TaxTMI 
TaxTMI 
2021 (4) TMI 163
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.... CIT(A) has grossly erred in confirming the penalty imposed on additional income of Rs. 12,50,00,000/- duly offered by the appellant on the basis of seized papers found during search while filing the return of income and further ignoring the fact that the appellant has substantiated the manner in which the income was derived and paid the due tax on this income, thus the penalty so levied on the wrongful appreciation of facts deserves to be deleted, more particularly when the additional income so declared under the head "Income from Business or Profession" was assessed as such without making any adverse remark over the mode and manner of earning of income in the assessment order. 2.2 That the Ld. CIT(A) has further erred in ignoring the fact that the additional income offered by the appellant while filing the return of income was admitted in the statement recorded u/s 132(4) during the course of search, thus the so penalty imposed on such income deserves to be deleted. 3. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal." In this appeal, the assessee has also....
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....Court in the case of NTPC Ltd. 229 ITR 383 has held that even when no thorough investigation was carried out in any of the matter then it can be raised at any stage of appellate proceedings. Considering the totality of facts and circumstances and prayer of the assessee, we admit the additional ground raised by the assessee. 6. At the time of hearing of the appeal, the ld. AR appearing on behalf of the assessee do not want to press additional ground raised and prayed to dismiss the same as not pressed. The ld. CIT-DR has raised no objection if the additional ground is dismissed as not pressed. Therefore, in view of the prayer of the assessee, we dismiss the additional ground taken by the assessee being not pressed. 7. Now we deal with the other grounds raised by the assessee. In this regard, the brief facts of the case are that a search and seizure action u/s 132(1) of the Act and survey operation u/s 133A of the act was carried out on 04.09.2013 on the members of Okay plus- JKD group, of which assessee is one of the members. During the course of search, statements of the assessee and other persons were recorded. In the statement of the assessee recorded u/s 132(4) of the Act,....
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....salary and during the year assessee did some stray activity of sale of land. Since it was not a regular course of the business of the assessee, he was not required to maintain books of accounts. The profit earned out of sale of land was given as advances to various persons which was recorded in systematic manner in the diary (AS-4) (APB 28-34) which was found during the course of search. On being asked during the course of search about this diary, the assessee stated the correct fact that it contains advances given to various persons totalling to Rs. 12.50 crore and obviously admitted it to be his income. As stated above, this diary also contained certain other notings of money which was duly found recorded in the books of accounts of group companies and since the assessee was not having any business income and does not require to maintain regular books of account thus, the entry of advances were recorded in this diary maintained by assessee. As per the provisions of section 271AAB, the undisclosed income is defined as under (for the purpose of clarity, the relevant provisions are reproduced below):- Explanation.-For the purposes of this section,- (a) ......... ....
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....1AAB so represented by the entries. However, it is seen that the entries of advances were found recorded in the diary which was found and seized during the course of search and this diary also contained other entries of other group concerns which are duly recorded in the books of accounts of the respective concerns. Since assessee was not required to maintain any books of accounts, these entries remained recorded in the diary itself maintained by assessee in regular course. Thus it is submitted that the income of Rs. 12.50 crore so reflected by way of entries is found recorded in the 'document' namely diary in the instant case maintained in regular /normal course by the appellant and is therefore not the 'undisclosed income' within the meaning of section 271AAB. It is further submitted that as a result of entire search nothing incriminating was found pertaining to the assessee. Moreover the search was conducted on 04.09.2013 i.e. in the early half of the Financial Year and assessee had enough time till the close of financial year to include this income in its return of income. Further the time for payment of first instalment of advance tax (i.e. 15.09.2013) had also not ex....
