TMI Blog2019 (4) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... GH COURT] has concurred with the view taken by Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton Ginning Factory, [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] which was subsequently upheld by the Hon ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA s Emerald Meadows, [ 2016 (8) TMI 1145 - SUPREME COURT] . Accordingly, following the decision of the Coordinate Bench as well as Hon ble Jurisdictional High Court, this issue is decided 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. Absence of a finding that the income disclosed by the assessee is an undisclosed income as explanation to section 271AAB(1) - HOLD THAT:- We hold that the entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied u/s 271AAB by the AO and confirmed by the ld. CIT (A) is not susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income. Accordingly, the penalty levied by the AO u/s 271AAB is deleted. - ITA No. 307/JP/2018 - - - Dated:- 11-4-2019 - Shri Ramesh C. Sharma, AM And Shri Vijay Pal Rao, JM For the Assessee : Shri S.R. Sharma (CA) And Shri Rajnikant Batra (CA) For the Revenue : Shri Varinder Mehta (CIT) ORDER PER VIJAY PAL RAO, JM : This appeal by the assessee is directed against the order dated 13th December, 2017 of ld. CIT (A)-4, Jaipur arising from the penalty order passed under section 271AAB of the IT Act for the assessment year 2015-16. The assessee has raised the following grounds :- 1. That the notice issued by assessing officer for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law not being specifically pointing out the default for which the ld. A.O. sought to impose penalty u/s 271AAB. 2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case the ld. CIT (A) is wrong, unjust and has erred in law in confirming penalty of ₹ 90,06,900/- imposed by the ld. Assessing Officer u/s 271AAB of the IT Act, 1961. 3. That the appellant craves the permission to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings is illegal due to show cause notice is defective. Therefore, the notices were issued in routine manner without mentioning under which clause of section 271AAB(1) of the Act the assessee is liable for penalty. He has referred to the provisions of section 271AAB(1) and submitted that there are three clauses (a) to (c) and each clause of sub-section (1) provides the circumstances and violation attracting the penalty @ 10%, 20% and 30% of undisclosed income of the specified previous year. The assessee should know the grounds which he has to meet specifically otherwise the principles of natural justice are violated. Even in the assessment order the AO has not specified under which clause the penalty is liable to be imposed but the AO has mentioned that the penalty proceedings under section 271AAB of the Act are being initiated. There is no application of mind at the time of issuing the show cause notices as the AO has not specified the undisclosed income on which the assessee is required to show cause. Even the AO has not given any ground for levy of penalty for which the assessee could put his defence. Thus in the absence of specific charge against the assessee, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the penalty proceedings and has not raised any objection or has demanded before the AO about his unawareness of the nature of default attracting the levy of penalty under section 271AAB. It is not the case of the assessee that the disclosure was taken under coercion and further the assessee has offered the said amount to tax in the return of income which rules out the scope of any pressure or coercion by the search team for taking disclosure from the assessee. Thus the objection raised by the assessee that the AO has not specified the clause under section 271AAB(1) of the Act has no merit when the assessee himself has explained the nature of income disclosed and surrendered and also paid the tax on the same. The ld. D/R has submitted that as per the explanatory note of Finance Bill, 2012, the provisions of section 271AAB are mandatory in nature and the AO has no discretion but the assessee shall pay the penalty in addition to the tax on the undisclosed income surrendered under section 132(4) of the Act. He has relied upon the orders of the authorities below. 4.1. The ld. D/R has also relied upon the decision of Hon ble Allahabad High Court in case of Principal CIT vs. Sandeep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to be considered and decided in the penalty proceedings. Since the assessee has offered the said income in the return of income filed under section 139(1) of the Act, therefore, the question of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise and only when the AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Therefore, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AAB of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :- 271AAB. (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 1st day of July, 2012 49 [but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President 50 ], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53 [ section 270A or] clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) 52 [or sub-section (1A)]. (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.-For the purposes of this section,- (a) specified date means the due date of furnishing of return of income under subsection (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) specified previous year means the previous year- (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to E. Even the quantum of penalty leviable u/s 271AAB is also subject to the condition prescribed under clauses (a) to (c) of sub-section (1) and the AO has to again give a finding for levy of penalty @ 10% or 20% or 30% of the undisclosed income. Thus the AO is bound to take a decision as to what default is committed by the assessee and which particular clause of section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not followed by the AO. The detailed submissions of A.R in this regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed. Thus it was found by the Hon ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. Amit Agarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence. 6. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring such undisclosed income therein; (b) a sum computed at the rate 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 which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because the opportunity of being heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory . In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case. Thus the Tribunal has held that the levy of penalty und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, 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 in our opinion was vague. Hon ble Karnataka High Court in the case of SSA s Emerald Meadows (supra) relying in its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) had held as under:- 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings . View taken by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shyam Sunder Khandelwal Address 1839, Rasta Barah Gangore, Johari Bazar, Jaipur. PAN ADRPK 5862 C Whereas in the course of assessment proceedings for the AY 2015-16 penalty proceedings were initiated u/s 274 and 275 read with the section u/s 271AAB of the IT Act and a penalty notice was issued accordingly. You are hereby allowed further opportunity of being heard and to show cause why an order imposing penalty on you should not be made u/s 271AAB of the Income