TaxTMI 
TaxTMI 
2022 (7) TMI 1576
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....uarely covered by clause (c) of section 271AAB(1) of the I.T. Act,1961, as the assessee has failed pay taxes on the undisclosed income. Accordingly, the AO had correctly levied penalty @30% on the undisclosed income of Rs.10,00,00,000/- admitted during the course of search action u/s 132 of the I.T. Act, 1961 and also in its return of income. 2.3 The Id. CIT(A) ought to have appreciated the fact that the assessee filed its return of income for the year under consideration without paying self assessment tax as computed by him on the income declared. In spite of issuing notice u/s 139(9), the assessee failed to rectify his mistake. In this background, the return was treated as invalid and as such the return was treated as if it was not filed. Accordingly, the assessment was completed u/s 144 r.w.s 153B(1)(b) of the I.T. Act, 1961. This clearly proves that the assessee is squarely covered under clause (c) of Explanation to Section 271AAB of the Act. 2.4 The Id. CIT(A) ought to have appreciated the fact that the undisclosed income was not recorded on or before the date of Search in the books of accounts and hence the AO has correctly levied penalty @ 30% on the undisc....
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....ich the assessee is arraigned and in the absence of the same the notice is invalid in law. 3. The Ld. CIT-DR, drawing our attention to the factual matrix as well as the provisions of Sec.271AAB made elaborate submissions and justified the quantum of penalty as levied by Ld. AO. The Ld. CIT-DR also assailed the arguments that no specific charge was framed against the assessee. It was the submissions that levy of penalty was mandatory and the quantum was justified. For the same, reference has been made to the statutory provisions and reliance has been placed on various judicial pronouncements. The Ld. CIT-DR also sought distinction of facts in case laws as cited by Ld. AR. The Ld. AR, on the other hand, submitted that the penalty was unsustainable in law since there was no undisclosed income. The Ld. AR made arguments to assail penalty on legal grounds for which reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. AR submitted that penalty notice was defective and therefore, penalty is unsustainable in law. Having heard rival submissions and after going through the orders of lower authorities as well as judicial....
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....dmit the income of Rs.40 Crores. Such admission made by the assessee and his three brothers was as under: - (Rs. in Lacs) Description Sh. Ghisulal Kothari Sh. Shantilal Kothari Sh. Sardarmal Kothari Sh. Kewal Chand Kothari Total Investment in Gold, Diamond & Silver Jewellery 18.75 18.75 18.75 18.75 75.00 Cash 100.00 0.00 0.00 0.00 100.00 Investment in Development of Land at various places owned by the four Brothers 131.25 231.25 231.25 231.25 825.00 Advance paid through Brokers for purchase of lands to various agriculturist 750.00 750.00 750.00 750.00 3000.00 Total 1000.00 1000.00 1000.00 1000.00 4000.00 Accordingly, the income of Rs.10 Crores was admitted by each of the four brothers in their respective return of income. 4.3 Consequently, the assessment was framed by Ld. AO and penalty proceedings were initiated in the body of assessment order as under: - Assessed. Demand Notice is issued. Penalty proceedings u/s 271AAB and 271(1)(c) is initiated separately. Penalty u/s 271F is also initiated. It could be seen that Ld. AO initiated penalty under various ....
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....d. AO to drop the proceedings u/s 271AAB of the Act. 5.3 However, negating the assessee's submissions, Ld. AO alleged that the assessee failed to substantiate the manner in which the undisclosed income was derived and also failed to pay the tax together with the interest on or before the specified date. Accordingly, penalty as specified in clause (c) of Sec. 271AAB(1) would apply to the fact of the case. Applying the said rate, the assessee was held liable to pay penalty of 30% of the undisclosed income. In other words, the penalty of Rs.3 Crores was levied on alleged undisclosed income of Rs.10 Crores as reflected by the assessee in the return of income. Appellate proceedings 6.1 During appellate proceedings, the assessee, inter-alia, contended that in statement recorded u/s 132(4), the assessee was not confronted with any incriminating material found during the course of search. The assessee was not questioned about generation of undisclosed income by the investigating team. The mandate of Sec.271AAB was to levy penalty on the 'undisclosed income'. The term 'undisclosed income' should emanate from the search records / search material whereas in the instance case, the pen....
