TaxTMI 
TaxTMI 
2023 (7) TMI 1661
X X X X Extracts X X X X
X X X X Extracts X X X X
....r without specifying the limbs of section 271AAB(1A) of the Act whether it is for clause (a) or clause (b) section 271AAB(1A). 2. On the facts and in the circumstances of the case and in law the penalty order passed u/s 271AAB of Income Tax Act, 1961 is wrong, bad in law, invalid and void-ab-initio as the ld. AO issued notice under section 274 r.w.s 271AAB(1A) of I.T. Tax Act without specifying the default of the assessee. 3. On the facts and in the circumstances of the case the ld. AO has grossly erred in imposing penalty for Rs. 1,24,78,052/- u/s 271AAB of the I.T. Act, 1961, for the assessment year 2018-19. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal during the course of appellate proceedings." 3. The fact as culled out from the records is that the assessee company had filed its original return of income on 29.10.2018 declaring total income of Rs.38,16,370/-. The search and seizure action u/s 132 of I.T. Act, 1961, was carried out on 12.09.2018 at the residential and business premises of R.P. Group of Ajmer. Various assets had been found at the time of search and some of them were also seized at various p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of Rs. 2,07,96,754/- on account of commission sales which was neither disclosed in the original return of income nor the return of income filed in response to notice issued u/s 153A of the I.T. Act, 1961 for the A.Y. 2018-19. Therefore, an addition of Rs.2,07,96,754/- is hereby made on account of undisclosed commission sales and added to the total income of the assessee for A.Y.2018-19. 3.3 The ld. AO noted that against the assessment order the assessee has not preferred any appeal and as the penalty proceedings were initiated u/s. 271AAB of the Act the assessee was asked to submit the reply. The assessee mad his submission on 14.02.2022. The ld. AO did not convince from the submission of the assessee and stated that the assessee has accepted in the assessment proceeding about the undisclosed income on account of sales on commission basis which was neither declared in the ITR filed u/s. 139(1) nor in the return submitted u/s. 153A of the Act. He further hold that mere payment of taxes on the said income, during the course of assessment proceeding, does not give immunity to the assessee from the levy of penalty u/s. 271AAB(1A) of the Act. Based on these observations, the ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The appellant argued that no corroborative evidence was found in addition to seized documents. The arguent of the appellant is not found acceptable because the appellant admitted undisclosed income in the statement recorded during search and the appellant has himself provided corroborative evidence in the form of revised computation of income filed during the assessment proceedings. The appellant argued without prejudice to the other arguments that the appellant is covered by provision of (a) of Section 271AAB (1A) which is as under (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed 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 decla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rary decision so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.1 in the appeal is dismissed." The appellant has also relied upon on the decision by Honourable Delhi High Court in case of CIT v/s Harnarain in ITA NO.2072/2010 darted 31.10.2011. In this case it was held as under :- "10. It is also observed that the CIT(A) had relied on the decision of the Madhya Pradesh High Court and the Jharkhand High Court in the case of CIT v. S.V. Electricals P. Ltd.( 155 Taxman 158) and CIT v. Ashim Kumar Agarwal (153 Taxman 226) respectively where it was held that where the assessee surrenders his full income, though at a later stage, there was no question of any concealment on his part and consequently no penalty under Section 271(1)(c) was leviable, and that a omission from retum of income did not amount to concealment. 11. In view of the discussion above and the cited decisions, surrender of the amount by the Assessee after receipt of the questionnaire could not lead to an inference that it was not voluntary, in the absence of any material on record to suggest that it was bogus or untrue. It is furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of account or other documents maintained in the normal course relating to such previous year; o r (B) otherwise not been disclosed to the 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. It is admitted fact that income of the specified previous year represented entry in the books of account or 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 course relating to such previous year. During the search unaccounted sales were found on the basis of documents seized. The appellant admitted that these are unaccounted sales on commission. The appellant not included this income in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase and are therefore liable to be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in not quashing the absolutely illegal, arbitrary and ab initio void order of the AO levying penalty u/s 271AAB of the Income Tax Act on the appellant. 3. On the facts and circumstances of the case, the Ld CIT(A) has erred in law in not considering the submissions of the appellant that: (i) Initiation of penalty by the AO without giving any reasons for initiating penalty u/s 271AAB(1A) of the Income Tax Act is bad in law. (ii) Initiation of penalty without any specific finding in the assessment order as to the discovery, as a result of search action, of any "undisclosed income" within the meaning of clause (c) of explanation to Section 271AAB(1A) of the Income Tax Act, is bad in law . (iii) That initiation of penalty solely on the basis of offer of additional income made for the purpose of buying peace and for avoiding further litigation is bad in law. (iv) That initiation of penalty without directly relating the offer of additional income to any cogent material related to the appellant found durin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in completely ignoring that the applicability of specific clause has to be decided at the time of initiation of penalty proceedings and not thereafter. 