TaxTMI 
TaxTMI 
2020 (8) TMI 236
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....- u/s 271AAB imposed by assessing officer although the notice issued by assessing officer for initiating the penalty u/s 271AAB of the I.T.Act, 1961 is not in accordance with law not being specifically pointing out the default for which the ld. A.O. sought to impose penalty u/s 271AAB. 4. That the ld. CIT(A) is wrong in confirming penalty of Rs. 5,78,750/- u/s 271AAB of the Act in as much the penalty was levied by assessing officer simply on the basis that the assessee admitted the income of Rs. 57,87,509/- and disclosed in the return without proving that the said income was 'undisclosed income' of assessee within the Meaning of section 271AAB of 1.T.Act, 1961." 2. Briefly stated, the facts of the case are that a search and seizure action u/s 132 of the Act was carried out on Surana Group on 15.10.2014 and assessee is one of the members of the said Group. During the course of search, the statement of the partner of the assessee firm was recorded u/s 132(4) wherein he surrendered additional business income on account of stock amounting to Rs. 57,87,509/-. Thereafter, the assessee firm filed its return of income on 23.09.2015 declaring total income of Rs. 1,04,57,1....
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....notices were issued in a routine manner without mentioning under which clause of section 271AAB of the Act, the assessee is liable for penalty. The assessee should know the grounds which he has to meet specifically, otherwise, the principles of natural justice are violated and on the basis of such proceeding, no penalty could be imposed on the assessee. Thus, there is no application of mind at the time of issuing the show cause notice by the AO. It was submitted that the Assessing Officer has finally levied penalty as per clause (a) of section 271AAB of the Act, however, no such ground was specified in the show cause notice issued u/s 271AAB read with section 274 of the Act. 6. It was further submitted that the AO and the ld CIT(A) are not correct in stating that the levy of penalty u/s 271AAB is mandatory in nature as the provisions of section 271AAB states that the Assessing Officer may levy penalty which thus permits the Assessing Officer to use his discretion to levy or not to levy a penalty depending upon facts and circumstances of the case. It was further submitted that the legislature has included the provisions of section 274 and 275 of the Act in context of section 2....
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....of "undisclosed income" given in Section 271AAB and merely basis the surrender made in the statement recorded u/s 132(4), no penalty can be levied. In support, the reliance was placed on the Co-ordinate Bench decision in case of sister concern, M/s Sumangal Gems, Jaipur vs. DCIT (ITA No. 113/JP/2018 dated 24.02.2020) wherein under identical facts and circumstances of the case, the penalty was deleted by the Tribunal. 8. Per contra, the ld. DR is heard who has relied on the order of the lower authorities and submitted that once the assessee has surrendered the amount during the course of search in the statement recorded u/s 132(4) of the Act of the one of the partners of the assessee firm, therefore, there is no basis to state that there is no undisclosed income found during the course of search. The statement of the partner of the firm is binding on the firm and the assessee cannot take the plea that such statement is not binding on it. It was further submitted that the provisions of section 271AAB are clear in contrast to section 271AAA wherein there is no mechanism for immunity from levy of penalty and the only discretion which lies with the Assessing Officer is in terms of qu....
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....of undisclosed income found during the course of search and thus, the assessee is granted an opportunity to refute such charge and file its explanations/submissions. Unlike provisions of section 271(1)(c) which provides for separate charge of "concealment of particulars of income" or "furnishing of inaccurate particulars of income", there is a singular charge under section 271AAB in terms of the existence of undisclosed income for the specified previous year found during the course of search. Therefore, in the instant case, where the notice dated 14.12.2016 is issued to the assessee firm to show-cause why penalty should not be levied u/s 271AAB of the Act, the assessee is made aware of the specific charge against it and an opportunity has thus been given to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO on this account. Further, even for sake of argument, if it is assumed that primary charge of undisclosed income has to be read along with ancillary conditions and thus multiples charges have been prescribed in terms of clause (a), clause (b) or clause (c) to sub-section (1) to ....
