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2019 (4) TMI 952
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.... imposed by the 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. The assessee is an individual deriving income from business, LTCG and STCG on sale of shares and income from other sources. A search and seizure action under section 132(1) of the I.T. Act was carried out on 15th October, 2014 in case of Surana group, Jaipur in which the case of assessee was also covered. In the course of search and seizure action, certain documents were found and seized marked as Annexure-A Exhibit No. 3, Annexure-B Exhibit No.4, Annexure A Exhibit No. 1 and Annexure A Exhibit No. 2 containing the entries of advances for land and other loans/advances, expenditure on renovation of house and household expenses. In the statement recorded under section 132(4) of the Act the assessee offered an additional income of Rs. 9,00,69,004/- as recorded in the seized doc....
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.... 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 section 271AAB of the Act is also liable to be quashed. In support of his contention, he has relied upon the following decisions :- CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karnataka) Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka) CIT vs. SSA's Emerald Meadows 73 taxmann.com 248 (SC) Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018. Apart from the above decisions, the ld. A/R has also referred to a series of decisions on this point that penalty proceedings under section 271AAB is not mandatory but discretionary and the AO has to take a decision by considering the reply and explanation of the assessee and giving a finding....
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....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 submissions as well as the relevant material on record. During the course of search and seizure action under section 132 of the Act conducted on 15th October, 2014, the assessee disclosed income of Rs. 9,00,69,004/- in his statement made under section 132(4) of the Act. The said disclosure was made in pursuant to the entries on account of advances for land and other loans/advances, expenditure on renovation of house, household expenses, excess cash found, excess jewellery and excess silver found in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :- Annexure/Exhibit No. Relevant Page No. ....
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....tical 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 lead to the presumption that the assessee would not ha....
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....d (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 (Sec....
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.... a search under section 132, which has- (A) 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; 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 g....
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....discretion given to the AO as per the provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of 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 u....
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....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 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....
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....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. 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 i....
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....llahabad High Court in the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision 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 ....
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....the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective 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 p....
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....above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. 6. Since we have set aside the penalty order for the impugned assessment year, the appeal filed by the Revenue has become infructuous." In view of the decision of the Chennai Bench (supra), the show cause notice 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 23rd December, 2016, and 15th May, 2017 as under :- NOTICE UNDER SECTION 274 READ WITH SECTION 271 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. Dated : 23.12.2016. To, M/s. Shri Shyam Sunder Khandelwal, 1839, Barah Gangore Ka Rasta, Johri Bazar, Jaipur. PAN-ADRPK 5862 C Whereas in the course of assessment proceedings for the AY ....
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.... 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 271AAB(1) of the Act. He has further submitted that when the levy of penalty is not mandatory but to be imposed on merits of each case, then the AO is duty bound to first hold that the income disclosed by the assessee is undisclosed income as per the provisions of section 271AAB and then take a decision of imposing the penalty. He has referred to the relevant disclosure made by the assessee in the statement recorded under section 132....
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....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. Thus no incriminating document was found during the course of search and seizure action and the alleged seized papers on the basis of which surrender was taken by the Department contains only imaginary names and some figures. Neither during the search proceedings nor the AO has made any enquiry or investigation regarding the entries made in the seized papers. The surrender of the said income by the assessee was just to buy peace as it is evident from the statement recorded under section 132(4) of the Act. The said entries in the pocket diary giving advances itself is not an undisclosed income but due to undue pressure exerted by the revenue authorities to obtain the surrender, the assessee has made the surrender of the sa....
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....nd or the asset against which the advances were given is identified along with the persons to whom the advances were given, it would not be regarded as representing the undisclosed income of the assessee. Further, the advances given in the month of May, 2014 may not necessarily be representing the undisclosed income of the year under consideration. Neither any other document like agreement to purchase and sale of land or receipt to indicate the real transaction entered into by the assessee with the persons whose names are recorded in the seized material are either found or brought on record by the AO. The existence of the asset being land for which the alleged advances were given is essential to establish that the assessee has actually entered into these transactions and paid the advances. In the absence of such fact or the land for which the advances were given or the full particulars of the persons to show that the names appearing in the seized documents are real existing persons, these entries in the seized documents would not constitute undisclosed income on account of advances for land. Therefore, without ascertaining the full particulars of the persons in whose names the entr....
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....h has been found by way of any entry in 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 ....
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.... is only an estimate for renovation work to be carried out. The department has obtained the surrender without actual expenditure incurred by the assessee on this account. In support of his contention, he has relied upon the decision of the Coordinate Bench of this Tribunal dated 10.01.2019 in case of Shri Raja Ram Maheshwari in ITA No. 992/JP/2017 and submitted that the alleged entries in the seized document do not represent or disclose any undisclosed income of the assessee. 10. On the other hand, the ld. D/R has submitted that the disclosure and surrender was made by the assessee based on the seized material containing the entries of expenditure on account of renovation of house. He has relied upon the orders of the authorities below. 11. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the document found and seized during the course of search and seizure containing these entries is having the caption of Estimate for Renovation Work. Thus it is clear that the document itself does not reveal any actual expenditure incurred by the assessee much less the income of the assessee for the specified previous year. Even th....
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....ecorded in the seized document were incurred out of the household withdrawals of the assessee and the family members. The said seized paper does not represent any undisclosed income but it is only household expenditure. The AO has not determined it as income from other sources under section 69 of the Act but accepted the business income of the current year. Therefore, merely on the basis of surrender made in the statement recorded under section 132(4), it cannot be held as undisclosed income for the purpose of levy of penalty under section 271AAB of the Act. 13. On the other hand, the ld. D/R has submitted that the surrender was made by the assessee based on the seized material and, therefore, it is undisclosed income of the assessee in terms of section 271AAB of the Act. He has relied on the orders of the authorities below. 14. We have considered the rival submissions as well as the relevant material on record. The assessee has surrendered Rs. 7,00,000/- on account of household expenditure as found recorded in the seized material Exhibit-2. It is pertinent to note that without considering the drawings of the assessee as well as other family members, the entire household e....
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....ssessee has surrendered the same in the statement recorded under section 132(4) of the Act, then it is an undisclosed income as per the definition provided in the explanation to section 271AAB of the Act. He has relied upon the orders of the authorities below. 17. We have considered the rival submissions as well as the relevant material on record. Since the cash was found from the residential premises of the assessee during the course of search and seizure action, then the assessee was required to explain the source of cash. For the purpose of considering the cash found during the search as undisclosed income of the assessee, the definition as provided under section 271AAB clearly contemplates that any income of the specified previous year inter alia represented by any money and not 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. Thus so far as the amount of money recorded in the books of account, the same would not fall in the definition of undisclosed income. However, the cash which was not found recorded in the books of account as on the date of search would definitely fall ....
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.... family, customs of the society and other facts and circumstances the total weight of gold is reasonable and source of acquisition was explained. However, the assessee to buy peace and avoid litigation with department offered the said valuation of jewellery as his additional business income of the current year. The ld. AO has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as "undisclosed income" for the purpose of levy of penalty under section 271AAB. 19. On the other hand, the ld. D/R has submitted that once the jewellery was found at the residence and the assessee has admitted the fact that the jewellery was not recorded in the books of account, therefore, it is an undisclosed income of the assessee for the specified previous year for the purpose of section 271AAB of the Act. He has relied upon the orders of the authorities below. 20. We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the famil....