TaxTMI 
TaxTMI 
2019 (2) TMI 1651
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....es in a joint disclosure petition submitted before the DDIT(Inv), Kolkata. In the said disclosure petition, which is placed at Page 53 to 128 of the Paper Book, the Rashmi Group furnished its explanation in respect of assets found in the course of search in form of cash, jewellery& silver utensils and also the documents seized and impounded during the course of survey. It was mentioned in the joint petition that since on the date of search the promoters of 'Rashmi Group' had made an ad hoc disclosure of Rs. 102 crores and therefore with a view to honor the initial statement the Rashmi Group agreed to pay tax on the additional income, break-up of which was as follows: Assessee Income Offer Rashmi Metaliks Ltd. 69 crores Rashmi Cement Ltd. 31 crores Sajjan Kr. Patwari (HUF) 2 crores Total 102 crores 3. Acting in conformity with the aforesaid declaration, while filing its return for the AY 2013-14 the assessee company included additional income of Rs. 69,00,00,000/- in the return filed on 30.09.2013 for the relevant AY 2013-14. Having included such additional income of Rs. 69,00,00,000/- the assessee returned business loss of Rs. 72,76,45,862/- f....
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....on'ble Supreme Court has held that imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature, but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. The AR has also brought on record the case of Punjab Tyres (Punjab Tyres [1986] 162 ITR 517 (Madhya Pradesh), the Hon'ble High Court of Madhya Pradesh) in which it was held that when surrender is made to purchase peace or for other similar reason, surrender cannot amount to admission, constituting evidence of concealment in penalty proceedings. The AR has brought on record the case law of Sudharsan Silk and Sarees, 300 ITR 30 (Supreme Court) in this case, the Hon'ble Supreme Court has held that if the appellant offers any amount for taxation for the purpose of purchasing peace and assessment has been made based upon the aforesaid offerings, even if no assurance in writing is given by the searching party, it may be clearly inferred that such an inducement must have been given by the searching party. When only partial evidence or no evidence in support of concealment was detected during the search, why would a person go to offer....
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....alty u/s 271AAB(1)(a). This section reads like sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. Undisclosed income has been defined in the explanation in section 271AAB of the I.T. Act. Thus it is clear that in order to levy penalty two things are essential (1) undisclosed income and (2) specified previous year. Here in this case Rs. 69,00,00,000/- was offered for taxation by the assessees suo moto in the statement recorded at the time of search. From the ratio decided by the Hon'ble Supreme Court in the case of Sudrashan Silk & Sarees (supra), it is clear that only the statement of the assessee without any corroborating evidence cannot be the only basis for levying penalty. Here it is also clear that from the statement of the assessee one cannot point out which amount of undisclosed income pertains to which specified previous year. In this situation, where nothing is clear from assessee's statement recorded at the time of search, the action of the A.O. to levy penalty u/s 271AAB(1)(a) on the amount offered by the assessee suo moto to buy peace of mind, cannot be justified. The Hon'ble Supreme Court has also categorically decided th....
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....y argued that the AO was incorrect in stating that the levy of penalty u/s 271AAB was mandatory and automatic and he had no discretion in the matter of levying penalty u/s 271AAB of the Act. In this regard he brought to our attention the relevant provisions of Section 271AAB which provided that the AO 'may' notwithstanding anything contained in any other provisions direct the assessee shall pay penalty in addition to tax. With reference to the use of the expression 'may' in Section 271AAB, the Ld. AR argued that the levy of penalty was discretionary and not mandatory as contended by the Ld. DR as well as the AO. Drawing attention to the assessment order u/s 143(3) dated 31.03.2015 the Ld. AR submitted that nowhere in the assessment order the AO had made out a case that the income of Rs. 69 crores voluntarily offered while filing of the return was in any manner represented by any asset or by an entry in the books of accounts or any other related documents found in the course of search. The Ld. AR therefore submitted that merely because with a view to avoid protracted litigation and to buy peace of mind, the appellant had made voluntary offer to pay tax on income and acted upon such ....
