TaxTMI 
TaxTMI 
2019 (8) TMI 1262
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....s surrendered by the assessee as his income. After search, the assessee filed return declaring an income of Rs. 6,50,14,880/- including the surrendered income of Rs. 627 lacs and paid tax thereon. 3. The assessment U/s 143(3) r.w.s. 153(1)(b) of the Act was completed at an income of Rs. 6,56,06,110/- by making the addition of Rs. 5,91,234/- on account of expenses incurred for personal/non-business purposes. Simultaneously the A.O. initiated penalty on undisclosed income of Rs. 6.27 crores U/s 271AAB of the Act. In this regard, observation of the A.O. are at para 3 of the A.O.'s assessment order dated 31/3/2015. Against the order, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) vide order dated 20/03/2017 deleted the addition of Rs. 5,91,234/-. In penalty proceedings, the assessee filed explanation. However, the A.O. rejected the same and levied the penalty of Rs. 62,70,000/- U/s 271AAB(1)(a) of the Act. 4. By the impugned order, the ld. CIT(A) deleted the penalty after observing as under: "5. I have considered the facts of the case, gone through the assessment order and the submission of the appellant. It is seen that in search one diary and Annexu....
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....ndisclosed income in the statement recorded under section 132(4) and, therefore, the levy of penalty under this section does not depend on the addition made during the assessment proceedings. Hence the penalty proceedings under section 271AAB are completely independent of the enquiry and finding of the AO in the assessment order except for the limitation provided as per section 275 of the Act. We have already held that the penalty is not automatic but the AO has to take a decision to impose the penalty after giving an opportunity of hearing to the assessee in terms of section 274 of the Act. Thus the AO in the proceedings under section 271AAB of the Act has to first decide that the conditions prescribed under the said section are satisfied for levy of penalty and then to further take a decision after considering the explanation of the assessee for non compliance of any of the conditions under clauses (a) to (c) of sub-section (1) regarding the quantum of penalty. The primary condition for levy of penalty is the existence of undisclosed income as per the disclosure made by the assessee under section 132(4). The term 'undisclosed income' has been defined in Explanations to se....
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....cuments maintained in the normal course. It is not the case of the revenue that the assessee has recorded the other transactions in the other documents maintained in the regular course relating to the year under consideration and only these entries are recorded in the diary. Since the levy of penalty under section 271AAB is not based on the addition and enquiry conducted by the AO in the assessment proceedings, therefore, it is incumbent on the AO to conduct a proper examination of facts, circumstances and explanation furnished by the assessee before arriving to the conclusion that penalty under section 271AAB is leviable and further whether it is 10% or 20% or 30% of such undisclosed income. Therefore, the AO is under statutory obligation to examine all the issues during the proceedings under section 27 lAAB after giving the assesses an opportunity to explain the charges/grounds on which the penalty is proposed to be levied. Hence it is a pre-requisite condition that the AO first specify the charges against the assessee and to make known the assessee of his default so as to afford an opportunity to explain the default/charges so brought against the assessee. Without considering th....
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....regular books of account. The AO has accepted that during search the assessee has admitted u/s. 132(4) of the Act the income from speculative trading. The undisputed facts the AO has given finding pertaining to this case is as follows: i) The assessce has substantiated the manner in which the income was derived. ii) Furnished the return of income therein and iii) Paid the tax along with interest. Based on the said finding, according to AO, the assessee satisfies the conditions enumerated in sec. 271AAB(i)(a) of the Act and thereafter levied ten percent of Rs. 3 cr., which have been deleted by the impugned order of Ld. CIT(A). 4. The Ld. DR brought to our notice that in the very same group case of Manoj Beswal & Ors. the Tribunal had confirmed the levy of penalty and contended before us that penalty u/s. 27IAAB of the Act is mandatory and therefore, according to Ld. DR, the Ld. C1T(A) erred in deleting the penalty by stating that the assessee did not had any 'mens rea' not to disclose the amount in question. According to him, penalty has to be mandatorily levied u/s. 271AAB of the Act on the undisclosed income found during search.....
