TaxTMI 
TaxTMI 
2025 (2) TMI 438
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.... as under: - 1. The order of the CIT (Appeals) - 20, Chennai dated 18.03.2024 vide DIN & Order No. ITBA/APL/S/250/2023-24/1062864147(1) for the above-mentioned Assessment Year is contrary to law, fact and in circumstances of the case. 2. The CIT (Appeals) - 20, Chennai erred in confirming the levy of penalty to the tune of Rs. 3,42,00,000/- in terms of Section 271AAB of the Act relating to the additional income offered/accepted by the Appellant during the course of search/ search assessment proceedings forming part of the computation of the taxable total income in the search assessment order dated 17.07.2021 and further ought to have appreciated that the levy of penalty under Section 271AAB of the Act on various facets was wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 3. The CIT (Appeals)-20, Chennai failed to appreciate that penalty order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 4. The CIT (Appeals) -20, Chennai failed to appreciate that the penalty provisions under consideration should not be construed as autom....
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....eals) - 20, Chennai failed to appreciate that that the findings in para no. 7 of the impugned order were wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 12. The CIT (Appeals) - 20, Chennai failed to appreciate that the assessment order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 13. The CIT (Appeals) - 20, Chennai failed to appreciate that having not examined the concept of Market Adjustment independently in the present proceedings and further ought to have appreciated that the explanation of the said concept being accepted in the connected proceedings before IBS-2 at New Delhi recently, consequential assessment of the market adjustment as income of the appellant would defy the principles of fairness in taxation. 14. The CIT (Appeals) - 20, Chennai failed to appreciate that the lack of precise charge in the SCN issued in the present penalty proceedings would vitiate the consequential penalty order passed by the original authority, 1.3 The Ld. AR advanced arguments on legal grounds as well as on merits. Reliance has been pla....
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....heir winnings. In such situation Stockist 'A' will face severe cash shortage. Temporary market adjustment is done by collecting money from Stockist 'B' and paying to Stockist 'A'. This is done through the area distributor Future Trade Solution LLP for the sake of transparency and guarantee. No Particulars Stockist A Stockist B 1 Sale of Lottery Tickets 5,00,000 10,00,000 2 Prize Winnings as per Sales 2,00,000 6,00,000 3 Actual Prize Winnings disbursed on claim from Public 7,00,000 1,00,000 4 Disbursed Prize Claim -5,00,000 5,00,000 Situation 1: (Where the Prize is claimed from outlet where it was sold) S.No Particulars Stockist A Stockist B 1 Payments due to Distributor 5,00,000 10,00,000 2 Less: Prize Winnings as per Sales 7,00,000 6,00,000 3 Balance Payable to Distributor 3,00,000 4,00,000 Situation II: (Where Prize is claimed from other outlets) S.No Particulars Stockist A Stockist B 1 Payments due to Distributor 5,00,000 10,00,000 2 Less: Prize Winnings as per Sales 7,00,000 1,00,000 ....
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....ransactions pertain to payment for lottery business. The working in the sheet clearly show that the receivable was worked out based on lottery draws and prizewinning against which the money was received in cash and in RTGS. Accordingly, the amount of Rs. 570 Lacs was treated as unaccounted income of the assessee. Consequently, penalty u/s 271AAB (1A) was initiated in the assessment order and the assessee was show-caused vide notice dated 23-08-2021. 2.6 During penalty proceedings, the assessee stated that the addition was accepted only to avoid protracted litigation and the addition do not fall within the definition of "Undisclosed Income". The penalty u/s 271AAB was discretionary and would depend on the merits of each case. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB of the Act. Every offer of the assessee to pay tax on his income in the course of recording of statement u/s 132 does not amount to finding of 'undisclosed income'. A mere offer or disclosure by an assessee to pay tax on some additional a....
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....t there was no undisclosed income found during the course of search and no incriminating material was found therein except some loose sheets which is recorded in the books of accounts. The assessee relied on various decisions of Tribunal as follows: - i) Kolkata Tribunal in ACIT v Kanwar Sain Gupta (ITA No.538/Kol/2017; 29.06.2018) ii) Vizag Tribunal in ACIT v. M/s. Marvel Associates, (2018) 166 DTR 409 iii) Delhi Tribunal in Ajay Sharma v. DCIT [2013] iv) Ranchi Tribunal in Rinku Agarwal in ITA No.262/Ran/2017 dated 30.11.2018. v) Chandigarh Tribunal in SEL Textiles Ltd v. DCIT (ITA No.695/Chd/2018; 18-4-2019). vi) Jaipur Tribunal in Om Prakash Modi v. DCIT (ITA No.196/JP/2018 dt.18-3-2021). vii) Jaipur Tribunal in Anil Ghatiwala v. DCIT (ITA No.845/JP/2018 dt.11-1-2021) viii) Ahmedabad Tribunal in Lajwantiben M.Manglani vs. DCIT (IT(SS)A. No. 260/Ahd/2017 dt.18-2-2020) 2.8 However, Ld. AO held that had the search not taken place, the assessee would not have admitted the said amount. There was undisclosed income which was found only after verification of the seized material as found during the course of sea....
