TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1751
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....ni 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 during the course of search on account of sale of Gai Chap tobacco an....
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.... 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 had declared additional income on account of sale of Gai Chhap Jarda for ass....
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....gs 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 perusal of sec. 271AAB(1A) of the Act suggests that this section does not have two limbs a....
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.... 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 Enterprises has further incurred expenditure in cash on purchase of raw tobacco from the farmers, packaging material, lime, labour charges for pack....
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....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 although, the assessing officer did not dispute the claim of the appellant that it had paid an amount of Rs. 65,24,14,109/- as GST and interest on the unaccounted cash....
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.... 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 through monthly GSTR3B return March-2021 Taxable value IGST CGST SGST Cess Total tax Regular sales 59,35,81,886 5.20,409 7.92,20,743 7,92,20,743 33,20,71,764 49,05,13,250 Other sales 2,77,530 - - - - - Cash sales 4,41,29,243 - 59,54,900 59,54,900 3,84,....
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....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 subsequent to search operation, such cash sales were disclosed in the GST returns by considering the cash sales inclusive of GST and the GST payment of Rs. 59,51,19,109/- (corresponding to unaccounted cash sales) was debited in the P&L Account. Since, the said GST amount is directly related to the unaccounted cash sales, the undisclosed income corresponding to unaccounted sale is required to be computed after considering said GST payment. In this manner, in the return of income, the appellant has actua....
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....n 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 the purpose of levy of penalty u/s 271AAB without appreciating that the said interest paid should have been taken into account and the penalty if at all, should have been worked out on the balance undisclosed income. 8] The assessee submits that on similar set of facts, no penalty was levied for A.Y. 2020-21 by the learned A.O. and therefore, the assessee submits that for this year also there was no reason to levy the penalty since the facts were identical for both the years. 9] The appellant craves leave to add, alter, amend or delete any of the above grounds of a....
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....ed 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. The appellant craves to add, amend, alter or delete any of the above ground(s) of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 12. The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) partly confirming the penalty levied by the Assessing Officer u/s 271AAB of the Act. So far as ground Nos.2 and 3 are concerned, he submitted that the penalty order passed by the Assessing Officer is invalid in law. Referring to page 132 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the notice issued by the Assessing Officer u/s 274 r.w.s. 271AAB ....
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....TA 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.) i. PCIT vs. Industrial Safety Products (P) Ltd. 154 taxmann.com 433 (Cal) j. Kunhayammed vs. State of Kerala 113 Taxman 470 (SC) 15. So far as the merit of the case is concerned, the Ld. Counsel for the assessee submitted that the assessee in the return filed for assessment year 2021-22 has considered the sale of Rs. 1,26,59,41,430/- on which the gross profit of Rs. 81,51,03,640/- has been worked out. He submitted that the sales made by the assessee were inclusive of GST. As a result of the search action the assessee paid GST amount of Rs. 65,24,14,109/- on the sales declared at the time of search which has been debited to the Profit & Loss Account for assessment year 2021-22. Referring to so....
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....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 2020-21 and 2021-22. Accordingly, the assessee in the returns filed for the assessment year 2020-21 had offered income of Rs. 82.01 crore in respect of unaccounted sales. On the said unaccounted sales the assessee paid GST of Rs. 60,30,88,325/- in financial year 2020-21 relevant to assessment year 2021-22, the details of which are given at page 40 of the paper book. He submitted that the GST for assessment year 2020-21 paid during the assessment year 2021-22 should also be reduced from the gross profit since the same is directly related to the unaccounted sales and therefore, the said amount also should be reduced from the gross profit for the impugned assessment year and if it is so done, no penalty is leviable a....
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....1AAB 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 course of search had admitted the undisclosed sales in respect of Gai Chhap tobacco and other products of Rs. 1,26,59,41,430/- on which the assessee has offered income of Rs. 81,51,03,640/-. He accordingly levied penalty u/s 271AAB on the undisclosed income of Rs. 81,51,03,640/-. We find in appeal, the Ld. CIT(A) held that since the assessee, subsequent to the search action, has disclosed cash sales by considering such sales as inclusive of GST and has paid the GST of Rs. 59,51,19,109/- relating to assessment year 2021-22, therefore, the same should be reduced from the amount of Rs. 81,51,03,640/- and penalty is leviable on the balance income of Rs. 21,99,84,531/-. 23. We find the provisions of section 271AAB(1A) read as un....
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.... 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 more particularly, when the assessee has been strenu....
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....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 Act. We find the provisions of section 271AAB(1A) have also got two parts. As per the said sub-section, the penalty is either leviable under clause (a) or (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, the Ld. CIT(A) in our opinion was not justified in distinguishing the decision of the Hon'ble Bombay High Court in the case of Mohd. Farhan A. Sheikh vs DCIT (supra). Even otherwise also, since the Hon'ble Madras High Court has taken a view directly on this issue and no contrary decision of any other Hon'ble High Court was....
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....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 the conclusion that there was a concealment of income. The factual a surrounding the surrender of income also, in our considered view, do not establish that there was a concealment of income. In fact, all along the assessee has taken a stand that at the time of survey, relevant records could not be located and that there was no justification for this additional income on merits, but these explanations have been simply brushed aside by the authorities below. This kind of an approach cannot be sustainable in law. Keeping in view all these factors, as also entirety of the case, we deem it fit and proper to delete the impugned penalties of Rs. 2,63,925 for 1993-94 and of Rs. 4,65,750 for the assessment year 1994-95. The assessee gets the relief accordingly." 30. We find following the above decision, the Delhi Bench of the Tribunal in the case ....