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....71AAB of the Income Tax Act, 1961. In another decision namely DCIT Vs. Subhash Chand Agarwal & Sons (HUF) in ITA No. 1430/Kol/2015 dt. 19.2.2018, Hon'ble Kolkata bench of ITAT (case law compilation page 32-38) had also held to the effect that disclosure made on the basis of entries in the diary maintained in normal course would be covered as entries in 'documents' in the case where books of accounts are not maintained and therefore could not come within the ambit of 'Undisclosed Income'. Further heavy reliance have been placed by the Ld. AO as well as the Ld. CIT(A) on the statements of the assessee recorded u/s 132(4) to hold the income so declared by the assessee as undisclosed income. In this regard it is submitted that the statements recorded during the course of search were under the pressure created and the natural heat which generates due to the fact of search and this fact is further established from the sequence of events taken place where search u/s 132 was initiated at the business and residential premises at around 7.00 A.M. of 4.09.2013 where the preliminary statements of the assessee were recorded at his residence(APB 35) and it was on 05.09.2013 at ....
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....a routine manner. He has to apply his mind as to whether the facts and circumstances of the case justify and warranted the imposition of penalty. Discretion is to be exercised judiciously having regard to the nature and extent of breach and other relevant circumstances. Therefore it is not mandatory to impose the penalty but a discretion is vested not to impose the penalty considering the facts and circumstances of that case which in section 271AAB is very heavily cast upon AO since having special circumstances. Hon'ble Supreme court in the following case has held as under: CIT Vs. P.K. Noorjahan 237 ITR 570 (SC)(case law compilation page 61-63) Unexplained investment - Scope of section 69 - ITO is not obliged to treat source of investment as income whenever explanation regarding it is not satisfactory - Word "MAY" in section 69 cannot be interpreted to mean "SHALL" - Income Tax Act, 1961, s. 69. This judgement, though is in context of sec. 69, but the ratio decided by hon'ble court will be equally applicable in penalty proceedings which are more harsh in nature. In support of this contention further reliance is placed on the recent decision date....
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.... submitted above, the word used in the section 271AAB is 'may' and not 'shall'. The word 'May' indicates discretion of the authority either to levy or not to levy a penalty. In other words the imposition of penalty is not mandatory. Ld. CIT(A) referred to the explanatory notes clause 96 which explains the intention for introduction of particular amendment however the same cannot replace the provision of act where the word "may" is used and not "shall". In this regard various decisions have already been cited in the earlier paras of the submission. Hence, the observation of the Ld. CIT(A) that the penalty u/s 271AAB is mandatory is patently wrong and deserves to be ignored and excluded being made without properly appreciating the provision and language of the Act which is very much clear and inserted in the statute after long discussions before both the houses of parliament. The Ld. CIT(A) has observed in its order that 'recently Hon'ble Kolkata Tribunal has held that Penalty u/s 271AAB on undisclosed income is automatic in nature - 88 taxmann.com 288'. It is submitted that the aforesaid order of Hon'ble ITAT was in the case of DCIT, CC-2(2), Kolkata Vs. Amit Agarwa....
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....e finding recorded by this Tribunal in para 9 of its order dated 10.11.2017 that the assessee is mandated to maintain books of accounts u/s 44AA of the Act is factually incorrect and deserves to be rectified. This mistake of primary fact had led to a conclusion of upholding the levy of penalty u/s 271AAB of the Act. Hence, in these facts and circumstances and in view of the aforesaid mistake of primary fact rightly pointed out by the ld. AR, we deem it fit to recall the orders of this Tribunal dated 10.11.2017 in the case of aforesaid assessees." In the aforesaid scenario, the legal position is that an order which has been recalled for de novo adjudication, is no order in the eyes of law and so it cannot be treated as a precedent. Hence, the CIT(A) has erred in placing reliance on the order which had already been recalled and is thus no order. On the other hand it is submitted that in the same group of cases the Hon'ble ITAT Kolkata Bench in the case of Manish Agarwal (supra) has decided the similar issue in favour of assessee holding that penalty u/s 271AAB is not leviable. Moreover, recently the Hon'ble ITAT Kolkatta Bench after re-fixing the above cases of Amit....
