TaxTMI 
TaxTMI 
2019 (4) TMI 1113
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....at the notice issued by assessing officer for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law not being specifically pointing out the default for which the ld. AO sought to impose penalty u/s 271AAB. 2. That without prejudice to the ground No.(1) above on the facts and in the circumstances of the case the ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 22,50,000/- imposed by the ld. Assessing Officer u/s 271AAB of the I.T. Act, 1961." 3. Briefly the facts of the case are that the assessee HUF is a partner in two partnership firms and deriving income in the form of interest and share in the profits from these two partnership firms. A search u/s 132 of the Act was conducted on 05.02.2015 in case of Bundi Silica Group, Kota and the assessee HUF is part of the said Group. During the course of search proceedings, the statement of the Karta of the HUF, Shri Chandra Behari Bansal was recorded u/s 132(4) of the Act wherein he has declared undisclosed income of Rs. 2,25,00,000/- as additional income of the HUF. Subsequently, the assessee e-filed its return of income on 29.09.2015 declaring total income of Rs. 2,46,19,600....
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....essee, the assessee was not in a position to respond to the show cause notice issued by the AO. It was submitted that though the AO while passing the impugned order has imposed the penalty as per clause (a) of section 271AAB(1) of the Act, however, no such ground was specified in the show casue notice issued u/s 271AAB read with section 274 of the Act. In support, reliance was placed on the Hon'ble Karnataka High Court decision in the case of CIT vs. M/s SSA's Emerald Meadows reported in 2015 (11) TMI 1620, in case of Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) and various decisions of the Co-ordinate Benches of the Tribunal. It was accordingly submitted that notice issued u/s 271AAB is bad in law and therefore, the penalty levy u/s 271AAB(1)(a) deserves to be deleted. 7. It was further submitted that the lower authorities have erred in holding the levy of penalty u/s 271AAB of the Act as mandatory in nature. Drawing support from the decision of the Co-ordinate Bench in case of DCIT vs. Manish Agarwal reported in 92 Taxmann.com 81, it was submitted that imposition of penalty u/s 271AAB is not mandatory but discretion in nature depending upon the facts and ci....
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....on the basis of incriminating material. Further, reliance was placed on the Co-ordinate Bench in decision in case of Ajay Sharma vs. DCIT [2013] 30 taxmann.com 109 wherein it was held that addition on account of alleged receivables as per seized paper cannot be made as there is no direct material which leads and establishes that any income received by the assessee which has not been declared by the assessee. The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence there is no case for imposing penalty u/s 271AAB of the Act. Further, reliance was placed on the Co- ordinate Bench in decision in case of Sh. Rajendra Kumar Gupta vs. DCIT, CC-2, Jaipur (ITA No. 359/JP/2017 dated 18.01.2019) and it was submitted the facts of the said case squarely applies in case of assessee and therefore, the penalty so levied should be deleted. 9. It was finally submitted that there is no valid ground given in the assessment order for initiating penalty proceedings, the initiation of penalty is statutorily defective, the assessee HUF has filed its return of income in good faith including the additional ....
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.... persued the material available on record. This Tribunal is taking a consistent view that levy of penalty u/s 271AAB is not automatic in nature but the AO has discretion to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an undisclosed income in terms of Section 271AAB(1) r.w. explanation defining the undisclosed income. In this regard, we refer to the decision of the Tribunal in case of Rajendra Kumar Gupta vs DCIT (Supra) wherein it was held as under: "12. Now, coming to the main ground of appeal. In this regard, the ld AR has raised the contention challenging the findings of the AO that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word 'may' is used instead of 'shall' so it is not mandatory but same is discretionary. It was submitted that it is settled position of law that penalties are not compulsory, not mandatory but are also discretionary considering the overall facts and circumstances of the case. In support, reliance was placed on provisions of section 158BFA(2) w....
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....t 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 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....
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....ding 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 imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of b....
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....artly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of 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 Principal Chief Commissioner or Chief Commissioner or 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." 13. In the instant case, during the course of search, a diary has been found wherein there are notings relating to advance given to certain persons towards purchase of land. The notings describe the name of certain persons, the amount advanced which ranges from Rs. 25 lacs to Rs. 70 lacs and the date of suc....
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....a Kumar Gupta vs DCIT (Supra) wherein it was held as under: "21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs. 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances 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 cash advances represents income by way of any entry in the books of account or other documents or t....
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....faction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside." 14. In light of above discussions and following the earlier decision of the Coordinate Bench of the Tribunal in the case of Rajendra Kumar Gupta (supra), we delete the penalty levied under section 271AAB of the Act on cash advances of Rs. 2,25,00,000 towards purchase of land. Since the issue of levy of penalty U/s 271AAB of the Act has been decided on merits, therefore, the issue of validity of initiation of the penalty proceeding due to defective show cause notice become academic in nature and we do not propose to adjudicate the same. 15. In the result....