TaxTMI 
TaxTMI 
2019 (10) TMI 1123
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....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. Ground no. 1 is regarding validity of initiation of penalty proceedings under section 271AAB for want of specifying the default as per clauses (a) to (c) of section 271AAB(1) of the IT Act. 2. The assessee is an Individual and derives income from salary, rental income and income from other sources. A search and seizure action under section 132 of the IT Act was carried out by the department on the members of Goyal Group on 11.03.2015 of which assessee is one of the members. During the course of search and seizure, a pocket diary was found and seized as Exhibit 2 Annexure AS containing notings of advances for purchase of land on different dates total amounting to Rs. 24,58,50,000/-. The assessee in his statement recorded under section 132(4) disclosed the said income of Rs. 24,58,50,000/- as additional business income for the year under consideration. The assessee has also declared an additional income of Rs. 5,19,125/- on account of excess jewellery found from the residence of the assessee....
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....ion of mind at the time of issuing the show cause notice by the AO without specifying the undisclosed income which the assessee is required to show cause. Thus in the absence of specific charge against the assessee, he was not in a position to counter the show cause issued by the AO as well as his cogent reply to the show cause notice. Though the AO while passing the impugned order has imposed the penalty as per clause (a) of section 271AAB(1) of the Act, however, no such ground was specified in the show cause notice issued by the AO. Therefore, the penalty order passed by the AO is not sustainable in law when the initiation of proceedings suffers from illegality. In support of his contention, he has relied upon the following decisions :- CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karnataka) Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka) CIT vs. SSA's Emerald Meadows 73 taxmann.com 248 (SC) Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018. Shri Padam Chand Pungliya vs. ACIT ITA No. 112/JP/2018 dated 05.04.2019. Apart from the above decisions, the ld. A/R has also referred to a series of decisions on the point a....
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....f M/s. Rambhajo's vs. ACIT in ITA No. 991/JP/2017 the Tribunal vide dated 11.01.2019 has also held that when the AO has given a clear finding while passing the penalty order then the uncertainty charges at the time of initiation of penalty proceedings has been made good and substituted with a conclusive default at the time of passing the penalty order. Therefore, the Tribunal has upheld the validity of initiation of penalty proceedings. As regards the penalty under section 271AAB is mandatory in nature, the ld. D/R has submitted that as per the Finance Bill 2012 whereby this new section 271AAB has been introduced in the Statute, it was proposed to provide levy of penalty and the assessee shall pay by way of penalty in addition to tax, if any, payable by him equivalent to a sum computed at the rate of 10% to 30% of the undisclosed income. Thus the languages of the notes on clauses of Finance Bill clearly manifest the mandatory nature of levy of penalty. The ld. D/R has then referred to section 271AAB of the Act and submitted that provisions of section 273B are not applicable in case of penalty levied under section 271AAB. Therefore, the penalty is mandatory and not discretionary. Th....
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....ng the said income in the return of income filed under section 139(1) is relevant for the assessment proceedings but the said disclosure itself is not sufficient and conclusive proof to hold that the income disclosed by the assessee is an undisclosed income as per the definition provided under Explanation to section 271AAB of the Act. Since the income was declared by the assessee in the return of income, therefore, the issue did not crop up in the assessment proceedings whether the said income disclosed by the assessee in the statement recorded during the search and seizure action under section 132(4) and offered to tax in the return of income is an undisclosed income in terms of definition under section 271AAB of the Act. Thus the AO is required to consider and decide this issue in the penalty proceedings under section 271AAB of the Act. A mere disclosure by the assessee and surrender of income to tax would not ipso facto lead to the conclusion that the said income is undisclosed income as per the definition provided under section 271AAB of the Act to attract the penalty. Therefore, it is a condition precedent for invoking the provisions of section 271AAB that the said income d....
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....ded under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Therefore, we do not agree with the contention of the ld. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after considering the fact that all the conditions provided under section 271AAB are satisfied. At the outset, we note that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para 4 to 6 as under :- "4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of Rs. 10,02,00,000/- in pursuant to th....
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.... Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 ^49[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President^50], 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 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 twenty per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement unde....