6. On the facts and circumstances of the case and in law the Ld CIT(A) erred in holding that furnishing of revised computation of income by appellant is a corroborative evidence and thus in discharging the Revenue from the onus of bringing on record the corroborative evidence. 7. On the facts and circumstances of the case the Ld CIT(A) erred in law in upholding the penalty under clause (a) of Section 271AAB(1A) leviable at the rate of 30% against the penalty levied by the AO under clause (b) of Section 271AAB(1A) and in not quashing the entire penalty order despite finding the order of Assessing officer levying penalty under clause (b) as unsustainable in law . 7.1 Ld CIT(A) erred in law in not quashing the entire penalty order when no specific clause was mentioned in the assessment order or in the show cause notice and the specific clause of Section 271AAB(1A) invoked by the Assessing Officer at the time of levying penalty was not at all applicable to the facts of the case of the appellant. " FA....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 274 of the Income Tax Act without specifying the specific default of section 271AAB(1A) of the I.T. Act, i.e either default of clause (a) or default of clause (b) of the said sub section. Prior to the imposition of penalty another stereotyped show cause notice dated 09/02/2022 was issued by the Assessing Officer simply stating that the penalty proceedings u/s 271AAB of the Income Tax Act are pending in assessee's case. 7. On the basis of show cause Notice date dated 09/02/2022, the Ld Assessing Officer Central Circle Ajmer levied the penalty of Rs 1,24,78,052/- u/s 271AAB(1A) of the Income Tax Act without specifying any clause of section 271AAB(1A) of the Income Tax Act invoked by him for levying the penalty. 8 Thus, the Assessing Officer initiated and imposed penalty on the appellant without bringing on record any definite evidence of unaccounted sales having been made by the assessee company and without quantifying the exact amount of unaccounted sales discovered as a result of search or undisclosed income discovered in the search and without specifying the exact limb of Section 271AAB(1A) of the Income Tax, either in the assessment order, or in the penalty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer which is contrary to law as penalty u/s 271AAB is neither mandatory nor automatic and the Assessing Officer must record his satisfaction as to the committing of the mischief of that section by the Assessee. The Assessing Officer has failed in giving any specific findings as to the discovery, either during the search or in the assessment proceedings of any "undisclosed income" within the meaning of clause (c) of explanation to Section 271AAB(1A) of the Income Tax Act Further, initiation of penalty u/s 271AAB(1A) of the Income Tax Act has been made without specifying the particular limb i.e either clause (a) or clause (b) of Section 271AAB(1A) and is therefore not sustainable as per the settled legal position. Initiation of penalty in respect of income included by the Assessing Officer in the total income based on offer of additional income solely for the purpose of buying peace and avoid further litigations without any independent findings is also not in accordance with law. Further, Initiation of penalty when no undisclosed /unrecorded assets of the assessee company have been found during the course of search which may substantiate the allegations of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly linked to the seized material. The Assessing Officer has failed completely in giving any independent findings as regards to the "undisclosed income" within the meaning of explanation (c) to section 271AAB (1A) of the Income Tax Act, having been found/detected as a result of search and seizure action in the case of assessee. The Assessing Officer completely failed in displacing the contentions of the assessee with positive evidences that offer of additional income was just to avoid further litigation . The Assessing Officer levied the penalty without any application of mind and in an mechanical manner as is evident from the fact that the Ld Assessing Officer in the impugned order mentioned that the additional income was not disclosed even in the Notice issued u/s 153A of the Income Tax Act, thereby proving the mens rea on the part of the assessee, when no such notice u/s 153A was issued for the subject assessment year and no return u/s 153A of the Income Tax Act for the subject assessment year was either filed or required to be filed. Therefore, the impugned order passed by the Ld Assessing Officer is liable to be set aside for this very reason alone . As has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ully made : Section 271AAB: Penalty where search has been initiated Section 271 AAB of the income Tax Act read as under: (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, [but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President] the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- ....... (1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- ............. (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under sub-section (4) of section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. From the bare perusal of the above provisions the following emerges; (i) The penalty under section 271AAB is neither automatic nor mandatory but discretionary as it uses the words "AO may direct". (ii) The