TaxTMI 
TaxTMI 
2024 (3) TMI 1417
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....fore penalty is not leviable merely on the ground that certain additions have been made in the assessment proceedings. 3. The learned CIT(A) ought to have seen that section 271AAB of Act has three limbs as specified in Section i.e. 271AAB (1) (a), (b) & (c) and the notice issued to the does not specify in which limb the penalty sought to be levied and merely mentioning Section 271AAB in notice do not satisfy the requirement of law. 4. The learned CIT(A) ought to have seen the assessing officer while issuing notice for levy of penalty, the notice issued u/s 274 r.w.s 271AAB of the Act should specifically mention that penalty u/s 271AAB of the Act is being levied @10/20/ 30% since the appellants case falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. The AO in the impugned notice ought to have specifically mentioned as to why the appellant should not be visited by penalty @30% of the undisclosed income since the appellants case falls under clause-c of section 271AAB of the Act. In te absence of the same the said notice is vitiated and penalty is unsustainable in law. 5. The learned CIT(A) ought to have seen that in absence of the requisite contents ....
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....ffered by the appellant by estimating disallowance of portion of marketing expense over a period. 11. The learned CIT(A) ought to have seen that the sum of Rs. 32.46 Crores does not qualify as "income of specified previous year not recorded in the books of account before the date of search" so as to attract clause (i) of Explanation (c) to section 271AAB. 12. The learned CIT(A) ought to have seen that the discretion to impose penalty must be exercised judicially. The learned CIT(A) failed to see that addition made in the assessment order is on ad hoc basis, based on estimated disallowances of portion of marketing expense and based on surrender of income not backed by any incriminating material and would therefore not attract penalty under section 271AAB. 13. The learned CIT(A) failed to see that in the instant case addition is made by the assessing officer merely based on income surrendered by the appellant and not based on any incriminating material warranting levy of penalty. Neither the appellant nor the investigation team had any evidence as to the quantum of inflated expenditure year wise. 14. The learned CIT(A) ought to have seen that the s....
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....the head marketing expenditure being 'gift articles' purchased and admitted that on an average 1/3rd of actual expenditure accounted in the books of accounts, has been received back in cash from the suppliers. The relevant question and answer in the statement recorded u/s. 132(4) of the Act, from Shri S.D.Rami Reddy, was reproduced as under: "Q. 17. While answering to Q.6, in your sworn statement recorded under section 132(4) dated 9.12.2018, while asking the modus operandi of generating unaccounted cash, you have stated that you will raise bogus bills for which you pay them through banking channels and receive cash from them. Please go through your statement and clarify about generation of unaccounted cash. Ans. Sir, we have not raised any bogus bills from our suppliers of gift articles to generate unaccounted cash. However, we received back one third of the invoice value on an average in the form of cash from our gift article suppliers. Since this amounts to inflation of the expenditure in our books of account, we undertake to withdraw of claim towards expenditure in the respective years. Q:18. Please furnish the quantity of cash generated invoice-wise ....
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.... dated 26.07.2021 and called upon the assessee to show cause 'as to why' an order imposing penalty should not be made. In response, the assessee vide letter dated 07.08.2021 submitted that there is no undisclosed income as defined in Explanation-C to Sec. 271AAB (1)(a) of the Act, and thus, question of levying penalty u/s. 271AAB of the Act, does not arise. The AO after considering relevant submissions of the assessee and also taken note of relevant provisions of Sec. 271AAB of the Act, observed that it is evident from the search proceedings and sworn statement recorded from the assessee, there is undisclosed income of the specified previous year in the form of additional income offered towards estimated disallowance of marketing expenses and said additional income was gone unnoticed had search been not conducted in the case of the assessee. The arguments of the assessee that it has voluntarily surrendered additional income to buy peace and avoid litigation are devoid of merits. Therefore, opined that the additional income offered by the assessee represents any income of the specified previous year by any entry in respect of expenses recorded in the books of accounts of the assesse....