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....osed by the assessee in the wealth tax return was only Rs.84.09 Lacs and cash found was only Rs.7.54 Lacs. After perusal of statutory provisions, Ld. CIT(A) came to a conclusion that entire disclosure may not fall under the definition of 'undisclosed income' if it could not be relatable to some asset / documents / entry found during the course of search operations. The mandate of Sec.271AAB is to levy penalty on the 'undisclosed income'. The determination of 'undisclosed income' should emanate from the search records / search material. The undisclosed income, as defined in Sec.271AAB, would mean (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 not been recorded on or before the date of search in the books of account or other documents maintained in the normal courses relating to such previous year, or otherwise not been disclosed to the appropriate authority before the date of search; or (ii) any income of the specified previous year represented,....
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.... could not be explained by the appellant. 9.10. The appellant submitted that the above facts are very much available on the statements recorded from the appellant and also reflected in the Panchanama. In the Panchanama also, there was no mention of any material seized. In clause 5 of Panchanama where the details of materials found and seized is mentioned, all the sub-clauses from (i) were struck off. In clause 6 of Panchanama where the details of materials found and not seized, all the sub-clauses from (i) to (ii) h'ave been struck off. Therefore, it is clear from the Panchanama that no materials were found and seized at the time of search. A copy of the Panchanama was also submitted before me for perusal. 9.11. Further, it was submitted that, even though no incriminating materials were found or seized by the department during the course of search operations u/s.132 c Act, with regard to Undisclosed Investments in the property, the appellant's group came forward to admit a total additional income of Rs.40 crores originally for the entire group considering the possibility of some commissions or omissions committed by the appellant and other members of the g....
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....er before the date of search; or......." 9.14. Further, it was submitted that, even though no documents were found with regard to investments in immovable properties the appellant had come forward to admit the additional income under the head "Other Sources" considering the omissions and commissions made as explained earlier before the Investigation Officer and adopting net accretion to asset method. However, the A.O. proceeded to conclude that the appellant had not disclosed the manner in which the unaccounted income was earned by the appellant and that the tax due were not paid and concluded the appellant's case is not covered by the provisions of Section 271AAB(1)(a) or (b) of the Act and levied penalty invoking the provisions under section 271AAB(1)(c) of the Act and a penalty at 30% was levied on the entire additional income admitted by the appellant. 9.15. Further, during the course of appellate proceedings, the AR explained regarding the inventory of jewellery made in the course of search and submitted before me the details of Valuation Report made by the Registered valuer by the department. The AR also explained with regard to inventory of cash found a....
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....case under consideration are not having good evidentiary value. 9.22. The mandate of the provisions of section 271AAB of the Act is to levy penalty on the undisclosed income computed and the term 'undisclosed income' is also defined in the said section inasmuch as the determination of the undisclosed income in the assessment should emanate from the search records/search materials. On the facts of the case, the penalty was levied based on the admission of the appellant without any support from the search records/seized materials. 9.23. The definition of undisclosed income is defined in the said section itself under which Clause (c) of Explanation to Section 271 AAB of the Income Tax Act, 1961 which is reproduced below: (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 recorded on or before the date of search in the books of account or other documents maintai....
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.... allowed. Aggrieved, as aforesaid the revenue is in further appeal before us. Our findings and Adjudication 7. We find that the basic facts leading to imposition of penalty are not in dispute. The assessee group was subjected to search action u/s 132 on 18.12.2012. During the course of search, excess cash and jewellery was found. The excess jewellery was valued at Rs.75 Lacs whereas excess cash was found for Rs.110.83 Lacs. The admission of excess cash of Rs.100 Lacs has been made by the present assessee whereas the admission of Rs.75 Lacs has been made by all the four brothers in equal proportion. However, it also discernible that except for excess cash or jewellery, no other incriminating material or documents have been found by the searched team which is evident from the copies of Panchnama as placed on record. This fact has also been noted by Ld. CIT(A) in the impugned order and the same form the very basis of adjudication of Ld. CIT(A). 8. Upon perusal of documents on record, we find that during the course of search proceedings, a statement was recorded from the assessee u/s 132(4) which is placed on page nos.20 to 35 of the paperbook. The copy of the Panchnama in ass....
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.... 3541.900 3.26 59 Total weight jewellery of all family members a) As per wealth tax return 33136.15 354.750 443 b) As per physical inventorization 33322.400 496.790 466 Difference/ Discrepancy 186 grams 142 carats 23 kilos From the above it can be seen that there is discrepancy of about 186 grams in gold, 142 carats of diamond and 23 kgs. in silver. Please explain why there is apparent discrepancy on these jewellery items. Ans. Sir, during the course of our family functions etc. we used to get gifts mostly in gold and silver. The figures shown as per the return are as on 31.03.2012. Now almost 10 months have passed and during the period small purchases in respect of gold and silver might have been made by my family In respect of diamond, I want to say that my brother's son members. Shri Mukesh was married recently and daughter-in-law brought some gold and diamonds as stridhan. The exact quantity as per wealth tax return could be furnished very shortly. I am told that the mother of daughter-in-law gave the gold and diamond out of her declared wealth. I will fu....
