TaxTMI 
TaxTMI 
2025 (7) TMI 1751
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....he Act') was carried out in the case of Malpani group of cases on 17.02.2021 during which the business premises of the assessee was also covered. During the course of search and seizure action the assessee firm admitted that it has made unaccounted sale of Gai Chap tobacco and other products. In response to the notice u/s 153A of the Act the assessee filed the return of income on 08.03.2022 declaring total income of Rs. 81,73,67,960/- on account of unaccounted sale of Gai Chap tobacco and other products admitted at the time of search. The additional income offered to tax for assessment year 2021-22 was worked out as under: a. Total unaccounted sales - Rs. 1,26,59,41,430/- b. Gross profit percentage - 64.38% c. Income offered to tax - Rs. 81,51,03,640/- 3. The Assessing Officer completed the assessment u/s 153A / 143(3) of the Act wherein no addition regarding the unaccounted sale was made and the only addition made by the Assessing Officer was the disallowance of deduction claimed u/s 80IA(4) of Rs. 18,01,430/-. 4. Subsequently the Assessing Officer initiated penalty proceedings u/s 271AAB of the Act. The assessee submitted that the declaration made....
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.... action and the assessment proceedings the assessee has disclosed income of Rs. 81,51,03,640/- which was assessed while passing the order u/s 143(3) of the Act. The penalty proceedings were initiated u/s 271AAB(1A) of the Act on the amount of Rs. 81,51,03,640/-. Considering the submissions and the finality of the assessment order, he levied penalty @ 20% on the amount of Rs. 81,51,03,640/- and imposed penalty of Rs. 24,45,31,092/-. 6. Before the Ld. CIT(A) the assessee made two-fold arguments. It was argued that in the notice issued u/s 274 r.w.s. 271AAB of the Act the exact clause of section 271AAB under which the penalty proceedings were initiated was not mentioned. Therefore, the penalty proceedings are not in accordance with law and are void ab initio and therefore, such proceedings should be quashed. 7. So far as the merit of the case is concerned, it was argued that the assessee had paid the GST amount of Rs. 65,24,14,109/- in respect of sales declared in the course of search. Accordingly it was argued that the GST so paid should be reduced from the gross profit of Rs. 81,51,03,640/- and only on the balance amount, penalty may be levied. It was argued that the assessee ....
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....O has not mentioned specific clause of section 271AAB under which the penalty proceedings are initiated. Although, the appellant has not stated so but apparently, the appellant is trying to apply the principle laid down by the Hon'ble Bombay High Court in the case of Mohd. Farhan A. Sheikh vs DCIT 434 ITR 1 (Bombay) wherein the Hon'ble High Court has held that while initiating the penalty proceedings u/s. 271(1)(c) of the Act, the AO is required to strike off the irrelevant limb from the penalty notice. A perusal of the said decision suggests that the same was given in the context of section 271(1)(c) of the Act wherein the Hon. Bombay High Court observed that two limbs prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the Act. Observing this principle, the Hon. Bombay High Court has held that an omnibus penalty notice wherein the Assessing Officer has not struck off the irrelevant limb, shall not be a valid notice. The appellant is trying to apply the said principle in the context of penalty notice issued u/s 271AAB(1A) of the Act. However, a per....
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....ales Mr. Mahindra Rathod. Sales mentioned in these papers remained to be accounted. He had prepared month wise details of total undisclosed sales for the period for Financial year 2019-2020 and from April 2020 to December 2020. I wish to submit that the practice of generating unaccounted sales in respect of Gai Chhap Tobacco product was started from July, 2019 onwards and hence, no such unaccounted sales are mentioned for the months of April to June 2019 in the said summary. Total seen on page no 1 is Rs. 111,57,60,940/- and on page 2 is 126,68,26,449/-. I hereby accept that these are unaccounted sale of Gai Chhap Tobacco and other products. However, total is in fact more than these seized papers and for the period July, 2019 till Feb 2021 is Rs. 253,27,67,879/-. The year-wise break- up is as summarized below- Product FY 2019-20 FY 2020-21 Total Gai Chaap 1,24,90,67,499 1,20,95,17,640 2,45,85,85,139 Other Products 1,77,58,950 5,64,23,790 7,41,82,740 GRAND TOTAL 1,26.68,26,449 1,26,59,41,430 2,53,27,67,879 However, the practice of unaccounted sales was completely stopped after search. I further state that M/s Giriraj ....
