TaxTMI 
TaxTMI 
2019 (10) TMI 1173
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.... Tax Act, 1961 is wrong, bad in law, invalid and void-ab-initio as the Id. AO issued notice under section 274 r.w.s. 271 of I.Tax Act without specifying the default of the assessee. 3. On the facts and in the circumstances of the case and in law the Id. CIT (A) erred in confirming the imposition of penalty of Rs. 1,20,710/- under section 271AAB of Income-tax Act, 1961. 4. The assessee prays for leave to add, to amend, to delete, or modify the or any grounds of appeal on or before the hearing of appeal." 2. The assessee is an individual and was covered under the search and seizure operations carried out on 31/10/2012. During the course of search, a cash of Rs. 1,76,800/- was found at the residence of the assessee and Rs. 8,53,500/- from the locker of the wife of the assessee. During the statement recorded U/s 132(4) of the Act, the assessee surrendered the cash found from the locker of the wife of the assessee of Rs. 8,53,500/-. The assessee filed his return of income U/s 139(1) of the Act on 19/02/2014 declaring total income at Rs. 13,93,390/- which includes the additional income of Rs. 8,53,500/- on account of cash found from the locker of the wife of the a....
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....e assessee has not retracted its statement made U/s 132(4) of the Act whereby the assessee has disclosed the undisclosed income on account of cash found from the bank's locker in the name of wife of the assessee. The surrender is based on the physical cash found during the search and hence, it satisfied all the conditions of undisclosed income as defined in explanation to Section 281AAB of the Act. She has relied upon the orders of the authorities below. 5. I have considered the rival submissions as well as the relevant material on record. As regards the validity of initiation of proceedings for levy of penalty, the A.O. has stated in the impugned order passed U/s 271AAB of the Act that the penalty proceedings U/s 271AAB are initiated against the assessee for his undisclosed income vide show cause notice dated 27/02/2015. A copy of the show cause notice was placed at page No. 15 of the paper book as under: Thus, it is clear that the said show cause notice suffers from serious defects as the caption of the notice does not mention the correct section for levy of penalty. Even in the body of the said notice, the A.O. has not specified the default for which the show cause notice ....
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....ies of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Henc....
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...., in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum ^51[computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). ^52[(1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the....
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....ny 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 documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.]" The section begins with the stipulation that the AO "may" direct the assessee shall pay by way of penalty if the conditions as prescribed under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and....
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....o the explanation of the assessee for the defaults. 5. Before we proceed further, the decisions relied upon by the ld. D/R are to be considered. In the case of Principal CIT vs. Sandeep Chandak & Others (supra) the issue before the Hon'ble High Court was the defect in the notice issued under section 271AAB on account of mentioning wrong provision of the Act being 271(1)(c) of the Act. The Hon'ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon'ble High Court has held as under :- " The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292....
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....t relating to block assessment and accordingly argued that the levy of penalty under section 271AAB is not mandatory but discretionary. When there is reasonable cause, the penalty is not exigible. The Ld. A.R. taken us to the section 271AAB of the Act and also section 158BFA(2) of the Act and argued that the words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under; 271AAB [Penalty where search has been initiated]: (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1 st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him- (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of search....
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....at part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. 6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no o....
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....d come to the conclusion that the assessee has not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act. The Channai Bench of the Tribunal in the case of DCIT vs. Shri R. Elangovan (supra) at pages 7 to 10 has held as under :- " It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to t....
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....359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed''. In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- ''Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee ; ) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law ; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessme....
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....alty proceedings that this cash of Rs. 8,53,500/- is accumulated savings for past years and therefore, the same is not an undisclosed income of the assessee. The very fact of source of cash from the locker of the wife demonstrate that the same belongs to the wife of the assessee and even as per the provisions of Section 132(4A) of the Act, the presumption can be raised regarding any money, bullion, jewellery or other valuable articles or things is found in the possession or control of any person in the course of search, the same belongs to such person. The cash was found from the locker of the wife of the assessee which means it was found from the possession and control of the wife and therefore, cannot be presumed to be belonging to the assessee. Accordingly, without considering the cash being an undisclosed income of the assessee as per definition provided in the explanation to Section 271AAB of the Act, the levy of penalty in respect of such surrender made by the assessee is not sustainable. Hence, the same is deleted. 6.1 Further the penalty is not automatic as a result of surrender made by the assessee but the A.O. has to first decide whether the surrender made by the asses....