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TMI Blog2018 (7) TMI 1882X X X X Extracts X X X X X X X X Extracts X X X X ..... dulgence to add amend or alter all or any grounds of appeal before or at the time of hearing." The assessee has also raised the additional ground which reads as under:- "Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the order of the Learned Assessing Officer U/s 271AAB of the Income Tax Act on the basis of notices dated 28.07.2016 & 04.02.2016 which are void-ab-initio and issued without mentioning the specific provision of section for levy of penalty and without application of mind is bad in law and therefore initiation of penalty proceedings was not proper." 2. The ld. AR of the assessee has submitted that the additional ground could not be taken in Form No. 36 due to inadvertence and bonafide mistake. Further, the additional ground goes to the root of the matter and does not require any fresh investigation of fact but the issue raised in the additional ground is purely legal in nature and can be adjudicated on the basis of the facts available on record. In support of his contention he has relied upon the decision of the Hon'ble Supreme Court in case of National Thermal Power Co. Ltd vs. CIT 229 ITR 383 and submitted that the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A). Further, the said issue is purely legal in nature and can be decided on the basis of the facts available on record. Since, no further investigation of fact is required for adjudication of the issue raised in the additional ground, therefore, in the facts and circumstances of the case and in view of the decision of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT(supra) as well as the decision of Special Bench Mumbai Tribunal in case of Mahindra & Mahindra Ltd. Vs. DCIT (supra) we admit the additional ground for adjudication on merits. 5. Additional ground on merits:- The assessee is an individual and is engaged in the business of manufacturing of gold ornaments and jewelries. A search U/s 132 of the Act was conducted on 03.04.2013. During the course of search and seizure proceeding the assessee disclosed and surrendered income of Rs. 11 crores out of which the income of Rs. 8,13,41,547/- was surrendered for the assessment year under consideration i.e. 2013-14. The assessee filed his return of income in response to notice U/s 153(A) and offered the surrender income of Rs. 8,13,41,547/- to tax. The AO completed the assessment on the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding itself was unlawful, illegal and unjust. In the circumstances the levy of penalty was not justified and ld. CIT(A) erred in confirming the levy of penalty. The same deserved to be deleted. 6. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that once the assessee has disclosed the income during the search and seizure proceeding and in the statement made U/s 132(4) of the Act based on the seized material then, the disclosure made by the assessee on the basis of incriminating material itself is the admission on the part of the assessee regarding a disclosure income as well as consequential liability to pay tax as well as penalty U/s 271AAB of the Act. The assessee himself surrendered the income and fulfilled the condition as required for levy of penalty under the provision of Section 271AAB of the Act then, there is no requirement of making the assessee known about the consequence of the surrender of undisclosed income. The surrender in question was made because the assessee was unable to explain the source of the investment in question. It is clear case of undisclosed income detected during the course of search and seizure actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of Rs. 10,02,00,000/- in pursuant to the entries of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of twenty per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum 51[computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 52[(1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, 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 thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the search, in a statement under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resented, 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.]" The section begins with the stipulation that the AO "may" direct the assessee shall pay by way of penalty if the conditions as prescribed under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether the explanation furnished by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Before we proceed further, the decisions relied upon by the ld. D/R are to be considered. In the case of Principal CIT vs. Sandeep Chandak & Others (supra) the issue before the Hon'ble High Court was the defect in the notice issued under section 271AAB on account of mentioning wrong provision of the Act being 271(1)(c) of the Act. The Hon'ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon'ble High Court has held as under :- " The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mandatory but discretionary. When there is reasonable cause, the penalty is not exigible. The Ld. A.R. taken us to the section 271AAB of the Act and also section 158BFA(2) of the Act and argued that the words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under; 271AAB [Penalty where search has been initiated]: (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1 st day of July, 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- (i) in the course of search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. 6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. 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. 7. 