TaxTMI 
TaxTMI 
2019 (4) TMI 634
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.... gems, jewellery, precious and semi precious stones, diamonds, wooden and handicraft items in the name and style of 'M/s. Silver and Art Palace'. A search and seizure action u/s 132 of the Act was carried out at the assessee's premises on 11.03.2015. During the course of search, statement of one of the partner's in the assessee firm u/s 132(4) of was recorded, wherein an amount of Rs. 26,50,50,888/- was surrendered (Rs. 25,80,25,888/- on account of difference in valuation of stock and Rs. 70,25,000/- on account of advances given to different parties). The assessee thereafter filed its return of income on 27.9.2015, declaring total income of Rs. 29,30,41,580/- including Rs. 26,50,50,888/- surrendered during the course of search. The assessment proceedings were completed by the Assessing officer and an order u/s 143(3) r/w 153B(1)(b) of the Act was passed on 23.12.2016 at Rs. 29,30,53,964/- by accepting the returned income except making a disallowance of Rs. 12,384/- on account of delay in deposition of ESI & PF. Simultaneously, penalty proceedings u/s 271AAB were initiated by issuance of notice on 23.12.2016. Subsequently, penalty was imposed u/s 271AAB(1)(a) of the Act at the rate ....
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....ntext of Section 158BFA(2) of the Act has come up for judicial scrutiny before the Courts and our reference was drawn to the decision of the Hon'ble Andhra Pradesh High Court in the case of M/s. Sri Radha Krishna Vihar Vs. Pr.CIT (in ITA No. 740 of 2017 dated 13.12.2017) wherein it was held as under: "7. While we respectfully agree with the views of both the High Courts referred to above, we notice an additional feature from the language of Section 158BFA of the Act. While in Sub-Section (1) thereof, which deals with the payment of interest on undisclosed income, the words the assessee shall be liable to pay simple interest are used, whereas in Sub-Section (2) thereof, the words may direct are used referring to the power of the Assessing Officer to direct the person concerned to pay penalty. No doubt, the words shall may at times be construed as directory and the word "may" may be construed as mandatory as the context warrants. However, in Section 158BFA of the Act, these phrases have been used by the Legislature in two different contexts, one in the matter of payment of interest and another in the matter of payment of penalty. The fact that varied phraseology is used in t....
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...., ACIT, Central Circle-2 V/S. Marvel Associates (ITA No. 147/Vizag/2017), Manish Agarwal Vs. DCIT (ITA No. 1479/ Kol/2015, dated 09.02.2018), DCIT Vs. Subhas Chandra Agarwala (ITA No. 1470/Kol/2015 dated 19.02.2018), Ravi Mathur Vs. DCIT (ITA No. 969/JP/2017 dated 13.06.2018), Anuj Mathur vs. DCIT (ITA No. 971/JP/2017 dated 13th June 2018) and Shri Suresh Chand Mittal Vs. DCIT, CC-2 (ITA no. 931/JP/2017 order dated 02.07.2018). 10. It was accordingly submitted that levy of penalty is not mandatory in nature. It is to the discretion of AO to levy penalty or not after considering the facts of the case and after giving proper opportunity of being heard to the assessee. The penalty has been imposed based upon the wrong interpretation of law without going further into the facts of the case, hence, deserves to be deleted. 11. Per contra, the ld. DR submitted that the levy of penalty U/s 271AAB is mandatory in nature where the condition prescribed therein are satisfied. It was submitted that the provisions of Section 273B of the Act providing for non imposition of penalty are not applicable to the penalty provisions U/s 271AAB of the Act. It was further submitted that unlike Section....
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....xmann.com 109 wherein it was held as under: "5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of penalty in the case of admission of income u/s 132(4) is mandatory. 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 pari materia 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 sect....
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....d by the Assessing Officer under clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed 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. ....
