TaxTMI 
TaxTMI 
2020 (8) TMI 905
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....ed on the basis of such defective notice is not maintainable in law. 3. The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him." 2. The facts giving rise to the present appeal are that a search and seizure action was carried out on the business as well as residential premises of the Moira Group of Indore including the assessee. It is observed by the Assessing Officer that during the course of search and seizure proceedings statement u/s 132(4) of the Income Tax Act 1961(hereinafter referred as the 'Act') was recorded wherein the assessee surrendered undisclosed income of Rs.8,00,00,000/- in various financial years after considering the seized documents in his case. Therefore, the Assessing officer issued a notice u/s 271AAB of the Act for levying penalty. In response thereto, the assessee filed written submission which was not accepted by the Assessing Officer and he passed penalty order u/s 271AAB of the Act, thereby, levied penalty @10% of the undisclosed income amounting to Rs.6,83,498/-. 3. Aggrieved against this order assessee preferred an appeal before the Ld. CIT(A) who after considering the submissions confirmed the pe....
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....d Assessing Officer erred in levied penalty U/s 271AAB of the Act of Rs 6,83,498/-, without properly appreciating the facts of the case and submission made before him. 2] That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in levied penalty U/s 271AAB of the Act of Rs 6,83,498/- without recording proper satisfaction for initiation of the penalty in the assessment order and also in the show cause notice as issued. 3] The appellant reserves his right to add, alter and modify the ground of appeal taken before the first appellate authority. A.8] However, the Ld CIT (A)-3, Bhopal vide order dated 23-04-2019 confirmed the penalty of Rs. 6,83,498/- as levied by the assessing officer under section 271AAB of the Income-Tax Act, 1961 by observing that the impugned amount would not have been offered for taxation had there been no search and seizure operation. The Ld CIT (A) confirmed the levy of penalty under section 271AAB of the Income-Tax Act, 1961 without dealing with each ground of appeal raised before him which is neither legal nor proper. A.9] The appellant has therefore preferred an appeal before the Hon'....
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....tract the penalty @ 10% or 20% or 30% or 60% of the undisclosed income. 1.3.2] Copy of show cause notices dated 30-11-2017 and 04-05- 2018 as issued under section 274 read with section 271AAB of the Income-Tax Act, 1961 for the Assessment Year 2015-16 are also reproduced hereunder for your ready reference: 1.3.3] On perusal of these show cause notices, it is quite evident that the assessing officer initiated penalty proceedings under section 271AAB of the Income-Tax Act, 1961 but the appellant was show caused on the charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAB of the Income-Tax Act, 1961. 1.3.4] The assessing officer in the show cause notice did not specify the default and charge against the appellant which necessitated levy of penalty under section 271AAB of the Income-Tax Act, 1961. The show cause notice as issued prior to the levy of penalty under section 271AAB of the Income-Tax Act, 1961 was vague and issued in a casual fashion which makes the alleged show cause notice de....
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.... penalty by applying the provisions of section 271AAB(1)(a). There is no ambiguity under the law so far powers of Ld. CIT(A) is concerned, he can modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. However, in the present case at the very inception notice initiating penalty is not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable u/s 292BB of the Act. Therefore, we hereby quash the penalty order." [Emphasis Supplied] 1.4.4] The Hon'ble ITAT Chennai Bench in the case of DCIT Vs. Shri R. Elangovan [ITA No. 1199/CHNY/2017] has categorically held that: "5..............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 th....
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.... (2013) 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 assessment, ....
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....n view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable." [Emphasis Supplied] 1.4.6] The Hon'ble Apex Court in the case of CIT Vs SSA's Emerald Meadows as reported in [2016] 73 taxmann.com 248 (SC) dismissed the Special Leave Petition filed by the Department against the order of the Hon'ble Karnataka High Court. The Hon'ble Karnataka High Court in the case of CIT Vs SSA's Emerald Meadows as reported in [2016] 73 taxmann.com 241 (Karnataka) following its own decision in the case of CIT Vs Manjunatha Cotton & Ginning Factory as reported in [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 dismissed the appeal of revenue by observing as under: "3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate part....