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....Thus, it is quite evident that this practice of 'market adjustment' is quite prevalent in assessee's line of business. 4. Proceeding further, during search proceedings, it was deposed by Shri Vijay Anthony Samy that cash was received from Shri Mahendra Bhai of B.S. Enterprises. It was also deposed that, for the cash received, credit note of corresponding amount was issued to Shri Mahendra Bhai. The fact of issuance of subsequent credit note bolsters the aforesaid claim of the assessee that this transaction was not in the nature of income but in the nature of 'market adjustments' only. During assessment proceedings also, the assessee also furnished a letter dated 30-06-2021 from Shri Vijay Antony Samy clarifying the nature of transaction. It was submitted that the stockists who disbursed excess prize-winning money compared to their sale will face cash liquidity problem. On the other hand, the stockists who have disbursed less price-winning money compared to their sale will have excess cash. In such a situation, the distributor would act as an intermediary between the stockists who have excess cash and give it to stockists who are short in cash. Therefore, such payments are neithe....
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.... thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search. In such a case, the levy of penalty could not be upheld. 6. Our view duly find support from the decision of Chennai Tribunal in the case of ACIT vs. Shri Ghisulal Kothari (ITA No.2534/Chny/2018 dated 13-07-2022). On identical facts, considering various other decisions of Tribunal, the bench held as under: - 10. At this juncture, it would be useful to take note of statutory provisions of Sec.271AAB. As per the provisions, the assesseing officer may direct the assessee to pay, by way of penalty, a sum computed at specified rates of 10%, 20% or 30% of undisclosed income. The undisclosed income has been defined in explanation (c) as under: - (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 the other documents or transactions found in the course of a search under section 132, which has--- (A) not been record....
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....AB which provide that the provisions of Section 274 and 275 would apply in relation to the penalty referred to in this Section. As per the provisions of Sec.274, no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The logic is simple. The principle of natural justice would demand that the aggrieved party is given an opportunity of hearing to defend its case. It is only after the defense of the accused has been considered, the authorities could proceed with penal consequences. Had the imposition of penalty been automatic, such an opportunity would have no relevance and no opportunity would be required to be given to the assessee. It is only after the assessee has been heard and Ld. AO finds it a fit case for imposition of penalty, the penalty could be levied on the assessee. 12. Our aforesaid views find support from the decision of co-ordinate bench of Nagpur Tribunal in Chandra Suresh Kothari V/s DCIT (135 Taxmann.com 275; 20.12.2021) which held as under: - 16. On a perusal of the provisions of section 271AAB, it is evident that the section 271AAB is self-contained. There can be no d....
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....considering catena of decisions on the issue, held as under: - 8. So far as issue of levy of penalty u/s 271AAB of the Act whether is mandatory or not is concerned, the issue has been dealt with by the Co-ordinate Chandigarh Bench of the Tribunal in the case of SEL Textiles Ltd. v. Dy. CIT [IT Appeal No. 695 (Chd.) of 2018, dated 18-4-2019]. The Tribunal in the above case has relied upon the decisions of the Coordinate Benches of the Tribunal in the cases of Asstt. CIT v. Marvel Associates [2018] 92 taxmann.com 109/170 ITD 353 (Visakhapatnam); Dy. CIT v. Rashmi Metaliks Ltd. [IT Appeal No. 1608 (Kol.) of 2017, dated 1-2-2019]; Dy. CIT v. Rashmi Cement Ltd. [IT Appeal No. 1606 (Kol.) of 2017, dated 28-2-2019]. The co-ordinate Chandigarh bench of the Tribunal (supra) after analyzing the aforesaid decisions, wherein, reliance has also been placed on the decisions of the Hon'ble High Courts has held that levy of penalty u/s 271AAB of the Act is not mandatory. It has also been noted that the Legislature has consciously used the word 'may' in contradistinction to the word 'shall' in the opening words of section 271AAB of the Act. That the choice of the expres....
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....t warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged 'undisclosed income' may be relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each every case of levy of penalty pursuant to search action. There is no bar to the assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act even in cases involving search actions if in the facts and circumstances of the case, it is so warranted. The only bar is that no penalty under the provisions of section 270A or section 271(1)(c) of the Act shall be imposed in respect of the undisclosed income, as defined u/s 271AAB of the Act, unearthed duri....
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....ny such income to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; the alleged income is not any income 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. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed. 14. The coordinate bench of Chennai Tribunal in ACIT V/s Shri S.Martin (ITA No.2382/Chny/2016 & ors; 05.10.2018) similarly held as under: - 20. This is the only definition available for "undisclosed income" in the Income-tax Act, 1961. Therefore, on the basis of material found during the course of search operation, if the Assessing Officer comes to a conclusion that the material....