TaxTMI 
TaxTMI 
2023 (7) TMI 1080
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....or initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law and not being specifically pointing out the default for which the AO sought to impose penalty u/s 271AAB. 4. That the ld. CIT(A) is wrong in confirming penalty of Rs. 2.50 lacs u/s 271AAB of the Act in as much the penalty was levied by AO simply on the basis that the assessee admitted the income of Rs. 2.50 lacs and disclosed in the return without proving that the said income was ''undisclosed income'' of assessee within the meaning of Section 271AAB of the I.T. Act, 1961 2.1. Brief facts of the case are that the assessee is engaged in business manufacturing, trading and export of precious &semi precious stones from last several years. A search u/s 132 of the I.T. Act, 1961 took place at residence and business premises of assessee 23-05-2013. In course of search, the assessee surrendered an income of Rs. 25,00,000/- on account of land advance which he admitted as his additional business income for current year. The assessee filed original return on 29-09-2013 declaring total income of Rs. 89,40,360/- which included said additional income of Rs. 25,00,000/- offered to....
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....per section 274 and 275 read with section 271AAB of the I T Act you are liable for penalty on assessed undisclosed income." Again, a third show cause notice dated 07-09-2018 was issued having the same wordings of earlier notice(s). The assessee after receiving this notice filed his explanation on 14-09-2018. The Ld. A.O. on receipt of explanation of assessee passed the penalty order on 23-03-2020. It is verifiable that all the three notices were issued in a routine manner without mentioning under which clause of section 271AAB of the Act the assessee is liable for penalty. It submitted that section 271AAB(1) has three clauses (a) to (c) and each clause of sub-section (1) to sec. 271AAB provides the circumstances and violation attracting the penalty @ 10% or 20% or 30% of undisclosed income of specified previous year. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are violated. 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 as the show cause notice issued by the AO do not specify the ....
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....of income are different. Thus the Assessing officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The Standard proforma without striking of the relevant clauses will lead to an inference as to non application of mind.....? The Hon'ble ITAT, Jaipur Bench, Jaipur in the case of Anuj Mathur Vs DCIT, CC-4, Jaipur (ITA No. 971/JP/17) held that "As regards the validity of not....
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.... the decision was rendered on 27.08.2012. In view of the observation made in the said judgement, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing officer in the assessment order it is held that the A.O. has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order...." (Emphasis Supplied). ii. Narayana Heihts & Towers, Vs. I.T.O. Ward-2-4 Jaipur ITA No. 1033/JP/2016 (iv) The ITAT, Jaipur Bench, Jaipur in case of Lal Chand Mittal Vs. DCIT (ITA No. 772/JP/2016 order dated 29-12-2011 and various other cases decided by it held that on the basis of such notice issued by sending printed where only all the ground of section 271 (1) (c) are mentioned or where show cause notice u/s 271 (1) (c) for imposing of penalty without specifying the limb for reasons to impose penalty whether for concealment of income or furnish inaccurate particulars of income is not as per law and assessing officer did not have a....
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.... it is submitted that notice issued u/s 271AAB by Ld. A.O. to assessee is wrong and bad in law and consequently the penalty levied u/s 271AAB (1) (a) is also wrong and bad in law which deserves to be deleted. (2) Ground No..2 That the Ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 250000 u/s 271AAB of the Act by holding that it is mandatory in nature and not discretionary and so assessing officer is correct in law while imposing penalty on appellant. In this connection it is submitted that Section 271AAB starts with the phrase that 'The Assessing officer may' thus while "may" permits the assessing officer to give direction to impose penalty or not, the use of word "shall" does not leave any discretion relating to levy of penalty. In this respect reliance is placed on the judgement of Hon'ble Supreme Court in case of CIT Vs Smt. P.K. Noorjahan (1999) 237 ITR 0570 wherein Supreme Court held that word 'may' give discretion to A.O. in the matter and said discretion has to be exercised keeping in view the facts and circumstances of the particular case judicially. The fact that the minimum is prescribed does no....
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....as been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because the opportunity of being heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. 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."The penalty order u/s 271AAB is an appealable order u/s 246A before CIT (A). If the penalty u/s 271AAB had been mandatory there would have not been provision of appeal u/s 246A. The Ld. A.O. and CIT(A) are ....
