TaxTMI 
TaxTMI 
2019 (6) TMI 285
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....Rs. 1,09,98,000/- imposed by the ld. Assessing Officer u/s 271AAB of the I.T. 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." 2. The assessee is an Individual and about 80 years of age. The assessee derives income from salary, house property and other sources. The assessee is partner in the partnership firm and also director in various companies. There was a search and seizure under section 132 of the IT Act on 15.10.2014 at the residence and business concern of M/s. Bhuramal Rajmal Surana, a proprietorship concern of Shri Vimal Chand Surana HUF. During the course of search, certain incriminating documents containing the entries of advance, unaccounted stock at business premises as well as residence, cash at the residence of the assessee and jewellery at the residence of the assessee were found and seized. In the statement recorded under section 132(4) of the IT Act, the assessee disclosed/surrendered income of Rs. 10,99,80,000/-. The assessee filed his return of income under section 139(1) on 2nd September, 2015 declaring total income of Rs. 11,26,92,000/- including the surrend....
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....lso relied upon the decision of the Coordinate Bench of this Tribunal in case of Ravi Mathur vs. DCIT in ITA No. 969/JP/2017 dated 13.06.2018. He has also relied upon the decision of Hon'ble Jurisdictional High Court in case of Sheveta Construction Co. Pvt. Ltd. in DBIT Appeal No. 534/2008 dated 06.12.2016 and submitted that the Hon'ble High Court has also taken a similar view as taken by the Hon'ble Karnataka High Court in case of Manjunatha Cotton & Ginning Factory (supra). The ld. A/R has then relied upon the decision of this Tribunal dated 05.04.2019 in case of Shri Padam Chand Pungliya vs. ACIT in ITA No. 112/JP/2018. Thus he has submitted that in all these decisions it has been held that the defect in the show cause notice renders the initiation of proceedings illegal and consequently the order passed under section 271AAB of the IT Act is not sustainable and liable to be quashed. 4. On the merits, the ld. A/R has submitted that the ld. CIT (A) has held that the levy of penalty under section 271AAB is mandatory in nature, however, the Tribunal in a series of decisions has held that the levy of penalty under section 271AB is not mandatory but the same is discretionary. In su....
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....levant material on record. The AO has issued show cause notice dated 20th December, 2016, 10th March, 2017 and 15th May, 2017. All these show cause notices are identical or the mere image of each other except the date. For the purpose of reference, we reproduce the show cause notice dated 15th May, 2017 as under :- Thus the AO has issued these show cause notices to levy the penalty under section 271AAB without specifying the undisclosed income whether a part of the surrender made by the assessee was to be subject matter of penalty or the entire disclosure was subject matter of penalty and further the AO has also not specified the penalty proposed to be levied @ 10%, 20% or 30% as per clause (a), (b) and (c) of section 271AAB(1) of the IT Act. Therefore, these show cause notices are vague and general and has not specified the charge or ground on which the penalty was proposed to be levied. As regards the decisions relied upon by the ld. D/R, we find that the issue before the Hon'ble Allahabad High Court in case of PCIT vs. Sandeep Chandak, 93 taxmann.com 405 (Allahabad) was only regarding the typographical mistake in the caption of the show cause notice. The findings of the ld. C....
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....- " 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 that the assessee has not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the asse....
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....er 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 Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed''. In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- ''Notice under section 274 of the Act should specifically state th....
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....ady 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. You are hereby requested to appear before me at my office Room No. 103 (NA), N.C.R.B., Jaipur at 11.00 A.M. on 28.04.2016 and show cause why an order imposing penalty on you should not be made u/s 271AAB r.w.s. 274 of the Income tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through Authorized Representative, you may reply to show cause in writing on or before the said date which will be considered before any such order is made. Yours faithfully, Sd/- ....