Tax Act 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through Authorized Representative, you may show cause in writing on or before the date fixed for hearing on 25.05.2017 at 11.00 AM which will be considered before any such order (s) is/are made. Sd/- ( Kamlesh Kumar Meena ) Dy. Commissioner of Income-tax, Central Circle-2, Jaipur. Thus it is clear that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written against some imaginary names and figures and do not represent any actual transaction but only for sake of obtaining the surrender from the assessee, the search party has forced upon these documents on the assessee. The ld. A/R has referred to the CBDT Circular No. 286 of 2003 dated 10th March, 2003 and submitted that the CBDT expressed its concern about the practice of confession of additional income during the course of search and seizure proceedings which do not serve any useful purpose in the absence of any evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed. Hence the ld. A/R has submitted that the Board has time and again advised the taxing authorities to avoid obtaining an admission/confession of undisclosed income under coercive/undue influence. He has then referred to the Circular dated 18th December, 2018 and submitted that the CBDT has repeated its earlier instructions. Thus the ld. A/R has submitted that in the absence of any undisclosed income indicated or discovered on the basis of seized material, the disclosure made in the statement under section 132(4) is not sufficient to levy the penalty under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments, we find that various entries are made against various names from the month of May, 2014 to 8th October, 2014. These entries are in respect of certain amounts against some imaginary names and the department has not made any effort or conducted any enquiry either during the search and seizure action or during the assessment proceedings or in the penalty proceedings to ascertain the particulars of these persons whether these are real existing persons or only fake names are written in the seized documents. Further, there is no description of any land for which the alleged advances are found to be noted in the seized material. Apart from these entries, there is nothing on record or even any enquiry was conducted by the department to find out the particulars of the details or transactions for which the alleged advances were given by the assessee. The mere entries in these documents do not reveal the correct nature of transaction and the existence of the corresponding asset for which the alleged advances were given. The department has concentrated only to obtain the surrender from the assessee but no relevant question or enquiry was conducted to find out the particulars of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, 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 article or thing. Whether it can then be said that such undisclosed cash advances represents 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 . 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 the 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of search in the statement recorded u/s 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside. Accordingly in view of the facts and circumstances as discussed above as well as the order of the Coordinate Bench of this Tribunal, we hold that the entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied under section 271AAB by the AO and confirmed by the ld. CIT (A) is not sustainable and liable to be deleted. Expenditure on renovation of house : 9. During the course of search and seizure action, loose paper marked as Annexure A-1 was found and seized containing the entries on account of renovation work. The assessee disclosed an amount of ₹ 7,32,475/- on account of expenditure on renovation in his stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized paper cannot regarded as undisclosed income of the assessee. The Coordinate Bench of this Tribunal in case of Raja Ram Maheshwari vs. DCIT (supra) has considered an identical issue in para 22 as under :- 22. Regarding undisclosed investment in the construction of house, we find that such undisclosed investment has been worked out based on assessee s statement of approximate investment in the construction of house and after determining the amount which has been reflected in the books of account, and the difference has been estimated at ₹ 31,77,000. There has been nothing tangible in terms of any entries or documents relating to actual expenditure on construction of house which has been incurred which is found to be false during the course of search and therefore penalty levied thereon deserve to be setaside. Accordingly, in view of the facts and circumstances of the case where the department has not brought on record the fact of actual expenditure incurred by the assessee on the renovation work of the house or carried out during the year under consideration as well as following the decision of the Coordinate Bench of this Tribunal, the penalty levied under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed income in terms of explanation to section 271AAB of the Act. An identical issue has been considered in the preceding para in respect of the expenditure on account of renovation work and, therefore, the expenditure itself is not an income of the assessee much less the undisclosed income for the specified previous year without bringing the relevant facts of the withdrawal/drawings of the family members of the assessee. Accordingly, the penalty levied under section 271AAB on account of household expenditure is deleted. Excess Cash Found : 15. As regards the excess cash of ₹ 6,33,055/- found during the course of search and seizure action, the ld. A/R of the assessee has submitted that the assessee has duly explained the cash as past savings of the family members. The ld. A/R has submitted that the said cash does not belong to one person but belong to all the family members found from various places of residence of the assessee. It was accumulated savings of all the family members out of withdrawal made for household expenses. The AO has not determined it as income from other sources under section 69 of the Act in the assessment but accepted as business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. From the statement recorded under section 132(4) itself, the department has pointed out that the cash was found from different rooms of the residential premises and, therefore, the benefit of past savings of other family members is required to be given on this account. Accordingly, in the absence of any clear cut finding about the cash not representing and belonging to the other family members as their past savings, the same cannot be treated as undisclosed income of the assessee for the year under consideration. Hence the penalty levied by the AO in respect of the cash found during the search is deleted. Excess jewellery silver found : 18. During the course of search and seizure action, gold jewellery and silver was found at the residence of the assessee. The assessee has declared a sum of ₹ 20,03,474 (Rs. 11,59,100 + ₹ 8,44,374) in his statement recorded under section 132(4) of the Act on account of the excess gold jewellery and silver found from the residence. The said income was also declared in the return of income. The ld. A/R of the assessee has submitted that the family of the assessee consisting of 10 members i.e. assessee himself, wife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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