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.... the tax so leviable. Merely because the expression used is "shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable", the first part of the section cannot be read as mandatory. Both CIT(A) and Tribunal have recorded reasons for exercise of their discretion in cancelling penalty which did not warrant interference. CIT vs. Dr. Giriraj Agarwal Giri (2012) 346 ITR 152 (Raj.)(HC)(case law compilation page 67-68) Imposition of penalty depends on facts and circumstances of each case. The AO imposed the penalty on so called three items of so called concealed income. Each item was examined, thoroughly and in detail, by the Commissioner of Income-Tax (Appeals) as well as the Income Tax Appellate Tribunal and by a reasoned order, both came to a conclusion that additions are based on estimation only. A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. Therefore appeal filed by Appellant rejected. Accordingly, in view of the facts and circumstances....
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....nation of assessee with respect to nature and entries contained was obtained. However, due to inaction on part of the department in providing the copy of statements, at last the assessee had to file the Income Tax Return without referring to the averments, if any, made in statements. It is pertinent to note that the tax due on such income (alleged additional income) stood paid in full upto the last date for filing of return u/s 139(1) of the Income Tax Act, 1961. The assessee has filed the return of income for the year under appeal after considering all the entries as contained in the seized documents and making reconciliation of the same and the income so declared in the return of income includes the income admitted during the course of search in statements recorded u/s 132(4) which was based on memory of the assessee. The return of income was filed beyond the statutory time limit provided u/s 139(1) solely for the reason that the copies of the statements recorded of the assessee, his family members and employees, wherein the stated surrender has been admitted by the assessee during the course of search, were not provided. Counsel of the assessee regularly visited the off....
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....ble 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 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....
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....e fact that apart from the letter dated 20.03.2015, other three letters were filed before the Ld. AO requesting for copy of statements, reference of which has been given above(APB 17-21). In the case of the assessee, the total amount of Rs. 12.50 crore was stated to have been offered as additional income however, due to the fact that the copy of the statements recorded during the course of search were not provided therefore, the return of income could not be filed in time provided u/s 139(1), however the return was filed in the extended time period provided u/s 139 of the Income Tax Act, 1961. The Central Excise Department vide letter dated 21.08.2014 has asked the assessee to file the details of the admission made during the course of search of additional income to the extent of Rs. 75.56 crores and after receiving such notices, assessee visited the office of the Ld. AO and ask him to supply such copies of the statements where that admission of more than Rs. 75 crores were made by assessee or his family members during the course of search conducted on 04.09.2013. Besides this written requests were also made on 15.05.2014, 08.07.2014 & 10.12.2014. However, even after filin....
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....refer those statements before filing return of income. The assessee in all fairness, only wanted to make sure that each and every income admitted by him in the statements gets included in the return of income and therefore, a reference to the statements was necessary. Thus not filing of return within stipulated time was beyond the control of assessee, for which assessee should not be penalized as same constituted reasonable cause within the meaning of section 273B. Since due taxes have already been paid by assessee within the stipulated time thus delay in filing the return for the reasons beyond the control of the assessee constitute reasonable cause as has been held by Hon'ble Chandigarh bench of ITAT in the case of DCIT Patiala Vs. Hari Singh in ITA No. 598/Chd/2017 dt. 20.9.2017, (case laws compilation page 50-51). It is further submitted that the Ld. AO while levying the penalty u/s 271AAB had not doubted the mode and manner of earning such income which was duly explained stand substantiated by the assessee in the return itself where it was stated that advances of Rs. 12.50 crores were made out of the income from land dealing. All these facts are undisputed and nowhere....