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....ur charges, transportation, loading and unloading expenses, etc and the amount of GST paid on such cash sales was not accounted for while offering gross profit. The appellant has submitted that subsequent to the search on 07.02.2021, these unaccounted cash sales were duly disclosed in the GST Returns filed for the month of February and March 2021 and GST plus interest was paid on these cash sales. The appellant has submitted that a total of Rs. 65,24,14,109/- was paid as GST and interest which was debited in the P&L Account. Thus, the net profit on the unaccounted cash sales comes to Rs. 16,26,89,531/- (81,51,03,640 - 65,24,14,109) and therefore the penalty should be leviable only on such net income earned on the unaccounted cash sales. 13. During the penalty proceedings the appellant had submitted that since the GST of Rs. 65,24,14,109/- is directly related to unaccounted cash sales, undisclosed income should be computed after reducing the GST payment from the gross profit on unaccounted cash sales. But the AO did not agree with the appellant and levied the penalty by considering the gross profit of Rs. 81,51,03,640/- as undisclosed income. The penalty order suggests that....
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....here was no other way of accounting the GST paid. 15.1 As mentioned earlier in this order, although the AO did not dispute the claim of the appellant that it had paid GST plus interest amounting to Rs. 65,24,14,109/- on the unaccounted cash sales of Rs. 126,59,41,430/-, however, in the interest of cross-verification, the AR of the appellant was requested to demonstrate the same and to file a reconciliation along with copies of GST returns. In response, the appellant has submitted the following reconciliation regarding the sales declared in the GST returns for February, 2021 and March, 2021: Amount paid through monthly GSTR3B return Feb-2021 Taxable value IGST CGST SGST RTMEN, Cess Total tax Regular sales 51,15,36,069 6,43,339 7,01,34,515 7,01,34,515 31,43,77,077 45,46,46,107 Cash sales 62,66,93,078 8,77,37,031 8,77,37,031 40,73,50,501 58,28,24,563 Total 1,13,82,29,147 6,43,339 15,78,71,546 15,78,71,546 72,17,27,578 1,03,74,70,670 As per GSTR3B 3.1(a) 1,13,82,29,147 6,43,339 15,78,71,546 15,78,71,546 72,17,27,578 1,03,74,70,670 Amount paid....
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....t subsequent to the search, the appellant has declared the unaccounted cash sales, in its GST Returns for the month of February and March, 2021. It had also paid GST amounting to Rs. 59,51,19,109/- on the unaccounted cash sales and an interest of Rs. 5,72,95,000/- was paid. While the amount of GST of Rs. 59,51,19,109/- is directly related to cash sales found recorded in the seized material, the interest of Rs. 5,72,95,000/- cannot be said to be directly related to these cash sales. 18. To sum up, the facts of the present case suggest that undisclosed cash sales of Rs. 126,59,41,430/- was found recorded in the seized document. In the statement recorded u/s. 132(4) of the Act, the partner of the appellant firm accepted the same and agreed to offer income after considering expenses. A perusal of reply to question no. 10 of the statement u/s. 132(4) recorded on 16.04.2021 suggests that the undisclosed income on such cash sales was not quantified at that time. Subsequently, the appellant applied a gross profit rate of 64.38% on such sales and the resulting amount of Rs. 81,51,03,640/- was directly offered in the computation of income. The facts of the case further suggest that ....