discretionary penalty under section 271AAB(1A) can be levied under clause (a) @ 30% and under clause (b) @60% depending upon the default and charge against the assessee. (iii) Existence of 'undisclosed income' within the meaning of explanation (c ) to Section 271AAB is a sine qua non for levying such penalty. In case there is no undisclosed income as defined therein, no penalty u/s 271AA(1A) of the Income Tax Act can be levied. While enacting Section 271AAB, the Legislature has consciously used the word 'may' in place of word 'shall'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der section 274 should be clear enough to convey the assessee about the charge which is to be levied against it for levying the penalty for the contravention of the related provisions of the Act and thus, it is necessary that in the notice issued under section 274 of the Act the specific clause of Section 271AAB of the Act under which penalty is proposed to be imposed is conveyed to the assessee, so that assessee could meet out the charge against him. The opportunity to the assessee to meet out the specific charges against him has to be real and effective. Therefore, penalty under section 271AAB levied on the basis of defective notice cannot be sustained. Hon'ble ITAT Indore Bench in the decision dated 05.02.2020 in ITA No 869/Ind/2018 in the case of Shri Ashok Bhatia v DCIT Central Circle-1 Indore held as under; " Before levying penalty under section 271AAB of the Act, the Ld. A.O needs to primarily issue notice under section 274 of the Act so for initiating proceedings under section 271AAB of the Act, the Ld. A.O has to first pass through the hurdle of Section 274. In this case, three notices were issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clauses (a) to (c) of section 271AAB(1) of the Act. Hon'ble ITAT Jaipur Bench in the decision dated 05/04/2019 in ITA No 112/JP/2018 in the case of Sh Padam Chand Pungaliya Vs ACIT Central Circle-1 Jaipur while relying on its earlier decision in Ravi Mathur, held as under; "Thus it is clear that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon'ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon'ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA's Emerald Meadows, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate Bench as well as Hon'ble Jurisdictional High Court, this issue is decided in favour of the assessee by hol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A No 326/Kol/2020 the case of Smt Rashmi Jalan Vs ACIT Circle12(2) Kolkatta held as under: " 11 Applying the propositions of law laid down in these case -laws to the fact of the case we have no other alternative but to hold that the penalty in question is bad in law as the show cause notice issued by the Assessing Officer does not specify the charge/s against the assessee for levy of penalty, as required by law. Thus on this ground, the penalty is quashed. Patna Bench of the Hon'ble ITAT in the decision dated 17/09/2020 in ITA No 61/Pat/2019 the case of Rainbow Products Pvt Ltd Vs ACIT Central Circle-1 Patna held as under: " 8. From perusal of the above provision we observe that sub section 3 of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by Ld. A.O is to issue a valid notice u/s 274 of the Act. Sub-section (1) to Section 274 of the Act provides a procedure that "No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard". To comply with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 271AAB(1A) of the Income Tax Act. Not specifying the specific charge in the show cause notice is a fatal defect to the sustenance of the penalty order. Again, observation of the Ld CIT(A) that the assessee is well aware of the clause under which its case is covered is in the teeth of the consistent stand taken by Hon'ble Tribunal, High Courts and the Hon'ble Supreme Court. Further observations of the Ld CIT(A) that no prejudice is caused to the appellant because of not specifying of particular clause is completely in defiance of the Full Bench decision of the Hon'ble High Court of Bombay in the case of Mohd Farhan A Shaikh Vs DCIT Central Circle-1 Belgaum wherein the Hon'ble High Court has specifically considered this argument and negated the same with a categorical affirmation that prejudice is writ large on the face of the mechanical methods, the Revenue adopts in sending a statutory notice. Further, Ld CIT(A) observed that application of particular clause depends on facts and circumstances of the case and application of particular clause may change on fulfilling of certain conditions. This observation of the Ld CIT(A) tantamount to laying down a who....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d income within the meaning of explanation (c) to section 271AAB which reads as under: " 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 [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. Thus, it is evident that penalty u/s 271AAB of the Act can only be levied for undisclosed income as defin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Accordingly in view of the facts and circumstances as discussed above as well as the order of the Coordinate Bench of this Tribunal, we hold that the entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied under section 271AAB by the AO and confirmed by the ld. CIT (A) is not sustainable and liable to be deleted." Income Tax Appellate Tribunal - Kolkata in the decision dated 01 October 2019 in ITA no 2302/Kol/2016 in the case of ACIT Central Circle-2(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the house and purchase of other assets as well as advances in the absence of the real transactions do not constitute the undisclosed income of the assessee as defined in the explanation to Section 271AAB of the Act. Accordingly, the penalty levied under Section 271AAB in respect of the said amount is not sustainable and liable