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....isdictional High Court, we hold that the show cause notice issued by the AO without specifying the default and ground for which the penalty under section 271AAB was proposed to be levied renders the initiation of penalty proceedings invalid and consequently the order passed under section 271AAB of the Act is liable to be quashed. 7. As regards the issue of mandatory or discretionary nature of levy of penalty under section 271AAB of the Act, the identical issue was discussed and decided by this Tribunal in case of Padam Chand Pungliya vs. ACIT (supra) in para 5 as under :- "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 conducted on 4th September, 2013, the assessee disclosed income of Rs. 5,01,66,717/- in his statement made under section 132(4) of the Act. The said disclosure was made in pursuant to the entries in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :- a) Unexplained expenditure on house construction 2,44,63,575/- b) Undisclosed stock 1,91,24,877/- c) Undisclosed jewellery 60....
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....o 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 have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment ....
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....der 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 receives the assent of the President, 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 thirty per cent of the undisclosed income of the specified previous year, 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 su....
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....fied 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 the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether ....
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....e 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 has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of sectio....
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....ection 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, 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- ....
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....led 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 penalt....
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....ecision 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." Thus the Tribunal after considering all the decisions including the decision of Hon'ble Allahabad High Court in case of PCIT vs. Sandeep Chandak (supra) held that the levy of penalty under section 271AAB is not mandatory but the AO has to take a decision on the basis of the relevant facts of the case and after considering the explanation of the assessee whether the surrender made by the assessee falls in the definition of undisclosed income as proposed in explanation to section 271AAB of the Act. Accordingly this issue is decided in favour of the assessee and against the revenue. 8. On merits of levy of penalty, the ld. A/R of the assessee has submitted that there are three items of surrend....
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....ent under section 132(4) would not attract the penalty proceedings under section 271AAB of the Act. In support of his contention, he has relied upon the following decisions :- M/s. Rambhajo's vs. ACIT ITA No. 991/JP/2017 dated 11.01.2019. M/s. Silver & Art Palace vs. DCIT ITA No. 236/JP/2018 dated 11.02.2019. Thus the ld. A/R has submitted that the surrender made by the assessee on account of excess stock does not fall in the ambit of undisclosed income as per explanation to section 271AAB of the IT Act and consequently no penalty can be levied. 9. On the other hand, the ld. D/R has submitted that the assessee made the surrender on account of excess physical stock of Gem & Jewellery found during the course of search and also stated that he was in the business of real estate and also started his business of Jewellery during the year under consideration. The assessee has also explained that the excess stock found during the search is on account of undisclosed income from the business of jewellery during the year under consideration and the same has not been recorded in the books of account. Thus once the excess stock was found during the course of search at....
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....business. During the course of statement recorded under section 132(4), the assessee in reply to question no. 4 has submitted that the business is run by his son Shri Pushpendra Kumar and grandson Shri Punit through companies, firms and HUF. Further, in reply to question no. 18, the assessee has explained that the said stock was also kept at the premises of M/s. Bhuramal Rajmal Surana HUF. However, he has surrendered this income in his own Individual hand and stated that only in this year he has started the business. The statement of the assessee was again recorded under section 132(4) on 16.10.2014 and in reply to question no. 4, the assessee again reiterated that in the premises the stock of M/s. Bhuramal Rajmal Surana a proprietorship concern of assessee's HUF and other documents of the said firm are kept. Therefore, the stock which was treated as unaccounted excess stock of the assessee was found at the business premises of M/s. Bhuramal Rajmal Surana and the assessee has surrendered the said amount in his individual capacity instead of in the hands of this proprietorship concern of his HUF. From the facts it is clear that the alleged excess stock/unaccounted stock was nothi....
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....ere disclosure of undisclosed income under section 132(4) of the IT Act. Accordingly, we delete the penalty levied under section 271AAB of the Act in respect of the Income surrendered on account of excess stock. Since we have considered that this is not undisclosed income of the assessee, therefore, we do not propose to go into the issue of valuation of closing stock. Penalty on cash advances of Rs. 50,00,000/- : 11. During the course of search and seizure, document Exhibit-1 was found and seized containing the entries of advances. This document contains 4 entries. 2 in the name of two companies/concerns and 2 in the name of two individuals Shri Hari Kishan and shri Ram Nath ji. The entries in the name of companies were found to be recorded in the books of account of the assessee. However, the entries in the names of two individuals were not found to be recorded in the books of the assessee at the time of search. These entries are as under :- Shri Hari Kishan - Rs. 30 Lac on 02.08.2014. Shri Ram Nath Ji - Rs. 20 Lac on 03.08.2014. The assessee made disclosure of Rs. 50,00,000/- in the statement recorded under section 132(4) of the Act. The ld. A/R of the ....
