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2019 (6) TMI 285 - AT - Income TaxPenalty u/s 271AAB - defective notice - show cause notice issued by the AO without specifying the default - search and seizure u/s 132 - certain incriminating documents containing the entries of advance, unaccounted stock at business premises as well as residence, cash at the residence of the assessee and jewellery at the residence of the assessee were found and seized - assessee filed his return of income u/s 139(1) on 2nd September, 2015 declaring total income including the surrender of additional income - HELD THAT:- The show cause notice issued by the AO without specifying the default and ground for which the penalty u/s 271AAB was proposed to be levied renders the initiation of penalty proceedings invalid and consequently the order passed u/s 271AAB is liable to be quashed. Mandatory or discretionary nature of levy of penalty u/s 271AAB - Tribunal after considering all the decisions including the decision of Hon’ble Allahabad High Court in case of PCIT vs. Sandeep Chandak [2017 (12) TMI 70 - ALLAHABAD HIGH COURT] held that the levy of penalty u/s 271AAB is not mandatory but the AO has to take a decision on the basis of the relevant facts of the case and after considering the explanation of the assessee whether the surrender made by the assessee falls in the definition of undisclosed income as proposed in explanation to section 271AAB. Accordingly this issue is decided in favour of the assessee and against the revenue. Penalty on account of excess stock - When assessee was not found to be doing any business in his individual capacity and all business of Gem & Jewellery are run through the proprietorship concern of the assessee’s HUF as well as the other firms and companies in which the assessee and his family members are partners and directors, the said income on account of excess stock disclosed by the assessee cannot be regarded as undisclosed income for the purpose of levy of penalty u/s 271AAB. The definition of Undisclosed Income as provided in explanation to section 271AAB has to be considered for the purpose of levy of penalty and not the mere disclosure of undisclosed income u/s 132(4). Accordingly, we delete the penalty levied u/s 271AAB in respect of the Income surrendered on account of excess stock. Since we have considered that this is not undisclosed income of the assessee, therefore, we do not propose to go into the issue of valuation of closing stock. Penalty on cash advances - As relying on SHRI RAJENDRA KUMAR GUPTA VERSUS THE DCIT, CENTRAL CIRCLE-2, JAIPUR. [2019 (1) TMI 1545 - ITAT JAIPUR] the mere entry of advances representing the out go of money would not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB. Moreover, no efforts were made to ascertain the status of these advances given to these two persons and even whether the entries in the name of these two persons were artificial or in the name of some existing persons. Accordingly, the penalty levied u/s 271AAB on account of entries for advances is deleted. Penalty on account of cash found at the residence of the assessee - Though the assessee has surrendered the same in the statement recorded u/s 132(4), however, the mere surrender in the statement u/s 132(4) would not itself constitute undisclosed income ignoring the other relevant facts being source of cash found during the search. Once the assessee and other family members of the assessee are having the income as well as withdrawals which are many times or in hundred times of the cash found at the residence of the assessee, by considering these undisputed facts of income and withdrawals, the said cash cannot be held as undisclosed income of the assessee. Accordingly, penalty levied u/s 271AAB on account of cash found at the residence is deleted. Disclosure on account of excess jewellery found at the residence - After giving the benefit of the CBDT Instruction No. 1916 and the status of the assessee’s family, the jewellery found from the residence and locker of the assessee cannot be considered as excess of the normal possession of this jewellery. Therefore, even if the assessee has disclosed the undisclosed income in the statement recorded u/s 132(4) but for the purpose of levy of penalty u/s 271AAB, all these facts are required to be taken into account. Once all these facts are considered, then the said jewellery found at the time of search and seizure action cannot be held as undisclosed income. - Decided in favour of assessee.
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