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....rnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year- (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (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 ^54[Principal Chief Commissioner or] Chief Commissioner or ^54[Principal Commissioner or] Commissioner before the date of search; or (ii) any income of the speci....
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.... section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of section 271AAB stipulate that the AO may come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec. 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AO as per the provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assessee is fit for levy of penalty under section 271AAB and then only the quantum of penalty being 10% or 20% or 30% has to be determined subject to th....
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.... 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. Amit Agarwal (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 orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of penalty in the case of admission of income u/s 132(4) is mandatory. The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not mandatory but discretionary. The provisions of section 271AAB of the Act is parimateria with that of section 15....
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.... 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 furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the as....
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....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." Thus the Tribunal has analyzed all the relevant provisions of the Act as well as various decisions on this point including the decision of Hon'ble Allahabad High Court in the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a d....
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....pportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for having undisclosed income within the meaning of Section 271AAB of the Act. Notice in our opinion was vague. Hon'ble Karnataka High Court in the case of SSA's Emerald Meadows (supra) relying in its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) had held as under:- ''2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section ....
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.... penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings ; The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings''. View taken by the Hon'ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon'ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA's Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. 6. Since we have set aside the penalty or....
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....p; Dated : 16.08.2016. 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 25.08.2016 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/- ( Devangi Swarnkar ....
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....ied upon by the ld. A/R of the assessee. We find that the show cause notices issued by the AO in the case before us are identical as in the case of Shri Padam Chand Pungliya. For ready reference, we reproduce the show cause notice dated 15.05.2017 which is identical to the show cause notice dated 14.12.2016 as under :- "NOTICE UNDER SECTION 274 READ WITH SECTION 271 READ WITH SECTION 271AAB OF THE INCOME -TAX ACT, 1961. Date : 15-05-2017. To, Name M/s/Shri/Smt. Mukund Sharan Goyal Address 303, "Awadh", Nemisagar Colony, Vaishali Nagar, Jaipur. PAN ABIPG 1414D Whereas in the course of assessment proceedings for the AY 2015-16 penalty proceeding were initiated u/s 274 and 275 read with the section u/s 271AAB of the IT Act and a penalty notice was issued accordingly. You are hereby allowed further opportunity of being heard and to show cause why an order imposing penalty on you should not be made u/s 271AAB 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 show cause in writing on or before the date fixed for hearin....
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....s duty bound to first hold that the income disclosed by the assessee is undisclosed income as per the provisions of section 271AAB and then take a decision of imposing the penalty. He has referred to the relevant disclosure made by the assessee in the statement recorded under section 132(4) and submitted that it is a clear case of obtaining the disclosure from the assessee without any incriminating material disclosing any undisclosed income. The alleged seized material are nothing but containing some imaginary names and details and some figures which were specifically stated by the assessee in his statement. The ld. A/R has thus contended that the said seized documents are nothing but dumb and deaf papers without indicating any undisclosed income of the assessee. The assessee has surrendered the income just to buy peace and avoid unnecessary litigation, however, there is no iota of evidence that the surrendered income was undisclosed income of the assessee. All the entries in the seized documents are written against some imaginary names and figures and do not represent any actual transaction but only for sake of obtaining the surrender from the assessee, the search party has forced....
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....nt u/s 132(4) thus it was a bunch of dumb written papers. Further the officers of search proceedings and the AO also accepted that the same are dumb written names, places and figures as no further enquiry/investigation was made. The surrender of current years income by assessee of Rs. 24,58,50,000/- was just to buy peace by assessee which also he categorically stated in statement u/s 132(4). Thus it is only by admission of assessee under undue pressure by the search team on which the assessee included the said amount in return filed as his income of current year and paid tax thereon. There is no iota of evidence that surrendered income was undisclosed income. The revenue authorities have exerted undue pressure and obtained the surrender of income from the assessee. From the assessment order it is clear that the assessee has maintained a separate diary for the income surrendered during the course of search. The diary was also maintaining as books of accounts. In this diary all the entries are for the current financial year i.e. from 16.01.2015 to 07.03.2015 and the date of search 11.03.2015. All the transactions are recorded. Nothing adverse was found which suggest that the as....