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....ding on the fulfillment of certain conditions. 11. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From perusal of the record, we noticed that a search was carried out on 04.09.2013 on the assessee and others being members of the Okay Plus- JKD group. During the course of search various books of accounts, files, loose papers and documents of the group were found and seized. One document / diary reflecting advances given totaling to Rs. 12.50 crores was found containing various entries of bank deposits and also advances given by assessee to certain individuals towards the purchases of land. These amounts of advances were explained in the statements u/s 132(4) of the Act as earned out of land deal and this income was over and above the regular salary income and was included in the total income shown by assessee in the return of income filed. 12. We observe that the assessee is having regular sources of income from salary and during ....
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....ks of accounts or other documents or transactions found during the course of search and not recorded in the books of accounts or other document maintained in regular course prior to the date of search. In the instant case it is clear that it is not a case where any money, bullion, jewellery or other valuable articles or things were found during the course of search. It is a case where an entry in books of accounts or other documents was found during the course of search. This being so, the next thing to be seen is whether these entries are recorded or not recorded in the regular books of accounts or documents maintained in the normal course. Since it is a case where books of accounts were not required to be maintained as the assessee being having salary and interest income on a regular basis and sale of land being taken during the year itself that too in a stray manner, it is a case where only second limb of the aforesaid phrase is applicable i.e. whether the entry or entries of advances so found are recorded in the "Other documents" or not. If 'not recorded' then it will be a case of undisclosed income within the meaning of section 271AAB so represented by the entries. However, it....
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.... that assessee declared Rs. 3.00 crores and since income under question was in fact entered in the "other document" maintained in normal course, such income offered by assessee does not fall in the keen of "undisclosed income" defined in section 271AAB of the Act. From perusal of the observation of the Coordinate Bench of Kolkata, we observe that the penalty u/s 271AAB is not mandatory but discretionary and therefore, the entire set of facts and circumstances of the case have to be examined carefully and penalty can be levied by the AO only after satisfying itself about the existence of circumstances warranting levy of penalty. The penalty cannot be imposed as a matter of routine and should be levied only if the circumstances of a particular case so required. In the instant case also, income under question was entered in the 'other document' maintained in normal course and therefore, such income will not fall within the meaning of 'undisclosed income' as defined in section 271AAB of the Act. In another decision in the case of DCIT Vs. Subhash Chand Agarwal & Sons (HUF) in ITA No. 1430/Kol/2015 order dated 19.02.2018, the Coordinate Bench of Kolkata had also held to the effect th....
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..../LKW/2016 dated 30.01.2017 while adjudicating a case where penalty was levied under section 271AAB of the Act it was held that the provisions of Sec. 271AAB of the Act are not mandatory, which means that penalty need not be levied in each and every case wherever the assessee has made default as stated in clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word "may" not "shall" "May" cannot be equated with "shall" especially in penalty proceeding. Using the word "may" in our opinion gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision." Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s 271AAB of the Act is not mandatory and is discretionary." 16. With regard to the observation of the Ld. CIT(A) that the penalty u/s 271AAB is mandatory, we observe that the word used in the section 271AAB is 'may' and not 'shall'. The word 'May' indicates discretion of the authority either to levy or not to levy a penalty. In other words the imposition of penalty is not mandatory. Ld. CIT(A) referred to the explanatory notes clause 96 which explains the i....
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.... accounts as on the date of search on 01.08.2012 and thereby it takes the character of undisclosed income for which penalty u/s 271AAB of the Act is exigible. In this regard, we find that the Ld. AR drew our attention to the computation of the total income wherein the assessee had offered income from commodity trading only under the head income from other sources. We also find that the Ld. AO had also specifically stated in the body of the assessment order vide column no. 10 that the assessee is having only salary income and income from other sources. We find that due to the absence of the assessee at the time of hearing this particular fact had escaped the attention of the Tribunal. On perusal of the fact available on record, we find that the finding recorded by this Tribunal in para 9 of its order dated 10.11.2017 that the assessee is mandated to maintain books of accounts u/s 44AA of the Act is factually incorrect and deserves to be rectified. This mistake of primary fact had led to a conclusion of upholding the levy of penalty u/s 271AAB of the Act. Hence, in these facts and circumstances and in view of the aforesaid mistake of primary fact rightly pointed out....
