TaxTMI 
TaxTMI 
2019 (6) TMI 923
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.... before or at the time of hearing of appeal." 2. The assessee has raised additional ground which reads as under:- "5. The learned AO has erred in imposing penalty of Rs. 59,44,219/- on the assessee under section 271AAB of Income Tax Act without making out a case that the assessee had any undisclosed income within the meaning of provisions of Explanation (c) to that section. 6. The learned AO has erred in imposing penalty on the assesse without serving proper notice under section 274 read with section 271AAB of the Income Tax Act specifying the exact clause of Sec. 271AAB under which penalty was to be levied." 3. The assessee is an individual and partner in the firms M/s Sethia Real Estates and M/s Manglam Vardhman Developers LLP. The assessee is also Director in M/s Richwell Enterprises Pvt. Ltd. These firms and companies are in the business of construction of residential complexes and other related activities. The assessee is earning income from house property, rent, remuneration and interest from partnership firms. There was a search seizure action U/s 132(1) of the Act on 17.12.2014 at various premises of Vardhman Group. The assessee was also covered by t....
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....rs to the Assessing Officer. The ld AR has submitted that the AO has levied the penalty and the ld. CIT(A) has confirmed the same under the impression that the levy of penalty in the case of admission of income U/s 132(4) is mandatory. The 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 relating to block assessment. Since penalty U/s 158BFA was never mandatory, therefore, the levy of penalty U/s 271AAB is also not mandatory but discretionary. When there is reasonable cause, the penalty is not eligible. It was submitted that the words used in Section 271AAB and the words used in Section 158BFA(2) are identical. Hence, the penalty Section 271AAB is not automatic and it is on the merits of each case. It is pertinent to note that in Section 271AAB of the Act, the words used are 'Assessing Officer may direct' and 'the assessee shall pay by way of penalty'. Similar words are used Section 158BFA(2). The word 'may' indicates the discretion to the Assessing Officer. In support of his contention, he has relied upon the decision of Coordinate Bench of this Tribunal dated 05.04.2019 in cas....
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.... material available with him. In the absence of any record or material to show any undisclosed source of income, the entire disclosure on papers is to avoid undue harassment and unwanted litigation. In the statements recorded u/s 132(4) of the Act, the assessee had made surrender of income only to buy peace of mind and with a view to cooperate with the Income Tax Department and with the condition that no penalty would be imposed on him for the income so surrendered. During the assessment proceedings also the assessee has fully cooperated with the department to complete the assessment smoothly. The department should not have imposed penalty upon him after accepting the conditional surrender of income. The ld. AR further submitted that Various income surrendered by the assessee during the course of search in statements recorded under section 132(4) was on account of expenditure incurred by various Partnership firms/Companies in which the assessee was Partner/Director for the development of projects or for purchase of land etc. The accounting year of the assessee was not completed as on the date of the search. Further, the profit can be declared only after end of the year. After th....
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....l and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Just the mere statements recorded under section 132(4) would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. It was further submitted that the department has not done any enquiry on these entries as per loose papers, that whether the same are real assets with the assessee or not. They have merely relied on the surrender by the assessee as per statements u/s 132(4). It was incumbent upon the department to find out and establish the existence of these assets in the possession of the assessee and whether these are real assets or just sham entries. Therefore, it was submitted that these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee. The ld. AR thus submitted that as per provisions of Sec. 271AAB, a penalty is imposed only on undisclosed income and not on investment made by the assessee. The above expenditure/investment per se....
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....closure is obtained on account of the silver/jewellery would not represent the undisclosed income as defined in the explanation to Section 271AAB of the Act. Thus, the ld. AR has contended that the surrender is based on the valuation carried out by the department without verification the correctness of the value or cost of acquisition at the time of purchase. He has submitted that since the jewellery found belongs to the family members of the assessee and some of which inherited from forefather therefore, the cost of acquisition at the time of purchase of jewellery should have been taken into consideration not the prevailing rates at the time of search. In support of his contention, he has relied upon the decision of Coordinate Bench of this Tribunal in case of Shri Padam Chand Pungliya vs. ACIT (supra) as well as decision dated 11.04.2019 in case of Gopal Das sonkia vs. DCIT in ITA No. 306/JP/2018. Thus, the ld. AR has contended that when this jewellery belongs to the family members of the assessee then the same would not represent undisclosed income of the assessee. 4.4. As regards of Rs. 50 lacs surrendered by the assessee on account of any other irregularity the same cannot ....