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....ks to recall the order passed by this Tribunal in I.T.A. Nos. 1471, 1475&1476/Ko1/2015 in the hands of Amit Agarwal, Madan Lal Beswal and Manoj Beswal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error that had crept in the order of the Tribunal. The first preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on 06.11.2017 and hence, the assessee could not be present on the said date by way of personal appearance. The second objection raised by the Ld. AR was -that the `I'ribunal had stated in para 9 of its order that the assessee himself had accepted that he is engaged in commodities trading business and therefore mandated to maintain books of accounts in terms of section 44AA of the Act and thereby inferring that the assessee had reported the profit from commodities trading business under the head "income from business or profession". Based on this crucial finding, the Tribunal had concluded that since the transaction of commodities trading had not been entered by the assessee in his books of accounts....
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.... that the assessee owned up Rs. 3 cr. as his income from commodity profit and it has been disclosed in his income and expenditure for AY 2013-14 under the head "income out of speculative business from sale of commodities", and thereafter the AO confirmed the assessee's claim and thereafter total income was assessed by the AO as per the return submitted by the assessee. In the light of the aforesaid facts discerned from assessment order, the assessee's case is that for the first time in this A.Y he was doing unsystematic speculative activity which earned income and, it was brought under the head "Income from Other Sources", and so, accordingly, he is not required to maintain books of account as stipulated in Sec. 44AA or Sec. 44AA(2)(ii) of the Act because, these provisions are only for assesses who are earning income under the head "Business or profession". We note that Sec. 44AA or Sec. 44AA(2)(ii) of the Act casts a duty upon the assessee who are into "Business or Profession" and such assessee's are bound to maintain books of account as stipulated therein. For appreciating this submission let us go through the provisions of law. "44AA. (1) Every person carryi....
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....o be contained therein and the form and the manner in which and the place at which they shall be kept and maintained. (4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.]" So from a reading of the above provisions which clearly stipulates that assessee who are carrying on business or profession shall keep and maintain such books of account and other documents which may enable the AO to compute the total income. We note that. assessee in the statement of total income filed before the AO has shown income only under two heads (i) salary income (ii) income from other sources. We would like to reproduce the summary of total income of the assessee filed along with the return: Income from Salary Rs. 45,57,600 Income from Other sources Rs. 3,00,24,047 Rs. 3,45,81,647 6. We note that the AO has accepted the aforesaid statement of total income filed before him without contesting the claim of the assessee as to whether the assessee's claim of income ....
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.... has to be classified under five heads. It is possible for an assessee/individual/company to have five different sources of income, each one of it will be chargeable to Income Tax Act. Profits and gains of business or profession is only one of the heads under which an assessee's income is liable to be assessed to tax. If an assessee has not commenced business there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the assessee commences its business, its income from any other source will not be taxed as held by the Hon'ble Supreme Court in the case of Tuticorin Alkali & Chemicals Ltd. Vs. CIT (1997) 227 ITR. 172 (SC). It has been further held that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipt is principles of law and not in accordance with accountancy practice. Further, the Hon'ble Apex Court held that the question as to whether a principal receipt is of the nature of income and falls within the charge of sec. 4 of the Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and inter....
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....ound the records of the assessee's transactions in speculative commodity from the drawer of assessee's accountant from which the AO could compute the income of the assessec from the said transaction which amount assessee declared during search and which was duly returned and which figure was accepted by the AO. According to Ld. AR, the fact that search happened on 01.08.2012 need to be taken note of since undisputedly there was enough and more time for the assessee to submit the accounts during assessment proceedings which fact has been taken note of and concurred by the Ld. CIT(A). Thereafter, the Ld. AR drew our attention to the definition of undisclosed income given under section 271AAB which reads as under: "Penalty where search has been initiated. '271AAB. (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 specif....