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....ble to the penalty provisions U/s 271AAB of the Act is correct but the same doesn't take away the discretionary nature of penalty as discernable from the plain reading of Section 271AAB. It is also correct that the provisions of section 271AAB have been further strengthened in comparison to section 271AAA and unlike Section 271AAA(2), there is no immunity clause provided in 271AAB of the Act, at the same time, we are of the considered view that the legislature has retained the phrase "may" and thus the Assessing officer has been empowered to exercise his discretion to levy penalty depending upon facts and circumstances of a particular case. The contention of the ld DR that the discretion which is available with the Assessing Officer is limited to the rate of penalty which can vary from 10% to 30% depending on the facts and circumstance of the particular case is also not acceptable as the essential condition for levy of penalty that there is undisclosed income which is found during the course of search has to be necessarily satisfied before examining additional conditions so specified for determining the rate of penalty. Further, mere disclosure of income under section 132(4) would ....
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....rs. wherein it was held as under:- "...Tax, penalty and interest are different concepts under the Incometax Act. The definition of 'tax under section 2(43) does not include penalty or interest. Similarly, under section 156, it is provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax..." 17. It was further submitted that it has been held that by various Courts that penalty proceeding is not continuation of the assessment proceedings. The Tribunal in the case of Shri Ramamoorthy Sridharan Vs. Income Tax Officer (ITA No. 181/Hyd/2014) relying on the judgment of Hon'ble Supreme Court in the case of Anantaram Veerasinghiah vs. CIT 123 ITR 457 has held as under: "28. We heard both the parties and perused the records. Penalty Proceedings are independent proceeding and the matter is to be considered afresh: It is an undisputed position that penalty proceedings are independent proceedings and the....
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....olely on the basis of admission u/s 132(4) and disclosure in return of income. It is important to note that during the penalty proceeding and before CIT(A), a detailed factual and legal submission was made and without pointing out any error in facts or contentions, penalty has been imposed and confirmed merely on the basis of above referred premises. Therefore, we submit hereinafter the facts viz.-a-viz. legal provision contained in Section 271AAB to examine whether income under consideration falls under 'undisclosed income' as defined in the said Section. 21. It was submitted by the ld AR that during the search, total surrender was of Rs. 26,50,50,888/- and on that penalty @ 10% of Rs. 2,65,05,090/- levied by the Ld. AO and confirmed by Ld. CIT(A), details of which is as follows:- Particulars Surrendered amount Penalty @10% On account of excess stock found 25,80,25,888 2,58,02,588 On account of advance given to parties 70,25,000 7,02,500 Total 26,50,50,888 2,65,05,088 Penalty on excess stock found 22. It was further submitted that Rs. 25,80,25,888/- was surrendered on account of excess stock found in statement recorded u/s 132(4). Exces....
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....jor weight is of wooden but valued at silver rate, (iii) Brass goods have been valued without taking into account number, nature, size etc. on lump sum, (iv) Marble goods have been valued at Rs. 18 lakhs whereas during the year there is no purchase and value of opening stock taken at Rs. 13.09 lakhs, (v) sand stone goods have been valued without mentioning number, quality, size etc. on lump sum basis, (vi) camel bone goods have been valued without considering the numbers, quality etc., (vii) Entry no. 49 and 50 on shows that different kind of stones have been valued at same price, (viii) silver ornaments of 15 different types, all have been valued at Rs. 100 per gram without specifying the weight and rate of the stone whereas all article must have different weights of stone, however same have been valued at Rs. 100 per gram, (ix) mixed jewellery without specifying the weight/ nature of the diamond/ stone/ pearl and without finding out the net weight, (x) mixed jewellery, the gross and net weight has been taken same whereas it is 22 carat jewellery etc. 23. The ld. AR further submitted that during the search no incriminating documents found which suggest any purchase without reco....
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.... word "undisclosed income" from the meaning previously given to the undisclosed income u/s 158B(b) which is again reproduced for ready reference:- "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullions, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false." 26. It was submitted that perusal of the same shows that the definition of undisclosed income uses the word "includes" means neither it is exhaustive nor incomes or assets/expenses is mutually exclusive to each other. Perusal of the above definition shows that there should be an income which must be represented wholly or partly by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions. In the instant case, neither any mo....