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....of account and, therefore, the said amount is undisclosed income of the assessee for the year under consideration. He has further contended that the decisions relied upon by the assessee are not applicable in the facts of the present case as in those cases the advances were given for purchase of land. Even the disclosure made for buying peace of mind cannot be accepted as an explanation for levy of penalty under section 271AAB of the Act. In support of his contention, he has relied upon the decision of Chennai Bench of the Tribunal dated 23rd July, 2018 in case of Sonal Steels Trading Pvt. Ltd. vs. ACIT in ITA No. 396/CHNY/2018. Hence, the ld. D/R has submitted that the income disclosed on account of advance/loans given to the individuals found recorded in the seized material and not recorded in the books of account is an undisclosed income of the assessee. He has relied upon the orders of the authorities below. 13. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the disclosure is based on the entries in the seized material showing advances of Rs. 50,00,000/- to two persons. These entries of advances in itself are ....
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....s 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 statute 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 extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so....
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.... have declared the income of several crores in each hand. Even the withdrawals as per their Balance Sheets are also in crores during these years and, therefore, the cash of Rs. 38,50,000/- found at the residence of a family of about 10 members, out of which 6 members are tax payers and declared income of crores of rupees, then the said amount of cash cannot be treated as Undisclosed income of the assessee. He has referred to the details of the income and withdrawals to justify the jewellery found at the residence of the assessee and submitted that by considering the status of the assessee family, their business income from the various firms, companies as well as the income declared by the various persons, the said amount of quantity or jewellery cannot be regarded as undisclosed income. Thus the ld. A/R has submitted that the penalty levied on account of cash found of Rs. 38,50,000/- is not justified. 15. On the other hand, the ld. D/R has submitted that the assessee has failed to explain the cash at the time of search and also admitted the same as undisclosed income. The penalty levied under section 271AAB of the Act is justified as the cash found at the time of search clearly ....
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....4) of the IT Act, however, the mere surrender in the statement under section 132(4) would not itself constitute undisclosed income ignoring the other relevant facts being source of cash found during the search. Once the assessee and other family members of the assessee are having the income as well as withdrawals which are many times or in hundred times of the cash found at the residence of the assessee, by considering these undisputed facts of income and withdrawals, the said cash cannot be held as undisclosed income of the assessee. Accordingly, penalty levied under section 271AAB of the Act on account of cash of Rs. 38,50,000/- found at the residence is deleted. 17. We further note that there was a disclosure on account of excess jewellery found at the residence. The department has given the benefit of CBDT Instruction No. 1916 dated 11.05.1994 in respect of the assessee and his wife but the other family members of the assessee were over looked so far as the benefit of the said instruction of CBDT was concerned. There is no dispute that the family of the assessee consisting of assessee, his wife, his son, daughter-in-law, married daughter, 2 grandchildren, granddaughter-in-la....
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.... jewellery beyond the said weight, then certainly they can question the source of acquisation of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found. 13. Admittedly, looking to the status of the family and the jewellery found in possesssion of four ladies, was held to be reasonable and therefore, the authorized officers, in the first instance, did not seize the said jewellery as the same being within the tolerable limit or the limits prescribed by the Board and thus, in our view, subsequent addition is also not justificable on the part of the Assessing Officer and rightly deleted by both the two appellate authorities namely' CIT(A) as well as the Tribunal." Accordingly after giving the benefit of the CBDT Instruction No. 1916 and the status of the assessee's family, the jewellery found from the residence and locker of the assessee cannot be considered as excess of the normal possession of this jewellery. Therefore, even if the assessee has disclosed the undisclosed income in the statement recorded un....