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.... statement u/s 132(4) of the Act. Such a view goes against the words used in section 271AAB and section 274 of the Act. For saying so we note that if the intention of the Legislature to levy the penalty was mandatory and automatic then the right of appeal u/s 246A would not have been provided for by the Legislature against the order of penalty passed u/s 271AAB of the Act. We also note that while enacting Section 271AAB the Legislature has consciously used the word 'may' in contradistinction to the word 'shall' in the opening words of Section 271AAB of the Act. The choice of the expression 'may' and not 'shall' in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the AO but the AO was given discretion in the matter of levy of penalty. Our foregoing view finds support in the decision of the coordinate Bench of the Tribunal at Vishakhapatnam in the case of ACIT Vs Marvel Associates (170 ITD 353) which inturn relied on Hon'ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (infra). The following observations of the Tribunal in the said decision are relevant in this regard: "6. Carefu....
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....datory but to be imposed on merits of the each case." 9. As far as to the judgment of the Hon'ble Allahabad High Court in the case of Pr. CIT Vs Sandeep Chandak (supra) is concerned, we note that the facts of the present case are distinguishable from the facts involved in that judgment. In Sandeep Chandak (supra) the assessee had not only made the disclosure/surrender of the amount but also had specified the manner in which such income has been derived i.e. from the trading of F&O and derivatives and was advanced for purchase of land. That is not the case in the present appeal; there is no explanation by the assessee the manner of deriving the surrender made during search. As discussed in the foregoing, it is a matter of record that in the course of search no undisclosed asset or thing was found nor any incriminating material was found from which any undisclosed income or unexplained expenditure could be inferred. In the circumstances the bald offer made by the assessee to pay tax on additional income in the statement u/s 132(4) cannot be considered to be 'undisclosed income' within the meaning of sec. 271AAB of the Act. So the rigors of Section 271AAB of the Act is not attracte....
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....in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed." Thus it was found by the Hon'ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. AmitAgarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence. 6. The question whether levy of penalty under section 271AAB by the AO is mandatory or discretionary has been considered by the Visakhapatnam Bench of this Tribunal in case of ACIT vs. M/s. Marvel Associates (supra) in para 5 to 7 as under :- 5. We have heard both the parties, perused the materials available on record and gone through the ....
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.... (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 which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined 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....
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....se of RadhakrishnaVihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that 'we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case." Thus the Tribunal has held that the levy of penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and shall be based on judicious decision of the AO. Hence we fortify our view by the above decisions of Tribunal in case of ACIT vs. Marvel Associates." 11. So for the reasons as aforerstated and relying ....
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....er to bring a receipt or specie of income within the meaning of the said expression, it is obligatory for the AO to demonstrate and prove that the income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in the course of search u/s 132 and which was not recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or otherwise not disclosed to the Commissioner before the date of search. From the bare perusal of the assessment order and the penalty order, we note that the assessee had voluntarily included Rs. 69 crores as its income for AY 2013-14. We however find that nothing has been brought on record by the AO which in any manner even suggested let alone proved with cogent material that the said income was actually represented either wholly or partly by any sum of money, bullion, jewellery or other valuable article or thing and which was found in the course of search. Since no sum of money, bullion, valuable or article equivalent to Rs. 69 crores was discovered by the Revenue in the course of search, the additional requirement of the....
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....rence to the voluntary offer made through joint declaration petition dated 18.04.2013, the AO had not brought on record any incriminating material found in the course of search from which one could infer that the income of Rs. 69 crores was represented in part or whole by any entry made in the books of accounts or other documents or transactions found in the course of search. In the penalty order, the AO has however tried to make out a case that the income of Rs. 69 crores was represented by the entries found recorded in seized documents RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. The AO has therefore tried to justify treating the said sum of Rs. 69 crores as 'undisclosed income' within the meaning of clause (c). In this regard it is material to refer to Para 4.4 to 4.5 of the assessment order, which is as follows: "4.4 Documents found/seized during the course of search: During the course of search, the following documents were found and seized from the premises mentioned below: 4.5 The assessee was asked to furnish page wise explanation of the documents seized. Reply furnished by the assessee has been examined with reference to the seized documents." 1....