to be set aside." Identical view has been taken by the Hon'ble Tribunal Jaipur Bench in the decision dated 22Mrach 2019, in the case of Smt. Aparna Agrawal, Kota vs Deputy Commissioner Of Income Tax Central Circle-Kota in ITA No 1438/JP/2018. The Hon'ble Bench observed as under: " Para 4 .... The levy of penalty under section 271AAB does not dependent on the addition made during the assessment proceedings but the conditions provided under section 271AAB are precedent for levy of penalty. The assessment order is relevant only for the purpose of limitation provided under section 275 of the IT Act whereas the penalty under section 271AAB has to be imposed only when the income disclosed by the assessee falls in the ambit of undisclosed income as defined under section 271AAB of the Act. The definition of undisclosed income con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the discretion and has to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an "undisclosed income" in terms of Section 271AAB(1) r/w. explanation defining the undisclosed income. Further, where the discretion so applied by the Assessing officer has been rightly exercised or not in a particular case can be reviewed and subject to appellate remedy as so provided in the Act. Reliance is also placed on the following decisions Hon'ble ITAT Vishakhapatnam in the case of ACIT v. M/s. Marvel Associates (2018) 170ITD 353/194TTJ 338/ 166DTR409 (Vishakha) (Trib) Hon'ble ITAT Kolkatta Bench in the case of ACIT v Kanwar Sain Gupta, Kolkata, ITA No.538/Kol/2017 dated 29.06.2017. Hon'ble ITAT Mumbai Bench decision dated 24.05.2021 in the case of Sai Samarth Enterprises Mumbai Vs CIT Central Circle-1 Thane in ITA Nos 3718, 3720, 3721/ Mum/ 2018 Decision dated 30/11/2018 by the Ranchi Bench of the Hon'ble Tribunal in the case of Smt Rinku Agarwal Jamshedpur Vs ACIT Central Circle-2 Ranchi, in ITA No. 262/Ran/2017 Hon'ble ITAT Ahmedabad in d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecorded at the time of imitation of the penalty and not at the time of levying of penalty. Since the penalty has been initiated and imposed under patently wrong clause as is clearly discernible from the order of the Ld CIT(A), though the contention of the appellant remains that there was no valid initiation of the penalty, however, without prejudice to the stand the appellant submits that the penalty order based on patently wrong initiation cannot be resurrected and must go in its entirety. This is the settled position of law that the penalty follows the show cause notice which reflects the mind of the initiating authority. As the show cause notice was flawed, the entire penalty order gets invalidated. For imposing/upholding penalty under clause (a) of Section 271AAB(1A) of the Act the penalty proceedings need to be initiated separately, a course not known to the law after the issuance of initial show cause notice. Therefore, even for this very reason alone, the entire penalty order needs to be quashed being clearly untenable in law and facts of the case. It is therefore submitted that the decision of the Ld CIT(A) suffers from contradictions on this issue. Initiation of p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the assessment was going on in the corona period even though the assessee has offered the income to buy the peace and alternatively the ld. AR of the assessee submitted that the income offered is not undisclosed income supported by any asset of the assessee company and thus, even on merits of the case the penalty is not leviable. 9. We have perceived the oral as well as written arguments raised by both the parties to drive home to their contentions. The bench noted that the assessee during the course of the assessment proceeding submitted as under : The assessee vide his submission dated 03.03.2021 for A.Y.2018-19 has also submitted that "It is also an established position of law that on unaccounted sales/turnover what is to be taxed is the profit embedded in these sales. The Hon'ble Guj. High Court in the case of CIT Vs. President Industries Ltd., 258 ITR 654 (Guj) has held that addition cannot be entire undisclosed sales proceeds. Only the profit embedded in sales proceeds can be taxed." The assessee has also placed his reliance on various other judicial pronouncements in this regard, which have been duly considered. 10. The bench also noted that the ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....closed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) The Assessing Officer 4Hor the Commissioner (Appeals)] may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se the income offered is not as per the definition of the undisclosed income as defined under the Act. The assessee has voluntarily based on the seized document offered the income on estimate basis, based on the explanation of the assessee the ld. AO has accepted the income so offered by the assessee without finding anything in the nature of undisclosed income and there is also no finding in the order of the assessment or in the order of the penalty that the income disclosed by the assessee falls under the definition of the undisclosed income of the assessee. The assessee has offered the profit based on the seized material considering it the sales made on commission basis and the same has not been disputed by the ld. AO. 12. We also note from the order of the ld. CIT(A) that he has hold a view that the assessee admitted undisclosed income in the statement recorded during the search and himself based on the material declared the additional income and therefore, the penalty was reduced from 60 % to 30 % believing that the assessee in search accepted the income in the statement recorded and the specified the manner of earning the income and paid the taxes together with the interest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on with the books of accounts and estimation of income and bring the evidence to unearth or quantify the said income as undisclosed income. Neither the A.O. nor the investigation wing linked the sales recorded in the iPhone in the nature of undisclosed income. Therefore, we are unable to accept the contention of the revenue that the entries recorded in the iPhone during the course of search indicates undisclosed income or asset. 