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....earch from residence. It is submitted that during the course of search total gold jewellery/ornaments of net weight of 4548.450 gms was found from bedroom of assessee. That total weight of gold jewellery/ornaments as per wealth tax return of assessee's wife Smt. Rekha Goyal was 4236 gms which also include 93 gms jewellery of M/s. Goyal Fashions Pvt. Ltd. (A group company). Copy of wealth tax return was filed during the course of assessment proceedings. Thus the excess gold jewellery of 312 gms was determined by the department. Out of said excess jewellery of 312 gms the credit of 100 gms jewellery was given to assessee as per CBDT circular and remaining 200 gms of jewellery valued at Rs. 5,19,125/- was offered by assessee as his additional business income in his return of income filed for the A.Y. 2015-16. In this connection it is submitted that the said 200 gms jewellery pertained to two grandsons of the assessee and sons of Shri Ashish Goyal i.e. Shri Ashutosh Goyal and Shri Radhav Goyal. It is submitted that the said jewellery items were personal items of the family members and holding is very old and reasonable looking to the status of family. The said items were received from ....
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....n 132(4)/131 of the Act and affidavit, it has been submitted by the ld. A/R that officers of the department did not make any further enquiries and there was no corroborating evidences. Suffice is to mention that the assessee on the basis of the incriminating material has voluntarily, surrendered undisclosed business income on account of such advances and the departmental officers are not required further to prove anything, as there is no such requirement in law. It is humbly submitted that in reply to question no. 31 recorded under section 132(4), it has been stated by the assessee that he was not having the addresses of the persons in whose names amounts were recorded in the pocket note book, found and seized during the course of search. Thus, if the assessee has not provided the addresses of the person to whom advances have been made for cash and for land purchase, it could be presumed that the revelations of their addresses could do more harm to him and it would not be in his interest. Now, the assessee cannot take the plea that no further inquiries were made by the department. It would not be out of place to mention here that in his reply to question no. 31 and 32 in his statem....
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.... from mischief of penal proceedings u/s 271(1)(c) of the Act. It was further held that where offer of surrender of certain amount received as share application money was made by the assessee in view of detection made by AO in search conducted in case of assessee's sister concern, said surrender of income not being voluntary in nature, authorities below were justified in levying penalty u/s 271(1)(c) of the Act. Thus, the ld. D/R submitted that in view of the above submission, it is crystal clear that the total undisclosed income declared by the assessee U/s 132(4) of the Act is squarely covered by the definition of 'undisclosed income' as reproduced above. Otherwise, it is difficult to comprehend under what conditions and situations, the income declared by the assessee would fall under the definition of 'undisclosed income'. He has referred to the definition of Undisclosed Income as per Explanation to section 271AAB of the Act. Hence, he submitted that the penalty imposed by the AO u/s 271AAB of the Act may be sustained and the appeal of the assessee may be dismissed. 8. We have considered the rival submissions as well as the relevant material on record. During the course ....
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....nting 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 1st June, 2013, that too when the alleged expenditure of Rs. 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the s....
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....sessee. 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 of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the ....
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....ed 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 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, where the provisions of section 271AAB p....
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....T in ITA No. 304/JP/2018. 10. The ld. D/R has objected to the said claim of the assessee and submitted that the jewellery already declared in the Wealth-tax return was excluded while computing the excess jewellery found during the search. Therefore, further benefit of CBDT Instruction cannot be given. 11. At the outset, we note that when the jewellery was found at the residence of the assessee and also accepted as belonging to the family members as the department has already allowed the credit of the jewellery declared in the wealth-tax return by the family members then the benefit of the CBDT Instruction No. 1916 dated 11.05.1994 shall also be given in respect of all family members. An identical issue has been considered by this Tribunal in case of Shri Vimal Chand Surana vs. DCIT in ITA No. 304/JP/2018 vide order dated 30.05.2019 in para 17 as under :- "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 ....
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....stioned. It is certainly 'Stridhan' of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find 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 an....