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.... assessee in the respective assessment years as tabulated below. AY U/s 139(1) Additional Income as compared to original return U/s 153A Sum Offered During Search (in crores) 2015-16 7,92,44,724 16,39,00,000 24,31,44,724 16.39 2016-17 14,52,34,049 23,62,00,000 38,14,34,049 23.62 2017-18 (-)13,23,64,515 15,79,00,000 2,55,35,485 15.79 2018-19 8,82,46,473 25,73,00,000 34,55,46,473 25.73 2019-20 (Original )103,10,81,312 (Revised) 125,92,51,312 32,46,00,000 103,10,81,312 32.46 It is evident from the above discussion that, the huge amount appropriated for making certain expenditures were unearthed only because of the Search Action conducted on 06.12.2018. Hence, there is no merit in the claim of assessee that it has disclosed the expenses voluntarily. Unless, the evasion had been detected, assessee would have continued practicing this evasive methodology forever and caused huge loss to revenue. d) Assessee has stated in its reply that, "there is no undisclosed income as defined in the Explanation c) to section 271AAC(1A) of the Act." Assessee merely tries to complica....
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....Further, the statute does not recognize such defenses under section 271AAB, which has been reiterated in the order of Hon'ble Supreme Court in the case of Mak Data Pvt Ltd Vs. Commissioner of Income Tax - II. The relevant part is reproduced below. "...The assessee has only stated that he had surrendered the additional sum of Rs. 40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to amicable settlement with the Income Tax Department. The statute does not recognize those types of defences under Explanation 1 to section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the appellant assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty... The AO has to satisfy itself whether the penalty proceedings be initiated or not during the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing... The principle laid down by this court has correctly been follow....
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....d accordingly, there is no error in the reasons given by the AO to levy penalty u/s. 271AAB of the Act. The Ld.CIT(A) had also rejected arguments of the assessee on show cause notice issued u/s. 274 r.w.s.271AAB of the Act, and held that non-specification of sub-section in the penalty notice issued u/s. 274 r.w.s.271AAB of the Act, issued by the AO do not vitiates the penalty proceedings. The relevant findings of the Ld.CIT(A) are as under: 7. Decision: 7.1 I have gone through the assessment order u/s 153A r.w.s. 143(3), order u/s 271AAB, Grounds of appeal and written submissions of the appellant, judicial precedents relied on by it. 7.2 Ground of appeal No 1,2 & 8 These are general Grounds which do not require separate Adjudication.: 7.3 Ground of appeal No 3, 6 & 7: 7.3.1 Vide Ground appellant challenged quantification of Undisclosed income at Rs. 32,46,00,000/- holding that the amount merely represents estimated income which is allocated by appellant company for the year. It is also contended that the AO failed to mention undisclosed income in the assessment order. 7.3.2 Arguments of appellant can be summarized as fo....
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....d. The fact that cash was not recorded in books is accepted. He explained that 'unaccounted cash' found during search was generated by the company by making wrong entries in the form of inflation of expenditure over the years. Thus, cash found during search and modus operandi adopted by company to generate that cash both attract definition 'undisclosed income' as per Explanation(c) of section 271AAB. It is the contention of the appellant that 'undisclosed income of the specified year' alone is to be considered for levy of penalty under the section. Since the appellant company has disclosed 'undisclosed income' for the year on 'estimate basis', it can't be said that it pertains to the year under consideration. 7.3.6 So the question that needs examination is whether income disclosed by the appellant is on estimate basis or not. I have carefully examined the claim of appellant that the amount disclosed was estimated income in the light of sworn statement of Managing Director of company Sri D. Rami Reddy recorded on 04-02-2019. "Q. No. 17 While answering to Q. No. 6, in your sworn statement recorded u/s 132(4) of the Income ....
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....ed each year. Further Shri D. Rami Reddy in his sworn statement cited above while replying to question No: 17 stated that the appellant receives 1/3rd of invoice value as cash back from suppliers. Therefore 1/3rd of invoice value of gift articles recorded as marketing expenses for the year would give unaccounted cash generated by the appellant. It appears that the Managing Director having personal knowledge of affairs of company has identified quantum of inflated expenditure each year and admittedly consequent generation of unaccounted cash, admitted accordingly. It is noticed that the appellant nowhere disputed modus operandi unearthed during search nor it disputed generation of unaccounted cash by inflation of expenditure. Huge unaccounted cash was found during search to the tune of Rs. 55.28 Crores from various persons. All those persons stated that it was received from Managing Director of appellant company for safe keeping. Unaccounted cash Rs. 55.28 Crores found during search is admittedly not recorded in books. The appellant explained source of unaccounted cash as inflation of marketing expenditure in books and cash received back from suppliers which is not....