14. The ld. AR of the assessee has relied on the decision of this co-ordinate bench decision wherein on the similar facts the penalty was vacated in the case of Smt. Aparana Agarwal Vs. DCIT, CC, Kota reported at 105 Taxmann.com 233 where in the bench has held that : 4. We have considered the rival submissions as well as the relevant material on record. The AO has levied the penalty under section 271AAB of the Act in respect of the income surrendered by the assessee on account of LTCG from purchase and sale of equity shares. The question arises whether the surrender made by the assessee in the statement recorded under section 132(4) will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t been disclosed to the 54[Principal Chief Commissioner or] Chief Commissioner or 54[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.] " The levy of penalty under section 271AAB does not dependent on the addition made during the assessment proceedings but the conditions provided under section 271AAB are precedent for levy of penalty. The assessment order is relevant only for the purpose of limitation provided under section 275 of the IT Act whereas the penalty under section 271AAB has to be imposed only when the income disclosed by the assessee falls in the ambit of undisclosed income as defined under section 271AAB of the Act. The definition of undisclosed income contemplates various forms and the primary condition is that the income of the specified previous year represented by any money, bullion, je....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has also produced relevant documents, the details of which are as under :- (A) IN RELATION TO SHARES PURCHASE : Summary of shares purchased during the FY 2012-13 (page No. 87 of paper book) Copy of share allotment Advice in support of share purchased (page No. 88 of paper book. Copy of relevant page of bank statement showing the payment made against purchases of shares (page No. 89 of paper book) Copy of Corporate Action of the Company informed to Bombay Stock Exchange (Effect of Stock Split)(page No. 90 of paper book) Acknowledgement of ITR filed on 07.10.2013 u/s 139(1) of Income-tax Act, 1961 along with computation sheet of total Income of the A. Y. 2013-14 (page Nos. 91- 93 of paper book). Acknowledgement of ITR filed on 02.02.2016 u/s 153A of Income-tax Act, 1961 along with computation sheet of total Income of the A. Y. 2013-14. (page nos. 94-97 of paper book) Copy of Balance Sheet and Capital Account of Assessment Year 2013-14 (page No. 98 of paper book) Copy of Assessment Order dated 22.12.2017 u/s 143(3) r.w.s. 153A passed by Deputy Commissioner of Income Tax, Central Circle Kota (Raj.) for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 153A of the Act. The assessee has also produced sale bills/contract notes regarding sale of shares, copy of ledger account of the assessee in the books of share broker in respect of sale transactions, bank statement showing receipt of sale consideration and Demat account having the entries of credit of shares at the time of purchase and debit of shares at the time of sale. The equity shares in question are of listed companies in the Stock Exchange and were purchased and sold by the assessee through Stock Exchange. Therefore, the transactions of purchase and sale are verifiable from the independent source including the record of the Stock Exchange without having any influence of the assessee. Hence the document produced by the assessee is the evidence which cannot be manipulated and also can be verified from the independent sources. Once the assessee has established the fact that all these transactions are recorded in the books of account and also produced, the relevant documentary evidence to establish the genuineness of the purchase and sale of shares through Stock Exchange, then the mere disclosure and surrender of income would not ipso facto lead to the conclusion that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court in case of RadhaKrishna Vihar (ITA No. 740/2011). 13. In this regard, we refer to the provisions of Section 271AAB which 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 sub- section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as maybe applied in relation to penalty under this section which means that before levying the penalty, the Assessing officer has to issue a show cause granting an opportunity to the assessee. Thus, the levy of penalty is not automatic but the Assessing officer has to decide based on facts and circumstances of the case. Similar view has been taken by the various Co-ordinate Benches and useful reference can be drawn to the decision of the Co-ordinate Bench in case of ACIT v. Marvel Associates 92 Taxmann.com 109 wherein it was held as under: "5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the Id. A.R. vehemently argued that the A.O. has le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (a) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Vihar in ITTA 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 sub section 2 there of intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case." 14. Therefore, we agree with the contentions of the ld AR that the levy of penalty under section 271AAB is not mandatory. In the instant case, it therefore needs to be examined whether there is any basis for levy of penalty or non-levy thereof and the same will depend upon the facts and circumstances of the present case which we shall discuss in subsequ....