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 opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act. The Channai Bench of the Tribunal in the case of DCIT vs. Shri R. Elangovan (supra) at pages 7 to 10 has held as under :- " It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for having undisclosed income within the meaning of Section 271AAB of the Act. Notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ''Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law ; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee ; ) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law ; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings ; The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood faith. The return was filed disclosing income in order to avoid litigation and to purchase peace of mind. The ld. AR has further submitted that provisions of Section 271AAB are deeming provisions. In the case of the assessee there is virtually no concealment and no penalty should be levied for a technical default. The assessee furnished return in good faith to purchase peace of mind and with a strong hope that the department would honor the assurance given for not levying penalty. Income declared by the assessee in the return of income accepted with minor variation. There cannot be any concealment prior to filing of return. Question of considering whether assessee is liable for action u/s 271(1)(c) would arise only when return of income is scrutinized by Assessing Officer and he finds some more items of income or additional income over and above what is declared in the return. where the Assessing Officer accepted the income then assessee cannot be charged for any contumacious conduct and there is no question of penalty. The basis of levy of penalty is return of income. There can be no concealment until there is duty to disclose. The duty to disclose particulars of income arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apers all the entries are for the current and earlier Financial Year i.e. from 01.04.2013 to date of search i.e. 03.04.2014. All the transactions are for the current year which had not been ended before the date of the search or for which the return was already filed. All the transactions are recorded. Nothing adverse was found which suggest that the assessee's intention was not to disclose the income recorded in the seized documents. Keeping the records/diary in the office premises along with regular books of accounts shows that the assessee has no intention to conceal his income. This was a bonafide mistake to not incorporate the income in the regular books of accounts and it does not prove the guilty mind and intention to conceal the income on the part of the assessee. Therefore, without bringing any adverse material on record no penalty can be levied u/s 271AAB of the Income Tax Act, 1961. He has relied upon the same decision of this Tribunal in case of Shri Ravi Mathur vs. DCIT order dated 13.06.2018 in ITA No. 969/JP2017. 11. On the other hand ld. DR has submitted that when the disclosure was made on the basis of the incriminatory material found during the search and sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of hearing to the assessee in terms of section 274 of the Act. Thus the AO in the proceedings under section 271AAB of the Act has to first decide that the conditions prescribed under the said section are satisfied for levy of penalty and then to further take a decision after considering the explanation of the assessee for non compliance of any of the conditions under clauses (a) to (c) of sub-section (1) regarding the quantum of penalty. The primary condition for levy of penalty is the existence of undisclosed income as per the disclosure made by the assessee under section 132(4). The term 'undisclosed income' has been defined in Explanations to section 271AAB. Therefore, as per the definition provided in the Explanation, the undisclosed income may have various forms and the same is not recorded in the books of accounts or other documents maintained in normal course relating to the specified previous year. As per sub-clause (i) of clause (c) of the Explanation, the undisclosed income means any income of the specified previous year represented by any money, bullion, jewellery or valuable article or things or any entry in books of accounts or other documents or transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee before arriving to the conclusion that penalty under section 271AAB is leviable and further whether it is 10% or 20% or 30% of such undisclosed income. Therefore, the AO is under statutory obligation to examine all the issues during the proceedings under section 271AAB after giving the assessee an opportunity to explain the charges/grounds on which the penalty is proposed to be levied. Hence it is a pre-requisite condition that the AO first specify the charges against the assessee and to make known the assessee of his default so as to afford an opportunity to explain the default/charges so brought against the assessee. Without considering the explanation of the assessee on the specific default, the order passed by the AO under section 271AAB suffers from serious illegality and therefore not sustainable in law. When a stringent action is provided in the Statute against the default committed by the assessee, then it also cast an equally stringent and strict duty on the authority responsible to take such action. Therefore, when the provisions for levy of penalty under section 271AAB is a specific provision to deal with the undisclosed income and it provides a strict penal action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 cr., which have been deleted by the impugned order of Ld. CIT(A). 4. The Ld. DR brought 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. On the other hand, Ld. AR Shri Miraz D. Shah, supporting the decision of Ld. CIT(A) made contentions though taken up before the Ld. CIT(A) but has not been adjudicated on those averments, which the Ld. AR urges before us to consider while adjudicating the appeal of the Revenue. The Ld. AR also pointed out that the contentions which he is going to raise has been taken up before the AO also, however, according to Ld. Counsel, those legal arguments were not considered by the AO in the right perspective. The first contention of the Ld. AR is that since Sec. 271AAB of the Act is a penalty section it should be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal had stated in para 9 of its order that the assessee himself had accepted that he is engaged in commodities trading business and therefore mandated to maintain books of accounts in terms of section 44AA of the Act and thereby inferring that the assessee had reported the profit