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....d that entries regarding purchase and sale shares were already correctly recorded in books of accounts by the date of search. Hence court held that LTCG not disclosed may amount to undisclosed income but it will not fall u/s 271AAB since such income is not generated because of either non recording of entry in books or because of wrong entries made in books. Not applicable to facts of the case at hand. Since in the present case, the appellant admittedly inflated expenditure for the year, made wrong entries in books of account which clearly attracts section 271AAB. Shiv Bhagwan Gupta vs. ACIT, Central Circle-1, Patna, [2021] 125 taxmann.com 306 (Patna Trib.): In this case assessee has not made disclosure of certain income u/s 132(4) but disclosed it in the return of Income filed for the year for which penalty u/s 271AAB is levied. Hon'ble court held that income disclosed in return of income is not unearthed during search, hence penalty u/s 271AAB is not attracted. This decision is not applicable. In the present case, the appellant has admitted u/s 132(4)' Undisclosed income' for the current year basing on modus operandi unearthed consequent to seizure of cash. ....
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....ked assessee to substantiate 'undisclosed income, deleted penalty u/s 271AAA holding that the assessee had no occasion to explain when AO has not asked for it. No where related to facts of case. 7.3.16 It can be summarized that in this case during search 'unaccounted cash' was found which was not recorded in books. The appellant admitted that cash was generated by making false entries in books i.e. by inflating expenditure. Sworn statement u/s. 132(4) of Managing Director of company shows that undisclosed income admitted for the year is not on estimated basis but clearly linked to evidence found during search in the form of cash. The appellant company disclosed 'undisclosed income' in the return of income filed for the year and paid tax. Therefore, all the conditions u/s. 271AAB(a) are satisfied. The AO has rightly levied penalty u/s 271AAB (a). Consequently, Grounds of Appeal Nos 3, 6 & 7 are dismissed. 7.4 Ground of appeal No 4: It is the contention of appellant that the AO failed in rebutting all objections raised by appellant vide letter dated 29-07-2021. I have gone through penalty order. The AO has answered main contention of app....
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....hajo's Vs ACIT, ITA 991/JP/2017 has adjudicated same issue and held as under: "On close reading of provisions of Section 271AAB, we find that the primary condition or charge for levy of penalty is the existence of undisclosed income for the specified previous year found during the course of search in the case of assessee. Once the said primary condition or charge is satisfied, for the purposes of quantifying the penalty, the Assessing officer has to examine the satisfaction of ancillary conditions as specified under clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB. Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the ancillary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer. Further, the levy of penalty under Section 271AAB is not based on addition made and investigation/enquiry conducted during the course of assessment proceedings, rather it is based on search conducted on the assessee on or after the 1st day of July, 2012, in such a situation, ....
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....h penalty is initiated, the entire proceedings becomes vitiates and invalid. 9. The Ld.Counsel for the assessee further submitted that the additions made by the AO towards income voluntarily surrender by the assessee in the return of income filed u/s. 153A of the Act, does not come under the definition of undisclosed income as defined in Explanation-C to Sec. 271AAB of the Act. Further, there is no reference in the assessment order with regard to undisclosed income, which is evident from the assessment order passed by the AO, where the AO clearly observed that after considering relevant circumstances in its entirety, income offered by the assessee, including the estimated disallowance of marketing expenses is found to be in order and accepted. From the findings of the AO, it is very clear that the AO has not made out a case of undisclosed income of specified previous year, which warrants levy of penalty u/s. 271AAB of the Act, and thus, the order passed by the CIT(A) confirming penalty levied by the AO, should be quashed. 10. The Ld.DR, Shri R. Clement Ramesh Kumar, CIT, submitted that the arguments of the assessee on the issue of show cause notice has been negated by the Ld.....