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....nd the penalty order passed u/s 271AAB was null and void. 4] The learned CIT(A) erred in confirming the levy of penalty on the undisclosed income of Rs. 21,99,84,531/- in respect of the unaccounted cash sales without appreciating that there was no reason to levy any penalty on the said amount and hence, the entire penalty levied u/s 271AAB ought to have been deleted. 5] The learned CIT(A) erred in not appreciating that the due date for filing the income for the year under consideration had not expired and accordingly, there was no reason to hold that the income of Rs. 21,99,84,531/- constituted the undisclosed income of the assessee and therefore, the penalty levied should have been deleted. 6] The learned CIT(A) erred in not appreciating that if the GST paid on the undisclosed sales declared for A.Y. 2020-21 is taken into account, there would be no undisclosed income for the year under consideration and hence, the penalty levied u/s 271AAB was not justified and the same may kindly be deleted. 7] The learned CIT(A) further erred in excluding the interest paid of Rs. 5,72,95,000/- on late payment of GST while computing the undisclosed income for t....
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....02.2021 and the assessee filed its return of income on 08.03.2022 after taking considerable time and getting its books of accounts audited and based on the same, the assessee offered Rs. 81,51,03,640/- as its undisclosed income other than regular income which is not included in profit & loss account. 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in giving benefit of GST by holding that the same was debited to its profit & loss account under "rates and taxes", without appreciating the fact that the undisclosed sales were not offered in profit & loss account, but offered as any other income not included in profit and loss account. 6. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that the liability of the assessee w.r.t GST is to collect GST from its customers & deposit the same with the government account whereas in this case, the Ld.CIT(A) has allowed the assessee to reduce the GST liability on unaccounted sales from the undisclosed profit which is liable to tax, thereby reducing the undisclosed profit and quantum of penalty on that amount. 7. Th....
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....guished by the Ld. CIT(A) in case of Mohd. Farhan A. Sheikh vs DCIT (supra) is concerned, he submitted that although the same is in the context of 271(1)(c) of the Act, however, the ratio laid down in the said decision is applicable to the facts of the present case. Relying on the following decisions, he submitted that since the Assessing Officer in the instant case has not specified the correct clause under which the penalty is being levied, therefore, such notice issued by the Assessing Officer being not in accordance with law, the penalty levied by him and partly sustained by the Ld. CIT(A) has to be deleted: a. Shri R. Elangovan [ITA No. 770 & 771 of 2018 (Madras High Court] b. Shri Krishnappa Gowder Kalyanasundaram v. DCIT [1678/Chay/2004) c. Shri Naveen Goswami v DCIT [10/Del/2023] d. Yogender Mohan Rustagi vs. ACIT (ITA No.461/Del/2024] e. Prakash Asphalting & Toll Highways (India) Ltd. v. ACIT [720/Ind/2024] f. Suresh Kumar v. ACIT [1880/Del/2023] g. Pr. CIT v. Industrial Safety Products (P) Ltd. [154 taxmann.com 433 (Cal)] h. Jaina Marketing & Associates vs. DCIT 162 taxmann.com 439 (Delhi-Trib.) ....
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.... of the Bench to the definition of the term 'undisclosed income' and submitted that the 'undisclosed income' means any income of the specified previous year which has not been recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating such previous year. He submitted that the assessee in the present case has admitted the gross profit at the time of search which was not recorded in the books. Further, the GST on such sales was also not recorded in the books of accounts. It is only after the search action that the assessee has offered the gross profit on sales and the GST thereon has been paid. Therefore, the undisclosed income in the present case is the gross profit earned on the said sales as reduced by the GST paid by the assessee on such declared sales at the time of search action. Therefore, the GST amount of Rs. 65,24,14,109/- should be reduced from the gross profit of Rs. 81,51,03,640/- and penalty, if at all, has to be levied on the balance amount of Rs. 21,99,84,531/-. 18. He submitted that during the course of search action the department found that there was some suppression of sale for assessment years ....