from commodities trading business under the head "income from business or profession". Based on this crucial finding, the Tribunal had concluded that since the transaction of commodities trading had not been entered 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 column no. 10 that the assessee is having only salary income and income from other sources. We find that due to the absence of the assessee at the time of hearing this particular fact had escaped the attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stipulated in Sec. 44AA or Sec. 44AA(2)(ii) of the Act because, these provisions are only for assesses 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 submission let us go through the provisions of law. "44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act. (2) Every person carrying on business or profession [not being a profession referred to in subsection (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om other sources. We would like to reproduce the summary of total income of the assessee filed along with the return: Income from Salary Rs. 45,57,600 Income from Other sources Rs. 3,00,24,047 Rs.3,45,81,647 6. We note that the AO has accepted the aforesaid statement of total income filed before him without contesting 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 Rs. 32 crore vide his disclosure petition. Out of this consolidated disclosure, the assessee owned up Rs. 3 cr. In the disclosure petition Shri Manoj Beswal it was stated that the source of such undisclosed income was out of commodity profit. It has been submitted that the amount has already been disclosed in his Income & Expenditure account for the AY 2013- 14 under the head 'Income out of Speculative Business from sale of commodities'. Verification of accounts c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 falls within the charge of sec. 4 of the Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and interpretation of the term 'income' given in a large number of decisions of the Hon'ble Supreme Court, High Court and Privy Council. After taking note of the Apex Court order as above, we note that the AO in the assessment order after having accepted the statement of total income (supra) and the return wherein the assessee has shown the income from commodities 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 Rs. 3 cr. as income from other sources, which we find the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 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 other valuable article or thing or any entry in the books of account or other documents or transactions found in the 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the diary which is nothing but the other record maintained in the normal course, thus the same would not fall in the definition of undisclosed income. Once the said income is found as recorded in the other documents maintained in the normal course, then it cannot be presumed that the assessee would not have disclosed the same in the return of income to be filed after about one year from the date of search. Hence, in view of the above facts and circumstances of the case as well as the various decisions on this point, we hold that the penalty levied under section 271AAB is not sustainable and the same is deleted." We find that the said decision of this Tribunal is applicable in the facts of the present case and accordingly, in view of the decision in case of Shri Ravi Mathur vs. DCIT (supra) we delete the penalty levy U/s 271AAB of the Act. 13 For the assessment year 2014-15, the assessee has raised the following grounds as under:- "1. Under the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty U/s 271AAB of the Act. The ld. AR has referred to the valuation report and submitted that the valuation was done as per the prevailing market price of the gold and even without considering the impurity due to the other metals in maxing of the Jewellery. Thus, the disclosure based on such valuation would not fall in the definition of undisclosed income as per the provisions of Section 271AAB of the Act. The ld. AR has further contended that the entire stock is part of the books of account and therefore, valuation cannot be a basis of undisclosed income attracting the penalty U/s 271AAB of the Act. He has reiterated its contention as raised for the assessment year 2013-14. 17. On the other hand, the ld. D/R has submitted that the assessee was very well aware about the default and the nature of income he has disclosed and surrendered during the statement recorded under section 132(4) of the IT Act. The surrender in question was made because the assessee was unable to explain the source of the investment in question. It is clear case of undisclosed income detected during the course of search and seizure action and, therefore, the surrender made by the assessee itself is self ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the computation of excess stock based on the market price of the stock cannot be considered as undisclosed income of the assessee as it is the subject matter of regular assessment and cannot be regarded as undisclosed income based on incriminating material. There is no such fact either recorded during the search and seizure proceeding or in the assessment order or in the penalty proceeding to show that there was discrepancy in the stock as recorded in the books of account and found at the time of search. In the absence of any discrepancy in the quantity of stock the valuation of the stock is purely a question of assessment and cannot be held as undisclosed income detected during the course of search and seizure proceeding. Therefore, to the extent of excess stock based on the valuation report the disclosure of the income by the assessee would not fall in the category of undisclosed income as per explanation to Section 271AAB of the Act. It is not the case of the Revenue that any stock of jewellery was found which is not recorded in the books of account but the value of stock is computed based on the valuation report of the departmental valuer. Once the difference in the value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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