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....f the Act, and called explanation from the assessee. Thus, it is evident that penalty u/s. 271AAB of the Act, cannot be imposed, unless the assessee has been given a reasonable opportunity and assessee is being heard. Once, the AO is bound by the Act to hear the assessee and give reasonable opportunity to explain his case, in our considered view, show cause notice issued by the AO u/s. 274 r.w.s.271AAB of the Act, should specify the exact charge on which the assessee is directed to pay penalty u/s. 271AAB of the Act. Sec. 271AAB of the Act, has two clauses. Sub-section (a) to Sec. 271AAB(1) of the Act, specifies 30% penalty of the undisclosed income of the specified previous year, if assessee in the course of search in statement u/s. 132(4) of the Act, admits undisclosed income and specify the manner in which such income has been derived and also substantiated the manner in which undisclosed income was derived and pays tax on or before due date of furnishing return of income. Sub-clause (b) specifies penalty at 60% of the undisclosed income of the specified previous year, if it is not covered under the provisions of Clause-(a). From the above, it is manifestly clear that there are ....
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.... initiated upon completion of assessment and there may be cases where the assessee would not even contest the order of assessment. But, that would not preclude the assessee from challenging the penalty proceedings, as penalty proceedings are independent and the procedure required to be followed cannot be dispensed with. 15. As rightly pointed out by the learned counsel appearing for the assessee, Section 271AAB of the Act, which deals with penalty consists of three contingencies. Therefore, the Assessing Officer should point out to the assessee as to under which of the three clauses, he chooses to proceed against the assessee so as to enable the assessee to give an effective reply. Since the same has not been mentioned, the assessee has been denied reasonable opportunity to put forth their submissions. The Tribunal, in paragraph 5 of the impugned order, has verbatim reproduced the penalty notice and we find that the notice is absolutely vague and none of the irrelevant portions had been struck off nor the relevant portions had been marked or indicated. Hence, the Tribunal is right in observing that the penalty could not have been levied based on such defective notice and m....
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...., 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 not been disclosed to the 5a[Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner before the date of search; or (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 search not been conducted. 14. In the present case, Clause (i) of Explanation-c of Section u/s. 271AAB of the Act, is not applicable. In fact, the AO and the Ld.CIT(A) invoked Clause-(ii) of Explanation-C to Section u/s. 271AAB of the Act. As per Clause-(ii), undisclosed income of a spe....
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....ee in the return of income filed u/s. 153A of the Act, and such income has been quantified in the statement recorded u/s. 133(4) of the Act. Although, the AO took support from confirmation from one of the suppliers, where he has stated that at times cash has been returned to the assessee, but there is no specific admission in the confirmation letter of suppliers regarding supplies made to the assessee and refund of 1/3rd of cash for the impugned assessment year. We have gone through the reply received from supplier which has been extracted in the penalty order and we find that said reply is general in nature without any specific reference for the impugned assessment year and also amount of cash returned to the assessee. Therefore, in our considered view, on the basis of admission of the assessee without there being any reference to incriminating material surrender of additional income in the return of income filed u/s. 153A of the Act, cannot be considered as undisclosed income as defined in Explanation-(c) to Sec. 271AAB(1)(a) of the Act and such undisclosed income is for specified previous year. Thus, we are of the considered view that Clause-(ii) of Explanation-(c) to Sec. 271AA....
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.... (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 not been disclosed to the Chief Commissioner or Commissioner before the date of search; or (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 search not been conducted.'. 8. As far as the issue involved in this case is concerned, it falls under clause (i) above which envisages that the income in the form of jewellery or cash which has not been recorded in the books of accounts or other documents maintained in the nor....
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....f 2017,dated 10-1-2019] in paras 12 to 14 as under :- "12. Now, coming to another contention of the ld AR where he has challenged the findings of the ld. CIT(A) that penalty u/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word 'may' is used instead of 'shall' so it is not mandatory but same is discretionary. It was submitted that it is settled position of law that penalties are not compulsory, not mandatory but are also discretionary considering the overall facts and circumstances of the case. In support, reliance was placed on provisions of section 158BFA(2) wherein similar phraseology has been used by the legislature and decision of Hon'ble A.P High Court in case of Radha Krishna Vihar (ITA No. 740/2011)." 11. From a plain reading the provisions of Section 271AAB, it can be seen that, it begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per subsection (3) of Section 271AAB, the provision....
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....osed income and specifies the manner in which such income has been derived. (ii) Substantiates the manner in which the undisclosed income was derived; and (iii) On or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under subsection (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (C) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). No penalty....
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....eard 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. Hon'ble A.P. High Court in the case of Radha krishna Vihar in ITA No. 740/2011 while dealing with the penalty u/s 158BFA held that 'we are of the opinion that while the words shall be liable under sub-section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in subsection 2 thereof intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that d....