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Deputy Commissioner of Income-tax, Circle-2 (2) , Kolkata Versus Manish Agarwala

2018 (2) TMI 972 - ITAT KOLKATA

Penalty imposed u/s. 271AAB - income from commodity profit has been found during search u/s. 132 of the Act which is not reflected in the regular books of account - AO has accepted that during search the assessee has admitted u/s. 132(4) the income from speculative trading - Held that:- Since the assessee is not engaged in business or profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee’s case falls in the second li .....

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ch and later returned income of ₹ 3 cr. as income under the head “Income from Other Sources” which was accepted by the AO in toto. - We note that since the income under question (Rs. 3 cr.) was in fact entered in the “other documents” maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of ₹ 3 cr. offered by the assessee does not fall in the ken of “undisclosed income” defined in Sec. 271AAB of the Act. So,  .....

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Kumar, Addl. CIT, DR For The Respondent : Shri Miraj D. Shah, AR ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the revenue against the order of Ld. CIT(A)-20, Kolkata dated 14.09.2015 for AY 2013-14 by which he deleted the penalty imposed u/s. 271AAB of the Income-tax Act, 1961 (hereinafter referred to as the Act ).. 2. Briefly stated facts are that there was a search and seizure operation in respect of Nezone Group of cases on 01.08.2012 and on subsequent dates; and the assessee befo .....

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total income of ₹ 3,44,65,120/-. According to AO, on verification of accounts, he noticed that the assessee for the relevant year disclosed a sum of ₹ 3,00,00,000/- and had shown the same under the head Income out of speculative business from sale of commodities . Then the AO notes that the return was selected for scrutiny and assessment was completed u/s. 143(3) of the Act on 29.08.2014 on a total income of ₹ 3,44,65,120/- (on the same income returned by the assessee in the RO .....

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observing that the entire undisclosed income can only be treated as arising out of documents/transactions/evidence found in the course of search u/s. 132 of the Act and the same was not entered in the books of account. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who deleted the penalty by observing as under: 8. I have considered the finding of the AO in the penalty order and the written submission as well as oral submission made by the AR during the appellate proceedings. I f .....

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ining assessee s income in the safe custody in the office premises shows that the assessee had no intention to conceal his income. The incidence of not making entries in the regular books of accounts on day to day basis is a bonafide mistake on the part of the accountant for which assessee could not be penalized. I think, there is no doubt that not making entries in the regular books of accounts of the income earned by the assessee, is a mistake on the part of the accountant . But for this, impo .....

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1 and 2 are allowed. Aggrieved, the revenue is in appeal before us. 3. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has levied the penalty u/s. 271AAB on the ground that the income from commodity profit has been found during search u/s. 132 of the Act which is not reflected in the regular books of account. The AO has accepted that during search the assessee has admitted u/s. 132(4) of the Act the income from speculative trading. Th .....

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rought to our notice that in the very same group case of Manoj Beswal & Ors. the Tribunal had confirmed the levy of penalty and contended before us that penalty u/s. 271AAB of the Act is mandatory and therefore, according to Ld. DR, the Ld. CIT(A) erred in deleting the penalty by stating that the assessee did not had any mens rea not to disclose the amount in question. According to him, penalty has to be mandatorily levied u/s. 271AAB of the Act on the undisclosed income found during search. .....

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ctive. The first contention of the Ld. AR is that since Sec. 271AAB of the Act is a penalty section it should be construed strictly, which we agree being it is a trite law that penalty provisions have to be strictly interpreted. Next contention of Ld. AR is that sec. 271AAB of the Act is not mandatory because Parliament in its wisdom has used the word may and not shall . So, according to him, it is the discretion bestowed upon the AO whether to initiate and impose penalty u/s. 271AAB of the Act. .....

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ot be levied in each and every case wherever the assessee has made default as stated in clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word may not shall . May cannot be equated with shall especially in penalty proceeding. Using the word may in our opinion, gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision. Therefore, the 2nd ground of Revenue fails and we hold that penalty .....

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wal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error that had crept in the order of the Tribunal. The first preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on 06.11.2017 and hence, the assessee could not be present on the said date by way of personal appearance. The second objection raised by the Ld. AR was that the T .....

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by the assessee in his books of accounts as on the date of search on 01.08.2012 and thereby it takes the character of undisclosed income for which penalty u/s 271AAB of the Act is exigible. In this regard, we find that the Ld. AR drew our attention to the computation of the total income wherein the assessee had offered income from commodity trading only under the head income from other sources. We also find that the Ld. AO had also specifically stated in the body of the assessment order vide col .....

