TaxTMI 
TaxTMI 
2023 (4) TMI 741
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.... the facts and in the circumstances of the case and in law, Ld CIT (A) erred in deleting the penalty of Rs 75,56,113/-imposed u/s 271(l)(c) of the IT Act, 1961 hereby disregarding the provision contained in explanation 5A to clause (c) of sub-section(l) of section 271 of the IT Act, 1961 and hence the impugned order of the Ld. CIT(A) is liable to be quashed and the order of the Assessing Officer be restored. 3. The Appellant craves the leave to add/modify/alter any of the ground during the course of hearing /pendency of appeal." I.T.A. No.: 134/GTY/2020: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case. 2. That on the facts and in the circumstances of the case and in law, Ld CIT (A) erred in deleting the penalty of Rs 74,79,177/-imposed u/s 271(l)(c) of the IT Act, 1961 hereby disregarding the provision contained in explanation 5A to clause (c) of sub-section(1) of section 271 of the IT Act, 1961 and hence the impugned order of the Ld. CIT(A) is liable to be quashed and the order of the Assessing Officer be restored. 3.....
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....However, penalty proceedings were initiated u/s 271(1)(c) of the Act and vide penalty order dated 28.06.2019 penalty of Rs. 75,56,113/- & Rs. 74,79,177/- levied for AY 2014-15 & AY 2015-16 respectively. 5. As far as AY 2016-17 is concerned the regular return was not filed since the assessee was subjected to search and the return in compliance to the notice u/s 153A of the Act was filed on 09.03.2018 declaring income of Rs. 10,60,36,420/- which inter alia included disclosure of Rs. 4 Cr on account of investment in land and Rs. 1,13,92,190/- on account of investment in stock of raw material and work-in-progress. For this year also ld. AO accepted the returned income but initiated penalty u/s 271AAB(1)(a) of the Act and vide order dated 28.06.2019 levied penalty at Rs. 51,39,219/-. 6. Aggrieved, the assessee preferred appeal before ld. CIT(A) and placed reliance on judicial pronouncements in its favour squarely applicable on its case and succeeded as ld. CIT(A) deleted the impugned penalty levied for AY 2014-15, AY 2015-16 & AY 2016-17. 7. Aggrieved, the Revenue is now in appeal before this Tribunal. Ld. D/R vehemently argued supporting the order of ld. AO. 8. On the other....
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.... Kabul Chawla) that no additions during the assessments pertaining to search cases can be made on any account until and unless some incriminating material on that account has been recovered by the Department. It is a settled proposition and requires no authority to bring home the contention that no penalty can be levied when the additions have been made merely on estimated basis. It cannot be said that the Appellant did not have access or could not have had to appropriate legal advice. Despite that there was no intention on the part of the Appellant to contest the additions pertaining to the income offered to tax, sans any incriminating material and not pay the amount of tax due to the exchequer. In this regard, it would also be relevant to peruse Section 271(1)(c) of the Income Tax Act, 1961, which is reproduced as hereunder: "271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or] Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or...... he may direct that such person sha....
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.... by the Appellant, the Appellant dutifully declared such income in the subsequent return under section 153A and paid the admitted taxes on the same, it cannot be said that there transpired any intention on the part of the Appellant of hiding any such income from the Department or to not pay the amount of tax due to the exchequer or that the conduct of the Appellant was contumacious and there was an intention to evade any tax. In that scenario, the discretion which vested in the AO for imposition of penalty should have been exercised in favour of the Appellant. It is settled law that any imposition of penalty under the Income Tax Act, 1961 is discretionary and not mandatory and whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion to be exercised judicially and on consideration of all relevant circumstances. Thus, penalty should not be imposed mechanically but must be based on the facts and circumstances of each case. It is also an admitted position of law that penalty proceedings are distinct and separate from assessment proceedings. The Hon'ble Calcutta High Court in the case of Durga Kamal Rice Mills Vs. CI....