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....m Vardhman Devlopers LLP and M/s Sathia Real Development Corporation. The assessee is also director in the company M/s Richwell Enterprises Pvt. Ltd. and M/s Sandworth Real Estate Pvt. Ltd. During the course of search and seizure action on 17.12.2014 certain documents were found containing the details of the expenditure incurred in respect of various housing projects. Even the expenditure incurred on particular items i.e. iron, cement, wood, plywood, tiles, sanitary, hardware, card, POP, paint, bricks, electric and stone were recorded in the loose paper found during the course of search. These loose papers also mentioned the details of projects namely imperial Hieghts, Silver crown, Horigon and Arcadia Greens etc. Apart from the documents certain jewellery were also found at the residence of the assessee and subsequently the assessee has made the surrender including an amount of Rs. 5,94,42,193/- comprising of Rs. 4,82,24,630/- on account of unaccounted expenditure on various projects, Rs. 62,17,563/- on account of jewelry, Rs. 2,17,563/- on account of silver items and Rs. 50 lacs for any other irregularity or discrepancy. We will be deal each of the three items of surrender one by....
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.... has not disputed the fact of real estate projects of the firms and companies. Therefore, the expenditure is identified to a particular project and the said particular project is constructed by the company or the firm in which the assessee is either the partner or director. In these facts as recorded by the department in the statement recorded U/s 132(4) of the Act as well as it is also manifest from the seized material established that all these entries recorded in the seized material do not belong to the assessee but these are the expenditure in respect of various projects belonging the firms and company. Therefore, even if some unaccounted expenditure fund recorded in the seized material the same do not disclose any income of the assessee muchless the undisclosed income of the assessee. We have carefully perused the seized material as well as statement recorded U/s 132(4) of the Act. It is apart from the record that though the unaccounted expenditure found recorded in the seized material undisputedly and undoubtedly pertains to the various projects of the companies and firms however, for their own convenience the department has obtained the surrender from the assessee in his ....
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....te Bench of this Tribunal in case of Shri Padam Chand Pungliya vs. ACIT (Supra) while considering an identical issue as held in para 8 as under:- "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....
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.... are on subsequent dates and furniture and TV entries on the earlier dates which 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 ....
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....slature is an inflow of funds in the hands of the assessee which 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 ....
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....sed income of the assessee the penalty levied U/s 271AAB of the Act is not sustainable in law and liable to set aside. 6.3 This Tribunal in case of M/s Rambhojo's vs. ACIT (supra) again considered the issue of undisclosed income on account of the expenditure/advance for purchase of land in para 39 as under:- "39. Now, coming to surrender made on account of cash advances for land purchases in the statement recorded u/s 132(4) of the Act. During the course of search, a diary has been found wherein there are notings relating to advance given to various persons towards purchase of land. The notings describe the name of the persons, the amount advanced which ranges from Rs. 2 lacs to Rs. 50 lacs to 4 persons totaling to Rs. 1.12 Crores and the date of such advance during the period 28.07.2013 to 3.9.2013 just before the date of search on 4.9.2013. 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 de....
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....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 in the instant case. 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, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction 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 advance for purchase of land 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 sect....
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....mbers and specifically married women and other members of the family have no jewellery as their Stridhan and other gifts received on various occasions like marriage and other ceremony. Therefore, the benefit of CBDT Instruction No. 1916 dated 16.05.1994 to the extent 500 gram jewellery for each married women and 250 gram for unmarried woman and 100 grams of per made of member of family is required be given while treating the unexplained jewellery found at the time of search and seizure action. Further, the valuation has been done by the departmental valuer at the current prevailing rate without considering the actual cost of acquisition at the relevant point of time when the jewellery was purchased. The department has also not given the benefit of the jewellery which was inherited as well as received by the women and men members at the time of marriage and other occasions. Therefore, considering all these facts as well as the status of the assessment family the jewellery found in the bank locker was required to be considered after giving all the benefits of the minimum jewellery to be held by each family members of the assessee. Further, when the assessee has declared the inc....
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....red in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted." In view of the above facts and circumstances of the case when the benefit of the personal jewellery of various family members is required to be given while considering the undisclosed income on account of jewellery as well as valuation of the same has been based on the cost of acquisition for treated as undisclosed income. Since, the valuation as well as the year of acquisition was not ascertained either during the course of search or in the subsequent prevailing even in the penalty proceeding. Therefore, this issue of levy of penalty U/s 271AAB of the Act in respect of surrender made on account of jewellery and silver items is set aside to ....
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....ival 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 60,16,265/- d) Undisclosed debtors/advances 5,62,000/- Total : 5,01,66,717/- It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to b....
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....ded 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 in the real estate itself would not reveal the nature of income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of 'undisclosed income' is provided in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the....
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....her 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 such income has been derived; (ii) substantiates the manner in which the undisclosed 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 sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provision....
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....y 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 the explanation furnished by the assessee is bonafide and non-compliance of the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving an opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirem....
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....on 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 section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R in this regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given proper opportunity ....
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.... 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- (i) in the course of search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived. (ii) Substantiates the manner in which the undisclosed 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 previo....
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....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 being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory ....