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2019 (2) TMI 1696 - AT - Income TaxPenalty u/s 271AAB - search & seizure operation u/s 132 - ‘undisclosed income’ for the purposes of levy of penalty - whether the income offered by the assessee in its return for AY 2012-13 being the value of closing stock of sub-grade fines having cost can be considered to be ‘undisclosed income’ found in the course of search so as to warrant penalty u/s 271AAB ? - HELD THAT:- Levy of penalty under Section 271AAB is mandatory and automatic and therefore in the matter of levy of penalty the AO had no discretion once the assessee admits of any undisclosed income in his statement u/s 132(4) of the Act. Such a view goes against the words used in section 271AAB and section 274. We note that if the intention of the Legislature to levy the penalty was mandatory and automatic then the right of appeal u/s 246A would not have been provided for by the Legislature against the order of penalty passed u/s 271AAB. We also note that while enacting Section 271AAB the Legislature has consciously used the word ‘may’ in contradistinction to the word ‘shall’ in the opening words of Section 271AAB of the Act. The choice of the expression ‘may’ and not ‘shall’ in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the AO but the AO was given discretion in the matter of levy of penalty. Our foregoing view finds support in the decision in the case of ACIT Vs Marvel Associates (2018 (3) TMI 946 - ITAT VISAKHAPATNAM) which inturn relied on Hon’ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (2018 (2) TMI 1595 - TELANGANA AND ANDHRA PRADESH HIGH COURT). Section 145A of the Income-tax Act, which deals with the method of valuation of stock for the purposes of Section 145 of the Act, requires the assessee to follow any of accepted methods of stock valuation on the condition that the method once adopted must be followed consistently. We therefore find that following the consistent method of valuation followed in the past and accepted by the Revenue even in the financial accounts for the year ending 31.03.2012, the assessee had valued the stock of subgrade Fines at NIL. Having regard to these facts therefore we do not find any infirmity in the accounts and find merit in the Ld. AR’s submissions that no undisclosed income could be inferred merely because in the accounts the value of stock of sub-grade fines was taken as NIL. Department has been consistently accepting the assessee's method of accounting employed whereby it valued the sub-grade Fines in stock at NIL and the gross proceeds realized on sale was assessed by way of income in the year on sale which is evident from the income-tax assessments framed for the all the preceding years. Therefore following the Rule of consistency we do not find any infirmity in the assessee’s stand regarding valuation of sub-grade fines at NIL. In the circumstances the inventory of sub-grade fines whose value was considered as additional income cannot be considered to be ‘undisclosed income’ found as a result of search so as to attract the rigors of Section 271AAB because such inventory was found recorded in other business records regularly maintained in the course of assessee’s business. Levy of penalty under Section 271AAB was automatic. Since in the foregoing paragraphs we have held that the income of ₹ 59.09crores offered by the assessee while filing of the return of income did not come within the ken of ‘undisclosed income’ defined in clause (c) of Explanation to Section 271AAB, we hold that the penalty levied under that Section was unsustainable and for the aforesaid reasoning we confirm the order of CIT(A). We accordingly uphold the CIT(A)’s order for the aforesaid reasoning and reject the Revenue’s appeal.
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