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....o leads to the matter of explanations given by the assessees in support of their contentions. Even if any assessee is not able to establish, by satisfactory evidence, the source of any income, it does not mean that the explanation furnished was false or that the assessee is guilty of deliberate suppression. Generally, a 'penalty' means a sum of money recoverable in a summary manner, for breach of some statutory provision. A penalty is provided for by a statute to punish a contravention of a statute or the doing of something which is prohibited by the statute. In order to enforce the mandatory provisions of a statute, the Legislature may impose sanctions of either of two kinds i.e. either declare it as an "offence" under the general law of crimes and make the person guilty of such offence punishable judicially or lternatively provide that the contravention will be punishable extra-judicially, by the prescribed administrative authority by way of a penalty. Any penalty falls in the latter case. So a penalty may have slight affinity to a criminal offence in the sense that there is an offence in the broader sense, namely, a contravention of the mandate of the law and there is a ....
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....d. AO during the course of assessment proceedings or by the Investigation Wing of the Income Tax Department in their investigations prior to the assessment proceedings, which could conclusively prove concealment of particulars of income or furnishing of inaccurate particulars of income by the Appellant. In the impugned penalty order or the assessment order, there is no shred of reference to any incriminating material whatsoever which was seized or recovered by the Investigation Wing either during the course of search proceedings or even later at the time of recording of the Statement under Section 132(4) of the Income Tax Act, 1961 and which was used by the Ld. AO for framing the assessment order and making the additions in the assessment order. The entire construction of the assessment order rests only on the bald edifice of a Statement recorded under Section 132(4) of the Income Tax Act, 1961 in which the Appellant voluntarily and suo-motto disclosed the income. To sustain any penalty tangible evidence has to be brought on record to foist some culpability on the Appellant. In view of the above, (a) in the absence of anything incriminating against the Appellant being on r....
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....her documents or transactions. But, in the case on hand, there was no such allegation against the assessee either in the assessment or penalty or the CIT (A) order referring to any specific incriminating documents. As relying on Ajay Traders Vs. DCIT [2016 (6) TMI 422 - ITAT JAIPUR] there cannot be any penalty under explanation 5A to section 271(1)(C) of the Act until and unless the quantum addition is based on some incriminating document. Accordingly, we hold that there cannot be any penalty under section 271(1)(C) of the Act in the given facts and circumstances. - Decided in favour of assessee." 11. Similar was the view taken by Coordinate Bench of Delhi in the case of Rishabh Buildwell P. Ltd vs. DOT [2019 (7) TMI 383 - ITAT DELHI] reads as under: "Penalty u/s. 271(1)(c) - income disclosed by the assessee under Section 153A - assessee has filed revised returns disclosing higher income than in the original return - HELD THAT:- AO has not brought anything on record to assess any income over and above the returned income filed by the assessee. AO in the assessment order could not bring into fore as to how the seized material has been analyzed and to pr....
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....equisite conditions for levy of penalty under the Income Tax law are equally applicable to the instant year also. Hence, the penalty levied is directed to be deleted. - Assessee appeal allowed." 12. Thus, respectfully following the judicial precedence and also considering the fact that the additional income offered by the assessee in the return filed in compliance to the notice u/s 153A of the Act which partakes the character of regular income filed u/s 139 of the Act and the said additional income being not offered on the basis of any incriminating material but is the voluntary disclosure made by the assessee and there being no other legal binding precedence referred to by ld. D/R, we fail to find any infirmity in the finding of ld. CIT(A) deleting the penalty levied u/s 271(1)(c) of the Act for AY 2014-15 & AY 2015-16, respectively. Thus, the grounds of appeal raised by the Revenue in ITA Nos. 133 & 134/GTY/2020 are dismissed. 13. Now, we take up ITA No. 135/GTY/2020 relating to the penalty u/s 271AAB(1)(a) of the Act. Ld. CIT(A) deleted the penalty observing as follows (relevant extract): "On a perusal of the definition of "undisclosed income" as given in explanat....