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....as revealed by the ledger and the material seized during search could not be treated as undisclosed income of the first assessment year in the block period. Thus, no substantial question of law arises from the order of the Tribunal upholding the order of the CIT(A) deleting the levy of penalty under s. 158BFA(2). In the case of CIT Vs. Dodsal Ltd. 312 ITR 112 (Bom.) (HC) the Hon'ble Bombay High Court has held as under: Terminology of s. 158BFA(2) makes it clear that there is a discretion in the AO to direct payment of penalty. It is only if the authority decides to impose penalty then it would not be less than the tax leviable but shall not exceed three times the tax so leviable. Merely because the expression used is "shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable", the first part of the section cannot be read as mandatory. Both CIT(A) and Tribunal have recorded reasons for exercise of their discretion in cancelling penalty which did not warrant interference. In the case of CIT vs. Dr. Giriraj Agarwal Giri (2012) 346 ITR 152 (Raj.) the Hon'ble Rajasthan High Court has held as under: Impo....
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...., Sikar Road, Jaipur. Further, copy of cheque No. 0014 dated 13.07.2012 for an amount of Rs. 36,83,406/- issued by the assessee from his saving bank account maintained with Bank of Baroda was also found, besides physical cash of Rs. 9 lacs. Therefore, it is an admitted position that the the assessee has made total payment of Rs. 54 lacs towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and as far as the cheque payment is concerned, the same has not been disputed by the Revenue and has been taken as disclosed investment by the assessee. However, as far as the cash payment of Rs. 17,16,594/- and cash of Rs. 9 lacs which was found during the course of search, the same has been taken as undisclosed income by the assessee. During the course of search, in his statement recorded u/s 132(4), the assessee has surrendered the said amount and subsequently, offered the same in his return of income. The question that arises for consideration is whether the cash payment towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and cash of Rs. 9 lacs found in possession of the assessee can be termed as undisclosed income within the meaning as defined in section 271AAB ....
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.... the tax due on such income (alleged additional income) stood paid in full upto the last date for filing of return u/s 139(1) of the Act. The assessee has filed the return of income for the year under appeal after considering all the entries as contained in the seized documents and making reconciliation of the same and the income so declared in the return of income includes the income admitted during the course of search in statements recorded u/s 132(4) which was based on memory of the assessee. The return of income was filed beyond the statutory time limit provided u/s 139(1) solely for the reason that the copies of the statements recorded of the assessee, his family members and employees, wherein the stated surrender has been admitted by the assessee during the course of search, were not provided. The assessee had also requested in writing through various letters which have been placed at paper book page No. 17 to 21, requesting for supply of copies of statements of assessee. However the requests of the assessee were not considered and the copies of the statements were not provided until the filing of return by the assessee. After the filing of return of income one more request ....
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.... return on 12.02.2015 after making due payment of additional interest thereon though as per above discussion of facts, due tax on such income was already paid prior to the due date u/s 139(1) for filing of return of income for the year under appeal. Although, this contention was raised before the Ld. CIT(A) who has failed to consider the same and has proceeded to confirm the penalty. The Ld. CIT(A) in this regard has observed that the assessee had filed the application for copy of statements only after filing the return of income. Here, the Ld. CIT(A) has clearly ignored the fact that apart from the letter dated 20.03.2015, other three letters were filed before the AO requesting for copy of statements which has been placed at page Nos. 17 to 21 of the paper book. In the case of the assessee, the total amount of Rs. 12.50 crore was stated to have been offered as additional income however, due to the fact that the copy of the statements recorded during the course of search were not provided therefore, as per assessee, the return of income could not be filed in time provided u/s 139(1). However, as per record, the return was filed in the extended time period provided u/s 139 of the....