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take of primary fact had lead to a conclusion of upholding the levy of penalty u/s 271AAB of the Act. Hence, in these facts and circumstances and in view of the aforesaid mistake of primary fact rightly pointed out by the ld. AR , we deem it fit to recall the orders of this Tribunal dated 10.11.2017 in the case of aforesaid assessees. In the aforesaid scenario, the legal position is that an order which has been recalled for de novo adjudication, is no order in the eyes of law and so it cannot be .....

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ly in trading of commodities, that too which was conducted in a non-systematic manner and the income from it was duly offered to tax by the assessee in his return of income under the head Income from Other Sources , which, according to Ld. AR was accepted as such by the AO and drew our attention to page one of assessment order, (not the penalty order) wherein we note that the AO has acknowledged that the assessee owned up ₹ 3 cr. as his income from commodity profit and it has been disclose .....

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d Income from Other Sources , and so, accordingly, he is not required to maintain books of account as stipulated in Sec. 44AA or Sec. 44AA(2)(ii) of the Act because, these provisions are only for assessees who are earning income under the head Business or profession . We note that Sec. 44AA or Sec. 44AA(2)(ii) of the Act casts a duty upon the assessee who are into Business or Profession and such assessee s are bound to maintain books of account as stipulated therein. For appreciating this submis .....

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n business or profession [not being a profession referred to in sub-section (1)] shall,- (i) if his income from business or profession exceeds [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds [ten lakh] rupees in any one of the three years immediately preceding the previous year; or (ii) where the business or profession is newly set up in any previous year, if his income from business or profession i .....

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e the profits and gains of his business, as the case may be, during such [previous year; or]] (iv) where the profits and gains from the business are deemed to be the profits and gains of the assessee under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax during such previous year,] keep and maintain such books of account and other .....

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e at which they shall be kept and maintained. (4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under subsection (1) or sub-section (2) shall be retained.] So from a reading of the above provisions which clearly stipulates that assessee who are carrying on business or profession shall keep and maintain such books of account and other documents which may enable the .....

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the claim of the assessee as to whether the assessee s claim of income other than from salary should be from Income from Business . The confusion that has arisen in this case, we note is on the misdirection of AO in the assessment proceedings wherein the assessment order of the assessee, the AO has observed during search and seizure operation, Shri Manoj Beswal had made a consolidated disclosure of ₹ 32 crore vide his disclosure petition. Out of this consolidated disclosure, the assessee o .....

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xpenditure Account for AY 2013-14 submitted by the assessee before him, wherein it was shown in the income side that is right hand column as Income from Speculative Business from sale of commodities and left hand side column reflects the expenditure; and AO came to the conclusion that assessee has disclosed under the heading income out of Speculative Business from sale of commodities. The character of a receipt and the head under which it has to be taxed is not based on the nomenclature of recei .....

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neous, unless the AO was able to negate the claim of the assessee by bringing the income from commodity transactions as part of business income. It should be remembered that under the Income Tax Act 1961, the total income of an assessee/individual/company is chargeable to tax u/s. 4 of the Act. The total income has to be computed in accordance with the provisions of the Act. Section 14 of the Act lays down that for the purpose of computation, income of an assessee has to be classified under five .....

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from any other source will not be taxed as held by the Hon ble Supreme Court in the case of Tuticorin Alkali & Chemicals Ltd. Vs. CIT (1997) 227 ITR 172 (SC). It has been further held that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipt is principles of law and not in accordance with accountancy practice. Further, the Hon ble Apex Court held that the question as to whether a principal receipt is of the nature of income and fall .....

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ities under the head Income from Other Sources cannot now after perusal of Income & Expenditure Account determine the character of transaction in the penalty proceedings as Income from Business or Profession which approach/action is erroneous. We note that the assessee in his statement of total income along with return has classified his income under two heads (i) Salary and (ii) from other sources and the income of ₹ 3 cr. as income from other sources, which we find the AO has not con .....

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ons which yielded income, the assessee had in fact maintained records from which the AO was able to deduce the true income and expenditure of the assessee. We note the AO in the assessment order has accepted the returned income comprising of income from salary and income from other sources by observing as under : Total income assessed as per return ₹ 3,44,65,120/- . And further we note that the AO had specifically stated in the body of the assessment order vide column no. 10 that the asses .....

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ch, the search party found the records of the assessee s transactions in speculative commodity from the drawer of assessee s accountant from which the AO could compute the income of the assessee from the said transaction which amount assessee declared during search and which was duly returned and which figure was accepted by the AO. According to Ld. AR, the fact that search happened on 01.08.2012 need to be taken note of since undisputedly there was enough and more time for the assessee to submi .....

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2012, 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 ten per cent of the undisclosed income of the specified previous year, if such assessee- ******** Explanation - For the purposes of this section, - (a) ………. (b) ………. (c) "undisclosed income" means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or ot .....

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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. According to the Ld. AR, from the facts and circumstances described above, since the assessee is not engaged in business or profession, he does not require t .....

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