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....he Act. The Legislature has all along been conscious in providing for levy of penalty only in respect of "undisclosed income". We find that in all penal provisions such as Explanation 5A of Section 271(1)(c), Section 271AAA & Section 271AAB, the Legislature has restricted the scope of penal provision only to "undisclosed income" and not assessed total income. Moreover the term/expression "undisclosed income" has been defined by the Legislature in all such penal provisions in a specific and restricted manner and not in an inclusive manner. For that reason the definition of undisclosed income nowhere provides that the said expression shall "include" all and every species of income but the word used is undisclosed income "means". The conscious use of the expression "means" in contradistinction to the use of word "includes" indicate that the Legislature intended to restrict the scope of penal provisions only to income which came within the ken of the said expression and not beyond. Applying the definition of undisclosed income to the income of Rs. 69 crores, we find that such income was offered in the statement recorded u/s 132(4) of the Act at the time of search. However only for the ....
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....coordinate Bench of Tribunal in the case of DCIT Vs Liladhar Agarwal in ITA No. 1605/Kol/2017 dated 26.12.2018 wherein identical issue had come up for consideration and the Tribunal upheld the CIT(A)'s order deleting the levy of penalty since there was no material to suggest that the income offered to tax was a consequence of any valuable asset or any entry found in any books or other documents seized in the course of search. The relevant findings of the Tribunal are as follows: 4. Learned CIT.DR vehemently contends during the course of hearing that the Assessing Officer had rightly invoked the impugned penal provision as stipulated u/s 271AAB on account of search operation in issue conducted in assessee's case on 20.12.2012. He heavily relies upon assessee's admission stating his undisclosed income of Rs.2,79,15,065/-. His case therefore is that the same formed sufficient reasons for the Assessing Officer to imposed the impugned penalty. We sought to know from learned CIT-DR as to whether the authorized officer had found any specified asset i.e. any money, bullion, jewellery or other valuable article or things as per explanation (c) forming of sec. 271AAB. There is no suc....
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....e Court has also categorically decided the ratio that penalty cannot be levied on the amount offered by the assessee in order to buy peace of mind (in the case of Sudarshan Silk &Saries (supra)]. Thus, respectfully following the ratio decided by the Hon'ble Supreme Court, the AO is directed to delete the penalty u/s 271AAB(1)(a). Accordingly, assessee's appeal on grounds no 1, 2 and 3 are allowed. " 4. Learned Departmental Representative argued that the Assessing Officer had rightly imposed the impugned penalty in assessee's case @ 10% of his undisclosed income of Rs. 1 crore coming Rs. 10,00,000 in question. We find no substance in Revenue's instant arguments. We first of all make it clear that section 271AAB of the Act applies in relation to the impugned penalty @ 10% of the undisclosed income as stood defined in Explanation (c) thereto. There is no material in the case file to indicate that the assessee's undisclosed income represents any money, bullion, jewellery or valuable article or any entry in the books or other documents therein. We make it clear that we are dealing with a penalty provision in tax statute which is to be strictly interpreted. W....
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....rojections 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. 2177/- 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 v. Dy. CIT [2013] 30 taxmann.com 109 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....
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....e search and seizure proceeding or in the assessment order or in the penalty proceeding to show that there was discrepancy in the stock as recorded in the books of account and found at the time of search. In the absence of any discrepancy in the quantity of stock the valuation of the stock is purely a question of assessment and cannot be held as undisclosed income detected during the course of search and seizure proceeding. Therefore, to the extent of excess stock based on the valuation report the disclosure of the income by the assessee would not fall in the category of undisclosed income as per explanation to Section 271AAB of the Act. It is not the case of the Revenue that any stock of jewellery was found which is not recorded in the books of account but the value of stock is computed based on the valuation report of the departmental valuer. Once the difference in the value of stock is only due to market price as against the cost of the said stock, the same will not fall in the ambit of undisclosed income as defined under clause-(c) of explanation -1 of section 271AAB of the Act. 19. Similarly the accrued interest of Rs. 20,00,000/- is also only estimated and not based ....