the explanation to section 271AA....
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.... Act. In support of his contention, he has relied upon the following decisions :- Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018. Dinesh Kumar Agarwal vs. ACIT ITA Nos. 855 & 856/JP/2017 dated 24.07.2018. Raja Ram Maheshwari vs. DCIT ITA No. 992/JP/2017 dated 10.01.2019. M/s. Rambhajo's vs. ACIT ITA No. 991/JP/2017 dated 11.01.2019. Rajendra Kumar Gupta vs. DCIT ITA No. 359/JP/2017 dated 18.01.2019. Thus the ld. A/R has submitted that even if the seized material discloses some outflow of funds from the assessee's hands, the same cannot necessarily be an income of the assessee. Therefore, in the absence of any other material or evidence to show the undisclosed income of the assessee, only the entries in the seized material which is dumb and deaf document cannot be the basis of levy of penalty under section 271AAB of the IT Act. As regards the penalty in respect of undisclosed income on account of excess stock, the ld. A/R has submitted that there is no material found or detected during the course of search to disclose that the assessee has not recorded the stock-in-trade in the books of account but the said disclosure was obtained only on the basis of the valuation ....
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....e physical assets of the assessee. He has relied upon the orders of the authorities below. 8. We have considered the rival submissions as well as the relevant material on record. Out of the four items representing the undisclosed income disclosed by the assessee during the statement under section 132(4) of the IT Act, only two items, namely, expenditure on house construction and undisclosed advances are based on the seized material. The other two items being representing excess stock and undisclosed jewellery are not based on the seized documents but these are based on the valuation of the stock as well as the jewellery found at the time of search and seizure action. First, we take up the undisclosed income on account of expenditure on house construction of Rs. 2,44,63,575/-, the relevant alleged seized document in this respect are the entries in the diary on 04.04.2013, 14.04.2013, 28.04.2013, 28.05.2013 and 01.06.2013. It is pertinent to note that all these notings are done during the month of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of Rs. 2,....
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....h do not support of the case of the department that these entries/notings in the seized documents represents the real transactions/assets purchased by the assessee or in the possession of the assessee. The possession of the asset was a matter of fact at the time of search and in the absence of such asset either found or otherwise discovered during the course of search and seizure, these entries in the seized documents would not constitute undisclosed income on account of expenditure in construction of the house. Similarly, the entries in respect of advances of Rs. 5,62,000/- also very vague and ambiguous not giving any details about the purpose or date on which these advances were given. Only a date is mentioned at the bottom of the page but not against each and every entry of the page. Further, we note that the department has not tried to ascertain the full particulars of the alleged persons whose names are noted in the seized documents against certain amounts which are considered as advances given by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are onl....
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....n the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be....
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....in the proceedings of the search and seizure, the department has not made any allegation that there was any discrepancy in the quantity of the stock found during the course of search and seizure and the stock recorded by the assessee in the books of account. Once the stock which is recorded in the books of account of the assessee and the stock physically found at the time of search has no discrepancy in terms of quantity, then only because of difference in valuation done by the departmental valuer would not amount to undisclosed income based on the definition as per explanation to section 271AAB of the Act. Therefore, once the stock is found recorded in the books of account, it does not fall in the category of valuable article or things which has not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year. For ready reference, we quote the definition as provided in clause (c) of explanation to section 271AAB of the Act as under :- " (a) Xxxx xxxxx xxxxx (b) Xxxxx xxxxx xxxxxx (c) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or ....
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....can be determined on the basis of historical and/or current cost so recorded in the books of accounts. Alternatively, past gross profit percentage can also give a reasonable basis for determining such cost. In the instant case, the ld AR has contended that where gross profit of the past year determined at the rate of 13.92% is used and applied to the stock valued by the Revenue at the current market value, it will result in a scenario where the stock as per books of account is higher than the stock valued at the time of search. As per computation prepared which we have noted above, we find that stock (including stock of silver jewellery) as per books of accounts comes to Rs. 35,11,24,031 as against Rs. 34,27,22,924 valued by the Department at the time of search and therefore, contention so advanced by the ld AR is found reasonable. Another aspect which has been submitted by the assessee relates to non-deduction on account of chapadi, wax etc for the Kundan Meena Jewellery while physically weighing the jewellery. It was submitted by the ld AR that the said fact was duly brought to the notice of Assessing officer vide written submission dated 15.12.2015, however, the same has not be....
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....t considering the status of the assessee's family and the number of family members, the jwellery found during the course of search is not abnormal and acquired in the long back. The ld. A/R has further contended that part of the jewellery was even not purchased but inherited from the forefathers. Hence the disclosure obtained on account of the jewellery would not constitute undisclosed income of the assessee for the purpose of levy of penalty. 11. On the other hand, the ld. D/R has submitted that the jewellery found during the search and seizure action represents the bullion and valuable articles and, therefore, in the absence of the same found recorded in the books of account of the assessee it is undisclosed income as per the definition provided under section 271AAB of the Act. He has relied upon the orders of the authorities below. 12. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the jewellery found during the course of search and seizure action belongs to the assessee's family. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an u....