TMI Blog2023 (7) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... Gosain , JM The assessee has filed an appeal against the order of the ld. CIT(A)-4 Jaipur dated 29-07-2022 for the assessment year 2013-14 raising therein following ground of appeal. ''1. That the ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 2.50 lacs imposed by the AO u/s 271AAB of the Act. 2. That the ld. CIT(A) is wrong and has erred in law in confirming the said penalty of Rs. 2.50 lacs u/s 271AAB of the Act holding that it is mandatory in nature and not discretionary and so AO is correct in law while imposing penalty on assessee. 3. That the ld. CIT(A) is wrong and has erred in law in confirming the said penalty of Rs. 2.50 lacs u/s 271AAB imposed by the AO although the notice issued by AO for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law and not being specifically pointing out the default for which the AO sought to impose penalty u/s 271AAB. 4. That the ld. CIT(A) is wrong in confirming penalty of Rs. 2.50 lacs u/s 271AAB of the Act in as much the penalty was levied by AO simply on the basis that the assessee admitted the income of Rs. 2.50 lacs and disclosed in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 sent to assessee alongwith assessment order does not specify in which limb the penalty sought to be levied and only mentioning of Section 271AAB in notice do not satisfy the requirement of law. The language of the said notice issued is Whereas in the course of assessment proceedings before me for the A.Y. 2013-14 it appears to me that as per section 274 and 275 read with section 271AAB of the I T Act you are liable for penalty on assessed undisclosed income. The Ld. A.O. thereafter issued another show cause notice dated 17-08-2016by changing only date of notice stating the same wordings of earlier notice dated 21-03-2016 that Whereas in the course of assessment proceedings before me for the A.Y. 2013-14 it appears to me that as per section 274 and 275 read with section 271AAB of the I T Act you are liable for penalty on assessed undisclosed income. Again, a third show cause notice dated 07-09-2018 was issued having the same wordings of earlier notice(s). The assessee after receiving this notice filed his explanation on 14-09-2018. The Ld. A.O. on receipt of explanation of assessee passed the penalty order on 23-03-2020. It is verifiable that all the three not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of law arised in this appeal for determination by this Court. The appeal is accordingly dismissed. The department has filed SLP in Hon'ble Supreme Court which has been dismissed. Therefore, Hon'ble Supreme Court has approved the findings made by Hon'ble Karnataka High Court in the case of CIT Vs. SSA's Emerald Meadows And CIT Vs Manjunatha Cotton Ginning Factory others [2013] 359 ITR 565. Hon'ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory [2013] 359 ITR 565 (Karnataka) after referring to the decision of Hon'ble Supreme Court in the case of T. Ashok Pai (Supra) held as under:- .......... Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SLP filed by the revenue in the case of CIT vs. SSA's Emerald Meadows, 242 Taxman 150 (SC) held that the notice issued under section 274 read with section 271AAB of the Act not specifying the ground and clauses for levy of penalty was not valid and consequently the penalty order was set aside. (ii) Hon'ble Jurisdictional High Court in the case of Sheveta Construction Co. Pvt. Ltd. in DBIT Appeal No. 534/2008 dated 06.12.2016 wherein the Hon'ble High Court at Para 9 of its order held as under:- ...... Taking into consideration the decision of the Andhra Pradesh High Court which virtually considered the subsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observation made in the said judgement, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing officer in the assessment order it is held that the A.O. has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/JP/2018) order dated 23-09-2019 held that On similar facts, the Tribunal has already decided this issue in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed. Following the earlier orders and taking a consistent view, we hold that when the AO has failed to specify the default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act, the said show cause notice suffers from illegality and consequently the order passed by the AO under section 271AAB is not sustainable and liable to be quashed. Thus, it is submitted that notice issued u/s 271AAB by Ld. A.O. to assessee is wrong and bad in law and consequently the penalty levied u/s 271AAB (1) (a) is also wrong and bad in law which deserves to be deleted. (2) Ground No..2 That the Ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 250000 u/s 271AAB of the Act by holding that it is mandatory in nature and not discretionary and so assessing officer is correct in law while imposing penalty on appellant. In this connection it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BFA (2) of the Act. The word may direct indicates the discretion to the A.O. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132 (4). The A.O. must establish that there is undisclosed income on the basis of incriminating material. It is so specifically held by ITAT, Visakhapatnam Bench in ACIT Vs. Marval Associates supra. The Ld. A.O. taking the admission of income by assessee as undisclosed income of assessee. In search authorities did not find any undisclosed asset, any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, the department has not found any evidence, which shows that the assessee was having any undisclosed income. The revenue authorities have exerted undue pressure and obtained the surrender of income from the assessee. The CBDT in this regard issued a circular F. No. 286/2/2003-IT(Inv.) dated 10-03-2003 and has expressed its concern about the practice of confession of additional income during the course of search and seizure proceedings and, therefore, clarified that the confession during the course of search and survey operation do not serve any useful purpose. There should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. For ready reference the said circular is reproduced herein below: GOVERNMENT OF INDIA MINISTRY OF FINANCE COMPANY AFFAIRS DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES Room No. 254/North Block, New Delhi, the 10th March, 2003 To All Chief Commissioners of Income Tax, (Cadre Contra) All Directors General of Income Tax Inv. Subject : Confession of additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding asset being the land acquired by the assessee or any document executed between the parties for acquiring of the land, these entries itself do not represent the undisclosed income. As per the definition provided in the Explanation to section 271AAB, if the assessee has acquired an asset which is detected during the course of search and not found recorded in the books of account then the said asset would be considered as undisclosed income but in the absence of the asset it is the mere noting in the diary which appears to be made in one go and in the names of some fictitious persons without having the minimum particulars of identity. The department has not even tried to ascertain the identity of these persons found in the seized material as no question was asked during the statement recorded under section 132(4) of the Act. Similarly, no attempt was made to identify the particulars of the land for which the alleged entries of advances are recorded in the seized document. Thus prima facie it appears that these papers are the seized material being a pocket diary contains some artificial entries in the names of artificial persons. The entries in itself do not reveal the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such undisclosed cash represents income by way of any entry in books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of the search, the Department has not found any evidence of unaccounted purchase/sales or source of undisclosed income. The disclosure of additional income was bona-fide disclosure by the assessee to avoid prolonged litigation. During the course of assessment proceedings, the Ld. A.O. could not prove any source of undisclosed income of the assessee. The Ld. A.O. completed the assessment u/s 143 (3) of Income Tax Act and merely on the basis of search statement, the additional business income was accepted. The additional income declared in return of income of the assessee is based on the search statement in order to avoid prolonged litigation. It is submitted that the authorities of search have exerted undue pressure and obtained the surrender of income from the assessee. Attention was drawn towards Board's Circular dated 10 March, 2003 wherein the Board has the expressed its concern about the practice of confession of additional income during the course of search and seizure proceedings and, therefore, clarified that the confession during the course of search and survey operation do not serve any useful purpose. There should be focus and concentration on collection of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is engaged in business manufacturing, trading and export of precious semi precious stones from last several years. A search u/s 132 of the I.T. Act, 1961 took place at residence and business premises of assessee 23-05-2013. In course of search, the assessee surrendered an income of Rs. 25,00,000/- on account of land advance which he admitted as his additional business income for current year. The assessee filed original return on 29-09-2013 declaring total income of Rs. 89,40,360/- which included said additional income of Rs. 25,00,000/- offered to tax in course of search. The assessment u/s 143 (3) r.w.s. 153B (1) (b) of I.T. Act, 1961 was completed on 21-03-2016 after disallowance of expenses on account of personal element/unverifiable expenses. The A.O. simultaneously initiated penalty proceedings u/s 271AAB of the Act. The A.O. thereafter took penalty proceedings initiated by him u/s 271AAB by issuing fresh show cause notice(s) to which assessee filed his explanation. The explanation filed by assessee has been held by A.O. as not sustainable at all and levied a penalty of Rs. 2,50,000/- on assessee. The assessee filed appeal before the ld. CIT (A) against said pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable particle or thing. Whether it can then be said that such undisclosed cash represents income by way of any entry in books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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