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.... has to be necessarily represented by any money, bullion, jewellery or other valuable article or thing or any book entry or transactions found in the course of a search u/s 132 which has remained unrecorded or otherwise not disclosed to the specified revenue authorities. If the 'undisclosed income' is not represented as aforesaid, the same could not be considered as 'undisclosed income' within the meaning of this Section. Applying the same to the facts of the present case, it could be concluded that voluntary admission which is so unrepresented could not be held to be 'undisclosed income' for the purpose of imposition of penalty u/s 271AAB. 11. We are also of the considered opinion that imposition of penalty is not automatic but it would apply on peculiar facts and circumstances of each case. Merely because the voluntary admission has been made by the assessee which is not represented by any incriminating material found during the course of search action, the same would not justify the imposition of penalty. The same is also evident from Clause (3) of Sec.271AAB which provide that the provisions of Section 274 and 275 would apply in relation to the penalty referred to in this Se....
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....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 and every case of levy of penalty pursuant to search action. 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 and we direct to delete the penalty levied u/s. 271AAB of Rs. 10,87,500/-. 13. Similar is the decision of Patna Tribunal in Shiv Bhagwan Gupta V/s ACIT (125 Taxmann.com 306; 11.02.2021) which, after 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 w....
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.... 9. On a perusal of the provisions of section 271AAB, it is evident that the Section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the penal provision can be attracted are self-explanatory. It can be noticed that the Co-ordinate Benches of the Tribunal have categorically held that the expression 'undisclosed income' is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of "undisclosed income" as defined u/s 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defin....
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....rthing of any undisclosed income as defined u/s 271AAB of the Act during search action carried out at the premises of the assessee. In my view, the income declared by the assessee in the return of income or found or assessed by the Assessing officer in the assessment proceedings may be relevant for assessment of the income under section 68/69 and other related provisions of the Act and also for the levy of penalty under section 271(1)(c) of the Act in view of the relevant provisions of section 68/69 and 271(1)(c) of the Act. However, for the levy of penalty u/s.271AAB, the case must fall within the four corners of the definition of expression "undisclosed income" as defined u/s 271AAB itself. The assessee in this case is an individual and has earned income from partnership firm and interest income. The assessee has neither earned any business income nor earned any income exceeding Rs. 50 lakhs so as to require mandatory filing of personal assets and liabilities or to maintain books of account; even the assessee is not required to otherwise disclose any such income to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of ....
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....ve. Therefore, we confirm the impugned order, however, with enhancement. It could be observed that excess cash was found for Rs.68.55 Lacs from the premises of M/s Kamachi Steel Ltd. which was owned up by the assessee and disclosure was made. Therefore, besides own cash, the assessee would be liable for penalty on this excess cash of Rs.68.55 Lacs also. We order so. 16. Regarding the rate of penalty also, we concur with the adjudication of Ld. CIT(A) since it is undisputed fact that part payment of taxes was already made by the assessee along with return of income. The substantial refunds were due to the associated entities which aggregated to more than Rs.341.49 Lacs for AYs 2009-10 and 2013-14 to 2015-16 (page no.59 of the paper book). More refunds of Rs.508.24 Lacs were due for AYs 2016-17 & 2017-18 (page no.60 of the paper book). The assessee had filed 'No objection letters' and requested for adjustment of the same which was rejected. Subsequently, when the refunds were issued, the tax liability was settled by the assessee. Further, a part of the tax liability was also settled by the assessee group by way of seizure of cash of Rs.88.10 Lacs by the department. Nevertheless, t....
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....which the income has been earned and also has not filed a valid return of income by paying the tax on the admitted income - 271AAB. You are hereby requested to appear before me at 11:30 AM on 26/05/2015 and show cause why an order imposing a penalty on you should not be made u/s. 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271. Upon perusal of the same, it could be seen that besides penalty u/s 271F, Ld. AO has proposed penalty u/s 271(1)(c) as well as u/s 271AAB in the assessment order. For the same, the assessee has been put to notice and the specific amount has been mentioned against Sec.271AAB for which the penalty was proposed by Ld. AO. Upon perusal of these documents, we find that there was no room of any confusion or doubt. The penalty was initiated under specific provisions which were confronted to the assessee with specific mention of the amount which was subject matter of penalty proceedings. In fact, the assessee defended the p....