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....es not fall in the ken of "undisclosed income" defined in Sec. 271AAB of the Act. So, Rs. 3 cr. which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as "undisclosed Income" in the definition given u/s. 271AAB of the Act. Since Rs. 3 cr. cannot be termed as "Undisclosed Income" as per sec. 271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the Id. CIT(A) on the aforesaid reasoning rendered by us. 8. In the result, the appeal of the revenue is dismissed. 4. We find that the facts in the aforesaid case and the decision rendered thereon are squarely applicable to the facts of the instant cases before us and respectfully following the same, we dismiss the appeals of the revenue." Therefore, when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required to be examined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the....
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....e ground that the notice issued does not relates to the provisions of section 271AAB and it can't be accepted that notice issued u/s 271(1)(c) was valid for initiation of the proceeding u/s 271AAB. Further no penalty proceeding was initiated u/s 271(1)(c) or 271AAB during the course of assessment proceeding. Besides this ITAT held that the AO has not specified in the notice in respect of which clause the penalty is going to be levied on the assessee. Further the penalty u/s 271AAB is not mandatory. The Hon'ble court restored the order of the CIT(A) by holding that the satisfaction of the AO is not required to be recorded by the AO during assessment proceeding or at the time of completion of the proceeding. Therefore the initiation of the proceeding after completion of the assessment proceeding is not vitiated by law. Further last line of the notice clearly mention section 271AAB and the assessee has given the reply to the notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB, Thus the decision of the high court is on the legality of the notices issued. We may further point out that in our earlie....
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....llowed." 5. Against the above order of the ld. CIT(A), the Revenue is in further appeal before the ITAT. 6. It was vehemently argued by the ld DR that the income surrendered by the assessee comes within the meaning of undisclosed income as provided under clause (c) of explanation to Section 271AAB of the Act which reads as under: "(c) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, 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 docume....
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....given to various persons towards purchase of land. The notings describe the names of the persons, the amount advanced which ranges from Rs. 2 lacs to Rs. 50 lacs to 4 persons totalling to Rs. 1.12 crores and the date of such advance during the period 28th July, 2013 to 3rd Sept., 2013, just before the date of search on 4th Sept., 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 definition of undisclosed income under s. 271AAB, the undisclosed investment in so-called purchase of land 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 investment represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under s. 132. An investment per se represents an outflow of funds from the assessee's hand and an income per se ....
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....nal 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 under 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 s. 271AAB read with the Explanation thereto and penalty so levied thereon deserved to be set aside." 9. Reliance was also placed on the decision in the case of M/s Silver & Art Palace Vs. DCIT ITA No.236/JP/18 order dated 11.02.2019. The relevant finding at Para 42 to 44 is as under:- "42. 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 pu....
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....nation. In our view, the deeming fiction so envisaged under Section 69, 69A and Section 69B where investments which are found either not recorded or found recorded at a lesser value in the books of accounts, and such investments are deemed to be income of the assessee of the year in which such investments have been made, 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 are contained in section 69, 69A and section 69B and therefore, the same 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 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 ....
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....n be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about "income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132", what perhaps has been envisaged by the legislature 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 ....
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....n the subsequent show cause notice dated 30.01.2018, penalty proceedings was initiated under clause (c) and finally in the penalty order, penalty was imposed under clause (a). Thus, non-specification of clause in the show cause notice in which penalty is initiated/ initiating penalty in different clause and finally imposing penalty in different clause shows that even AO was not certain as to under which clause assessee has committed the default. Thus, the penalty notice issued by the AO is vague and consequent penalty imposed by AO is illegal and bad in law. For this purpose, reliance is placed on the following cases: - Sh. Vimal Chand Surana Vs. DCIT 72 ITR(Trib.) 583 order dated 30.05.2019 Sh. Padam Chand Pungliya Vs. ACIT 71 ITR(Trib.) 562 order dated 05.04.2019 Sh. Gopal Das Sonkia Vs. DCIT ITA No.306/JP/2018 order dated 11.04.2019 Sh. Dinesh Kumar Agarwal Vs. ACIT ITA No.855 & 856/JP/2017 order dated 24.07.2018 13. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as wel....