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....y of penalty cannot be held as mandatory but the same will depend upon facts and circumstances of each case. Thus, we agree with the contentions of the ld AR that the levy of penalty is not mandatory in all cases but the Assessing officer has to decide based on facts and circumstances of the case. In fact, it is a consistent view of this Tribunal across various Benches that levy of penalty u/s 271AAB is not automatic in nature but the AO has the discretion and has to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an "undisclosed income" in terms of Section 271AAB(1) r/w. explanation defining the undisclosed income. Further, where the discretion so applied by the Assessing officer has been rightly exercised or not in a particular case can be reviewed and subject to appellate remedy as so provided in the Act. 11. This now takes us to next contention of the ld AR regarding amount surrendered during the course of search not qualifying as an "undisclosed income" u/s 271AAB r/w explanation thereto and merely surrender made in the statement recorded u/s 132(4) is not sufficient....
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.... Further, the valuation of such undisclosed stock is required to determine the investment which has been made in such stock and which has remained undisclosed to the Revenue authorities. The investment in stock is the function of price or cost at which stock has been purchased by the assessee and therefore, what is to be determined is the purchase price/cost of such stock and not the market price. Where such stock is ultimately sold, any profit arising therefrom would be brought to tax in regular course and the determination of market price would be relevant at that point in time. 13. In the instant case, stock of emerald rough, semi-precious and emerald finished gemstones was found during the course of search and these are stock-in-trade of the assessee firm in which it regulars deals as part of its business. What is therefore relevant for the present purposes is firstly, whether there is any excess stock physically found which is not recorded in the books of accounts and secondly, the cost at which such excess undisclosed stock has been acquired alongwith the cost of cutting and polishing such rough gemstones into finished gemstones and not the value at wh....
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.... be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB of the Act. The Co-ordinate Bench in case of Shri Padam Chand Pungliya, Jaipur vs. ACIT, Jaipur (supra) has dealt with an identical issue and relevant findings are contained at para 9 of the said decision wherein the Co-ordinate Bench has held as under:- "9. As regards the undisclosed income on account of excess stock, we note that during the course of search and seizure action the department has got valued the stock of the assessee from the departmental valuer. We find that in the valuation report the valuer has not made any attempt to find out the net weight but all the articles are taken at gross weight on which the prevailing market prices as on the date of search were applied. Thus it is clear that the difference in the closing stock was due to the valuation determined by the departmental valuer based on the gross weight and prevailing market prices in comparison to the value recorded by the assessee in the books of account. We further note that in the entire valuation report and in the proceedings of the search and seizure, the department has not made any all....
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....aluation would not amount to undisclosed income in terms of definition prescribed in the explanation to section 271AAB of the Act. The Coordinate Bench of the Tribunal in the case of M/s. Rambhajo's vs. ACIT (supra) has considered the identical issue in para 38 as under:- "38. Firstly, regarding stock of Kundan Meena, and diamond and other gemstones studded jewellery which has been surrendered during the course of search, what has to be determined is the income which is represented by such stock of jewellery which is not found recorded in the books of accounts maintained in the normal course relating to such previous year. In other words, the value at which such stock has been acquired by the assessee and not the value which such stock can fetch in the market or the fair market value of such stock. In the instant case, it has been contended that the valuation of the stock has been done at market rate as on the date of search without considering the cost disclosed in the books of accounts and without considering the well-accepted accounting policy which has been followed by the assessee firm where it values its stock at lower of cost and net realizable value. The cost can b....
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....e in stock of jewellery and silver items as per books and as found at the time of search is on account of valuation of such stock at the market value instead of cost and such valuation difference and on account of non-deduction of Chapadi, wax, etc while weighing the Kundan Meena Jewellery and the same cannot be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB of the Act and the penalty levied thereon is liable to be set-aside." Accordingly, in view of the above facts and circumstances of the case and following the earlier order of this Tribunal, we hold that the amount representing the excess stock based on the valuation of the departmental valuer cannot be regarded as undisclosed income in terms of definition provided in the explanation to section 271AAB of the Act. Hence, the penalty levied against such amount is not sustainable." In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the penalty levied u/s 271AAB is not sustainable and the orders of the lower authorities are set-aside and the appeal of the assessee is allowed." 10. In the instant case as well, we....