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.... Using the word "may', which is discretionary in nature, gives a discretion to the assessing officer to levy or not to levy the penalty even if the assessee had made some default under the said provision. Whether any penalty should be imposed for failure to perform a statutory obligation is a matter of discretion to be exercised judicially and on consideration of all relevant circumstances. It may be stated that words are the skin of the language. The language is the medium of expressing the intention and the object that particular provision or the Act seeks to achieve. Therefore, it is necessary to ascertain the intention. Even if it is assumed that the word 'shall' had been used in the aforesaid provision, the word "shall" is also not always decisive. Regard must be made to the context, subject matter and the object of the statutory provision in question in determining whether the same is "mandatory" or "directory", No universal principle of law can be laid in that behalf as to whether a particular provision or enactment shall be considered "mandatory" or "directory". It is the duty of the Court to try to get at the real intention of the legislature by carefu....
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.... [(1999) 238 ITR 905 (Ker.)] has held that despite the addition being confirmed by Tribunal in quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts so justify. Penalty can be based on the material which was used by the Ld. AO while making the assessment. Even if there is a legal proposition that penalty was an additional tax true imposed on an assessee for his contumacious conduct and, therefore, was no different from tax, this tax must have evidence to back up its imposition justified by the contumacious conduct of the taxpayer. In the instant case, nothing from record remotely reflects the "contumacious" conduct of the Appellant making the instant case a fit case for imposition of penalty. In the case at hand, no evidence regarding the factum of tax being concealed with a motive to evade taxes was unearthed by the Ld.AO or the Investigation Wing of the Department. There was not even any false explanation given by the Appellant which was suggestive of the fact that the Appellant wanted to deliberately evade any taxes. Even though it cannot be said that the penal proceedings under the Income-tax Act, 1961 are in the nature of criminal proceed....
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....by omitting to do what was required to be done by the statute. Offence is used to refer to what is punishable as a "crime" on prosecution before a Court of Law, but in the case of what is popularly known as a "statutory offence", there is nevertheless an offence which is punishable by the law, though by a different tribunal or an administrative authority. Thus, anything "penal" comprises "not only prosecutions and sentences for crimes and misdemeanour, but all suits in favour of the State for the recovery of pecuniary penalties for any violation of statutes for the protection of its revenue or other municipal laws, and all judgments for such penalties." In the case of an statutory offence, if the assessee must furnish a return and that with correct particulars of his income and if he further conceals the particulars or deliberately furnishes inaccurate particulars or tries to hide any income, then only a penalty prescribed in the statute is attracted. It may safely be concluded that the "additional tax" imposed by way of penalty is nothing but a punishment for a statutory offence and that instead of judicial punishment, the statute prescribes for a penalty being awarded by the Reve....
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....g or an attempt to evade taxes, (c) no incriminating evidence having been found or recovered against the Appellant during the course of search operation and (d) the bona-fides of the Appellant being evident from record by way of suo-motto disclosure without the Revenue even possessing any minutest of documentary evidence against the Appellant, there is no reason for the undersigned to sustain the penalty, which has been applied mechanically, in the instant case. Further, a number of judicial pronouncements have laid down the law that no penalty under Section 271AAB can be levied where no undisclosed assets or incriminating evidence or documents are found during the course of a search. These judicial pronouncements are enumerated below." 14. From perusal of the above finding, we notice that ld. CIT(A) deleted the impugned penalty adopting the same analogy that no incriminating material was found during the course of search and further, ld. CIT(A) has referred to the provisions of Section 271AAB of the Act wherein the penalty is to be levied on the undisclosed income but since no incriminating material was found during the course of search which can be brought into the de....
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....ary. 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. 8. In this case, a search u/s 132 of the Act was carried out in the assessee's premises but no evidence was found during the course of search except a loose sheet which was marked as Page No.107 of Annexure A/GS/MA/1. Careful verification of the loose sheet found during the course of search shows the projections and profitability but not the actual expenditure incurred by the assessee. As submitted by the assessee before the A.O. as well as Ld. CIT(A), no other material was found during the search proceedings. Section 271AAB sub clause (c) of the Act defines undisclosed income as under: (c) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, by any money....
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....oose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. The amount of Rs.3571/- mentioned in the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. 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 v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to the addition on account of alleged receivables ....