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....suffers from a fatal error which is not curable under section 292BB of the Income-Tax Act, 1961 and henceforth, penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 on the basis of such defective and invalid show cause notice is not sustainable on this ground itself and deserves to be deleted in entirety. 2] GROUND NO. 1 - CHALLENGING THE LEVY OF PENALTY OF RS. 6,83,498/- UNDER SECTION 271AAB OF THE INCOME-TAX ACT, 1961 2.1] The appellant in this ground of appeal has challenged the levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 on merits of the case. 2.2] The appellant accepted additional income to the tune of Rs. 68,34,975/- on account of investment in construction of house pertaining to the Assessment Year 2015-16 in his statement recorded under section 132(4) of the Income-Tax Act, 1961. However, the assessing officer subsequently levied penalty @ 10% on such admission made by the appellant under section 132(4) of the Income- Tax Act, 1961 which comes to Rs. 6,83,498/-. 2.3.1] The relevant extract of provision of section 271AAB of the Income-Tax Act, 1961 is reproduced hereund....
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....s been affirmed in the landmark judgment of the Hon'ble ITAT Visakhapatnam Bench in the case of ACIT (Central Circle)-2 v. Marvel Associates as reported in [2018] 194 TTJ 338 (Visakhapatnam - Trib.) which leads us to a conclusion that penalty under section 271AAB of the Income-Tax Act, 1961 is not automatic. 2.3.3] Further, it is also quite evident that the term 'undisclosed income' assumes significant importance for levy of penalty under section 271AAB of the Income-Tax Act, 1961 since penalty under this section is levied as a percentage of 'undisclosed income'. The term 'undisclosed income' has been defined in clause (c) of Explanation to section 271AAB of the Income-Tax Act, 1961 which is reproduced hereunder for your ready reference: "(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 ....
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.... to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or The appellant accepted additional income of Rs. 68,34,975/- on account of investment in construction of house pertaining to the Assessment Year 2015-16. The income as accepted by the appellant was on account of investment in construction of house and was not on account of either 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 which was not recorded on or before the date of search in the books of accounts or other documents. Hence, it is quite clear that the additional income of Rs. 68,34,975/- as accepted by the appellant did not fall within the definition of 'undisclosed income' as per sub-clause (i) (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 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 sea....
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....t shows the cost per square feet is Rs.3571/- per sft. and assessee stated to have submitted in sworn statement cost per sq. feet at Rs.2200/- to Rs.2300/- per sq. feet. However neither the AO nor the Ld.CIT(A) has verified the cost of construction with the books and projections found at the time of search. The counsel argued that it was mere projection but not the actuals. The write up heading also mentioned that summary of the projected profitability statement. There is no evidence to establish that projections reflected in the loose sheet is real. No other material was found during the course of search indicating the undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in the books of accounts or documents transactions were found during the course of search indicating the assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly. The revenue did not find any undisclosed asset, any other undisclosed income or the inflation of expenditure during the search/ assessment proceedings. Though a loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppress....
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.... 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 said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like Rs. 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of ....
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....e 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 assessee.....................Accordingly, in view of the facts and circumstances of the case as well as the decision of the Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta (supra), we hold that the entries in the seized documents representing the expenditure on ....
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....of limitation provided under section 275 of the IT Act whereas the penalty under section 271AAB has to be imposed only when the income disclosed by the assessee falls in the ambit of undisclosed income as defined under section 271AAB of the Act. The definition of undisclosed income contemplates various forms and the primary condition is that the income of the specified previous year represented 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 during the course of search which has 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. In the case in hand, since the surrender was made in respect of the LTCG recorded in the seized material, therefore, it is based on the entries in the other documents found during the course of search. The income in the shape of entries in other documents found during the course of search would be considered as undisclosed income if the said income has not been recorded in the books of account on or before the date of search. In the case in hand, it is undi....
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....ded under section 132(4) would not constitute incriminating material. Therefore, the said income disclosed by the assessee cannot be considered as undisclosed income in terms of section 271AAB of the Act. The Tribunal has taken a consistent view that the penalty under section 271AAB is not automatic but the AO has to take a decision as per the provisions of section 271AAB and particularly in the light of the definition of the undisclosed income as prescribed in the Explanation to section 271AAB of the Act."[Emphasis Supplied] 2.5.4] The Hon'ble ITAT Ahmedabad Bench 'C' in the case of M/s Shree Vallabha Developers Vs. DCIT, Central Circle-2 [ITA No. 1873 & 1874/AHD/2018] has held that: "5. We find that a total disclosure of Rs.10.51 Crores was made with respect to various entities including assessee as well as Bharatkumar Parikh besides other entities. In the case of assessee, the disclosure was on account of inflated expenses. However, no incriminating material was found during search operations and the undisclosed income was not represented by any money, bullion, Jewellery or other valuable article or thing or any entry in the books of accounts. None of the entri....