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....Assessing Officer determining the profit declared by the assessee of Rs. 81,51,03,640/-. Therefore, the Ld. CIT(A) was not justified in holding that the said profit was inclusive of GST since the assessee has never contended before the Assessing Officer during the assessment proceedings nor any remand report was called for. He accordingly submitted that the penalty levied by the Assessing Officer should be confirmed in its entirety. Accordingly he submitted that the appeal filed by the Revenue be allowed and the appeal filed by the assessee be dismissed. 21. So far as the order of the Ld. CIT(A) dismissing the grounds challenging the argument that the Assessing Officer had not specified the exact clause of section 271AAB is concerned, he heavily relied on the order of the Ld. CIT(A). 22. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case levied the penalty of Rs. 24,45,31,092/- u/s 271AAB of the Act on the ground that the assessee during the cou....
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.... whether in absence of mentioning the specific limb for levy of penalty u/s 271AAB(1A), such penalty notice is invalid and the subsequent proceedings are also invalid? We find an identical issue had come up before the Hon'ble Madras High Court in the case of PCIT vs. Shri R. Elangovan vide Tax Case Appeal Nos.770 & 771 of 2018 & CMP No.18581 of 2018, order dated 31.03.2021. The relevant observations of the Hon'ble High Court read as under: "14. In our considered view, the Tribunal is fully right in vacating the penalty on the ground that the notice was defective. The provisions of the Act have clearly laid down the procedure to be followed and adhered to while imposing the penalty. The proposal for such penalty proceedings was separately 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 de....
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....ty proceedings on account of such defective notice. 27. We find the Delhi Bench of the Tribunal in the case of Shri Naveen Goswami v DCIT (supra) has also quashed the penalty proceedings initiated u/s 271AAB of the Act on the ground that the failure on the part of the Assessing Officer in not pinpointing the relevant limb of section 271AAB(a) to (c) vitiates the entire proceedings. Therefore, in absence of non-mentioning of the relevant limb u/s 271AAB(a) to (c), the penalty proceedings initiated by the Assessing Officer are not in accordance with law and therefore, the same are liable to be quashed. 28. So far as the order of the Ld. CIT(A) upholding the penalty notice by distinguishing the decision in the case of Mohd. Farhan A. Sheikh vs DCIT (supra) is concerned, we are of the considered opinion that the Ld. CIT(A) is not justified in doing so. Even though the said decision was in context of section 271(1)(c) of the Act, however, the Hon'ble Bombay High Court has observed that the two limbs prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the A....
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....nt year 1995-96. The dropping of penalty proceedings for the assessment year 1995-96 is a conscious act by the Assessing Officer as evident from the specific order dropping the penalty proceedings for that year. During the course of hearing before us, we did ask the Departmental Representative to explain this contradiction in the stand but he was not able to explain the same and he made a vague statement to the effect that the facts of that year may be different. This is unacceptable. In any case, the material facts, as evident from the documents before us, were clearly the same so far as the question of declaration was concerned. On one set of facts, in one year, the penalty is dropped, and for the remaining years, the penalties are imposed. Once this happens and no distinguishing features, for the years for which penalties are imposed, are pointed out, for this reason alone, penalties imposed are not sustainable in law, in any event, the imposition of penalties is based on the surrender made during the course of survey, but then mere surrender of income during the survey is not even a sound basis for addition to the returned Income. The fact of surrender per se cannot, lead to th....
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....1,51,03,640/- which is the gross profit. Further, the assessee during the impugned assessment year i.e. A.Y. 2021-22 has also paid an amount of Rs. 60,30,88,325/- towards GST for the assessment year 2020-21. Admittedly, the said GST was not deducted from the gross profit for assessment year 2020-21, therefore, we find merit in the argument of the Ld. Counsel for the assessee that the same should also be deducted from the gross profit of the impugned assessment year. 32. So far as the grievance of the Revenue that the assessee has never made any such claim during the assessment proceedings and has admitted such undisclosed income without any claim of deduction on account of payment of GST in the statement recorded u/s 132(4) of the Act is concerned, we are of the considered opinion that the same is without any force. It is the settled proposition of law that the assessment proceedings and penalty proceedings are distinct and separate. An assessee can always make fresh argument during the penalty proceedings which was not taken during the assessment proceedings. It is also the settled proposition of law that the addition made during assessment proceedings do not automatically attr....