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....f the facts shows that it is not the case where Department either found any income or any assets or any expenses not recorded in the regular books of accounts or documents, hence, does not met the definition of undisclosed income given in Section 271AAB. It is clear that increase in value of stock will automatically reduce the profit in future at the time of sale, therefore, to avoid the protracted and imposed litigation and to buy peace of mind, surrender was made and disclosed in the return of income, as it will not impact the financial tax liability in totality. 31. It was submitted that the turnover of the firm during the year was Rs. 45.86 Crores. The declared gross profit and net profit of the business of the year under consideration is Rs. 35.34 Crores and Rs. 29.30 Crores respectively. Thus, G.P. rate comes to 77.06% and N.P. rate comes to 63.90%. This fact shows that the result shown is abnormal and not reflecting the correct picture of the year under consideration. In none of the previous assessed years, assessee has earned this much of profit. 32. It was further submitted that a perusal of the finding of CIT(A) shows that he has confirmed the penalty by observing t....
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....n the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. The cost of construction in the projections projected at Rs. 2,177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma Vs. DCIT (2012) 32 CCH 334 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of lo....
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....resent income of the assessee. It also does not represent that it is related to the year under consideration. In the instant case, no incriminating documents found which suggest that assessee has earned any undisclosed income pertaining to year under consideration. Therefore, in all probabilities, it may be related to the preceding years, hence, investment by way of advances itself does not reveal the nature of income and source of income of the year under consideration. Hence, it is not the undisclosed income as defined in the section 271AAB. 37. It was submitted that alternatively, it is relevant to note that entries under consideration is noted in a diary and placed under proper security, it is so because it proves that assessee does not have guilty mind and intention to conceal the income. It also does not prove that had there been no such operation, the assessee would not have declared such income in return of income. The said presumption is not tenable in law as ample time was left for filing the return of income. The Ld. A.O. has not brought on record anything to prove the intention of the assessee otherwise; further, even he has not doubted the intention of the assessee.....
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....d u/s 132(4) of the Act. Thus, the excess stock is clearly covered under the definition of undisclosed income. It was further submitted that undisputed fact that the entries relating to advances made for purchases of land were not recorded in the regular books of accounts maintained in the normal course of business. Thus, in view of the above discussion, it is crystal clear that the undisclosed income declared by the assessee u/s 132(4) of the Act is squarely covered by the definition of 'undisclosed income'. Otherwise, it is difficult to comprehend under what conditions and situations, the income declared by the assessees would fall under the definition of 'undisclosed income'. In support, reliance was placed on decision in case of Sonal Steel Trading Pvt. Ltd. vs. ACIT (ITA No. 396/CHNY/2018 dated 23.07.2018). It was accordingly submitted that the penalty imposed by the AO u/s 271AAB should be sustained. 39. We have heard the rival contentions and perused the material available on record. It is a settled proposition that penalty provisions need to be construed strictly. For the purposes of levy of penalty u/s 271AAB, what has to be determined is whether the surrender so made, ....
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....om would be brought to tax in regular course and the determination of market price would be relevant at that point in time. In other words, the value at which such stock has been acquired by the assessee and not the value which such stock can fetch in the market or the fair market value of such stock is to be determined. 41. In the instant case, it is noted that the assessee in the penalty proceedings before the Assessing officer and thereafter during the appellate proceedings before the ld CIT(A) has contended that the valuation of the goods classified as "Valuable items" has been done at market rate as on the date of search and in respect of goods classified as "other than valuable items", besides the fact that valuation has been done on the basis of market value, the valuation so done is tentative and on lump-sum basis. It has been contended that valuation has been done without considering the cost disclosed in the regular books of accounts and without considering the well-accepted accounting policy which has been followed by the assessee firm where it values its stock at lower of cost and net realizable value. We find that in the penalty proceedings, there is no such exercis....
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....en to various persons towards purchase of land. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides the said entries, there are no other documents/material in terms of any agreement to sell, the description of the property etc, which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called purchase of land cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed investment represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. An investment per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there could be subsequent outflow by way of investment. Investment and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In....