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....r profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee's case falls in the second limb i.e. "or other documents" as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section which is very important to adjudicate this issue. Therefore, the question is when the search took place, the assessee's transactions (in this case, the speculative transaction) has been found to be recorded in the "other documents" which is (retrieved from the assessee's accountant's drawer) and based on that the assessee declared Rs. 3 cr. during search and later returned income of Rs. 3 cr. as income under the head "Income from Other Sources" which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the "other documents" maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of Rs. 3 cr. offered by the assessee does 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....
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.... AO is under statutory obligation to examine all the issues during the proceedings under section 271AAB after giving the assessee 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 the explanation of the assessee on the specific default, the order passed by the AO under section 271AAB suffers from serious illegality and therefore not sustainable in law. When a stringent action is provided in the Statute against the default committed by the assessee, then it also cast an equally stringent and strict duty on the authority responsible to take such action. Therefore, when the provisions for levy of penalty under section 271AAB is a specific provision to deal with the undisclosed income and it provides a strict penal action then the corresponding duty of the tax authority is also equally stringent. The AO cannot escape from following the strict mandatory requirement of law and particularly th....
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....tion of 'undisclosed income' provided under clause (c)(i) of Explanation to section 271AAB of the Income-Tax Act, 1961. Therefore, penalty order as passed under section 271AAB of the Income-Tax Act, 1961 deserves to be quashed being void-ab-initio and penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 requires to be deleted on this count itself. 5. Ld. Departmental Representative (DR) opposed these submissions and supported the order of the authorities below. 6. We have heard rival submissions and perused the material available on record and gone through the orders of lower authorities. The submissions of the assessee are that penalty proceedings u/s 271AAB as initiated is bad in law on account of firstly penalty notice so issued is defected as it does not disclose specific charge and secondly there is no concealed income as search took place prior to due date of filing of income tax return. It is also contended that even otherwise the issue is squarely covered in favour of the assessee by the decisions of the Coordinate Benches of this Tribunal. It is noteworthy that the assessing officer issue notice u/s 271AAB of the Act, the notices so....
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....specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing 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 no....
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....as relied upon various judicial pronouncements in support of his contention that where the notice is being defective, therefore, no penalty can be levied or sustained. 10. The reliance is placed upon the decision of Tribunal referred in the case of Dr. Rajesh Jain vs. DCIT (ITANo.905/Ind/2018). This Tribunal after relying upon the decision of Coordinate Bench in the case of DCIT vs. Shri R. Elangovan (ITANo.1199/CHNY/2017) under the identical facts held as under: 16. We, therefore respectfully following the judgment/decision referred above and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 Dr. Rajesh Jain ITA No. 905/Ind/2018 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs. 2,04,900/- stands deleted. We accordingly allow the legal ground raised by the assessee challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act and quash the penalty proceeding as void ab intio. In the result appeals of ....
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....r The cost of construction in the projections projected at Rs.2177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma Vs. DCIT (2012) 32 CCH 334 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 15....
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.... Order was pronounced in the open court on 19.08.2020. ============= Document 1 OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)-2, INDORE AAYAKAR BHAWAN, MAIN BUILDING, ROOM NO-313, OPP. OF WHITE CHURCH, INDORE-45200]|| E-Mail: [email protected] Tele/Fax No. 0731-2499249 PAN: ACVPT3933C Date: 30/11/2017 To, Shri Amit Tiwari, (Prop. Of Shree Engineers), A-1/1204, Maple Woods, Nipania Main Road, Pipliya Kumar, Indore(M.P.) Sir/Madam NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961 Whereas in the course of proceedings before me for the assessment year 2015-16 it appears to me that you:- "Have without reasonable cause failed to furnish me return of income with you were required to furnish by a notice given under section 22(1)/22(2)/34 of the India Income Tax Act, 1922 or which you were required to furnish under section 139) or by a notice given under section 139(2) 148 of the Income Tax Act 1961, No. dated or have without reasonable cause failed to furnish it within the allowed and the manner required by the side section 139(1) or by such notice. ....