TaxTMI 
TaxTMI 
2026 (9) TMI 1318
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.... 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost to be awarded to the assessee." 3. Briefly stated, the facts of the case are that a search and seizure action under section 132(1) of the Act was carried out on 23.01.2019 in the case of the Goyal Group, Neem Ka Thana, to which the Assessee belongs. The Assessee is an individual and is the proprietor of M/s Global Industries, which is engaged in the manufacturing and trading of minerals. For the year under consideration, the Assessee filed her return of income on 21.01.2021 declaring a total income of Rs. 7,95,900. In the course of the search, the stock of M/s Global Industries was physically verified and inventoried at Rs. 5,17,350 as per Annexure SF, whereas the stock as per the books of account stood at Rs. 17,20,285. The AO treated the resultant difference of Rs. 12,02,935 as representing unrecorded sales, estimated the profit thereon by applying the gross profit rate of 16.65% declared by the Assessee in her audited accounts and, accordingly, made an addition of Rs. 2,00,289 while completing the assessment under section 143(3) read with section 153B(1)(b) of the Act on 28.....
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....e levied despite the fact that addition was made to the total income of the assessee. It is pertinent to mention here that had there been no search and seizure action being carried out in this case; this amount of undisclosed income could not be brought to tax. Thus, it is a clear case of undisclosed of income. From the above discussion, it amply clear that penalty u/s. 271AAB(1A)(b) of the I.T. Act, 1961 is applicable in this case." 6. Aggrieved by the levy of penalty, the Assessee carried the matter in appeal before the learned CIT(A). It was contended before the learned CIT(A) that the penalty proceedings are independent of the assessment proceedings, that the alleged shortage of stock had arisen on account of an incorrect physical inventory taken during the search and non-updation of the books of account up to the date of search, that no evidence of any sale outside the books was found in the search and that the addition, having been made on estimate by applying a gross profit rate, does not amount to undisclosed income within the meaning of section 271AAB of the Act. The learned CIT(A) did not accept these contentions and confirmed the penalty. The operative findings record....
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....k was detected on the basis of the physical inventory prepared in the course of the search, that but for the search this income would not have been brought to tax, and that the application of the gross profit rate was only a mode of quantification which does not alter the character of the income as undisclosed income. 9. We have heard the rival contentions and perused the material available on record. The short question for our consideration is whether the sum of Rs. 2,00,289, being the gross profit estimated by the AO on the alleged unrecorded sales of Rs. 12,02,935 inferred from the shortage of stock, constitutes undisclosed income within the meaning of section 271AAB of the Act, so as to sustain the penalty of Rs. 1,20,170 levied under clause (b) of sub-section (1A) of that section. 10. Section 271AAB of the Act is a special provision which enables the AO to levy penalty where a search has been initiated under section 132 of the Act. The penalty is, however, not attracted by every addition made in an assessment framed consequent to a search. It is attracted only in respect of the undisclosed income of the specified previous year, and that expression carries the meaning ass....
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....o be there. A shortage is not an asset found in the search; it is a conclusion drawn from a comparison of the physical inventory with the books of account. 13. The manner in which the addition itself came to be made bears this out. In paragraph 4 of the assessment order, extracted above, the AO has recorded that the short stock found on physical verification represents unrecorded sales and that profit is estimated by applying the GP rate of 16.65%, and further that the income of the Assessee is required to be estimated by applying the correct gross profit ratio to cover up all leakages of revenue. The sum of Rs. 2,00,289 is not the value of anything found in the search. It is a figure arrived at by applying a percentage to a figure which is itself the product of an inference. Such a sum cannot be said to be income represented by money, bullion, jewellery or other valuable article or thing, or by any entry, document or transaction found in the course of the search. 14. We are conscious of the reasoning of the learned CIT(A) that the application of the gross profit rate was only a mode of quantification which does not dilute the character of the income. That reasoning would hol....