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....ed previous year which is found to be false and would not have been found to be so had the search not been conducted. Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132 (4). The A.O. must establish that there is undisclosed income on the basis of incriminating material. It is so specifically held by ITAT, Visakhapatnam Bench in ACIT Vs. Marval Associates supra. The Ld. A.O. taking the admission of income by assessee as undisclosed income of assessee. In search authorities did not find any undisclosed asset, any other undisclosed income. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109held 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 which has not been declared by the assessee. The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AB of the Act. In the case of assessee ....
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.... and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. For ready reference the said circular is reproduced herein below: GOVERNMENT OF INDIA MINISTRY OF FINANCE & COMPANY AFFAIRS DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES Room No. 254/North Block, New Delhi, the 10th March, 2003 To All Chief Commissioners of Income Tax, (Cadre Contra) & All Directors General of Income Tax Inv. Subject : Confession of additional Income during the course of search & seizure and survey operation-regarding "Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose.....
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.... to be made in one go and in the names of some fictitious persons without having the minimum particulars of identity. The department has not even tried to ascertain the identity of these persons found in the seized material as no question was asked during the statement recorded under section 132(4) of the Act. Similarly, no attempt was made to identify the particulars of the land for which the alleged entries of advances are recorded in the seized document. Thus prima facie it appears that these papers are the seized material being a pocket diary contains some artificial entries in the names of artificial persons. The entries in itself do not reveal the realistic 37 ITA No. 293/JP/2018 Shri Mukund Sharan Goyal, Jaipur. transaction in the absence of the minimum particulars and details either of the persons or the land. An identical issue has been considered by the Coordinate Bench of this Tribunal in case of M/s. Rambhajo's vs. ACIT (supra) as well as Shri Rajendra Kumar Gupta vs. DCIT (supra). Subsequently, the Tribunal in case of Shri Padam Chand Punliya vs. ACIT (supra) has also considered this issue in para 8 as under :- Para 8....... Accordingly, in view o....
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....aning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about "income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132", what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statue book and have therefore to be applied in the context of provisions wherein they have been brought on the s....
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.... The additional income declared in return of income of the assessee is based on the search statement in order to avoid prolonged litigation. It is submitted that the authorities of search have exerted undue pressure and obtained the surrender of income from the assessee. Attention was drawn towards Board's Circular dated 10 March, 2003 wherein the Board has the expressed its concern about the practice of confession of additional income during the course of search and seizure proceedings and, therefore, clarified that the confession during the course of search and survey operation do not serve any useful purpose. There should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. The Board has again issued a Circular dated 18th December, 2014 and advised the taxing authorities to avoid obtaining admission of undisclosed income under coercion/undue influence. Except the statement under section 132 (4), there is no undisclosed income in the case of the assessee. The assessee was forced to admit and surrender the income in the statement recor....
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....f Rs. 89,40,360/- which included said additional income of Rs. 25,00,000/- offered to tax in course of search. The assessment u/s 143 (3) r.w.s. 153B (1) (b) of I.T. Act, 1961 was completed on 21-03-2016 after disallowance of expenses on account of personal element/unverifiable expenses. The A.O. simultaneously initiated penalty proceedings u/s 271AAB of the Act. The A.O. thereafter took penalty proceedings initiated by him u/s 271AAB by issuing fresh show cause notice(s) to which assessee filed his explanation. The explanation filed by assessee has been held by A.O. as not sustainable at all and levied a penalty of Rs. 2,50,000/- on assessee. The assessee filed appeal before the ld. CIT (A) against said penalty order and in course of hearing filed written submissions which is reproduced in appeal order of ld. CIT (A). The Ld. CIT(A) in his order dated 29-07-2022 after considering reply filed by assessee confirmed the penalty levied by AO. The Ld. CIT (A) thus dismissed the appeal filed by assessee. It is noted from the records that the Department had carried out the search and seizure operation on the assessee group and thus did not find any evidence which could show that the asse....
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....tion 132. A cash advance per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about "income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132", what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction s....