TMI Blog2019 (4) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... hus the transactions found recorded in the diary are to be recorded in the capital account of the assessee as well as in the balance sheet prepared as on 31.03.2015 and not on the date of search as on 5.02.2015. These transactions are recorded in a diary which is nothing but 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 the date of search. A Whether the advances so given for purchase of land qualify as undisclosed income as per definition given in the explanation to section 271AAB of the Act? - An advance represents an outflow of funds and what has been envisaged by the legislature while defining undisclosed income in section 271AAB is an inflow of funds which has not been recorded in the books of accounts or other documents on or before the date of search and not an outflow of funds. Further, the deeming fiction so envisaged in section 69 and 69B cannot be extended and applied automatically in context of section 271AAB which contains a specific definition of undisclosed income. As relying on SHRI RAJENDRA KUMAR GUPTA VERSUS THE DCIT, CENTRAL CIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which includes additional income of ₹ 2,25,00,000/- offered to tax during the course of search. The assessment proceedings were subsequently completed u/s 143(3) r.w.s 153B(1)(b) wherein the returned income of ₹ 2,46,19,600/- was accepted. The Assessing Officer separately initiated the penalty proceedings u/s 271AAB by way of issue of notice u/s 274 r.w.s 271AAB of the Act dated 15.12.2016 which was duly served on the assessee. 4. During the course of penalty proceedings, the Assessing Officer stated that all the essential requirement of section 271AAB(1)(a) are satisfied in the instant case and given that the assessee had admitted undisclosed income of ₹ 2,25,00,000/- in its statements u/s 132(4) of the Act and paid the taxes thereon before specified date, penalty @ 10% u/s 271AAB on the undisclosed income of ₹ 2,25,00,000/- amounting to ₹ 22,50,000 was levied on the assessee. 5. Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A). The ld. CIT(A) has confirmed the levy of penalty u/s 271AAB of the Act holding that the penalty is mandatory in nature and there is no discretion with the AO and unlike section 271AAA wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding upon the facts and circumstances of the each case. 8. It was further submitted that in the search proceedings carried out at the assessee s premises, no evidence was found during the course of search except Annexure-AS Exhibit-11 wherein certain figures, dates and cryptic names were written. The search parties added these figures which worked out to ₹ 2,25,00,000/- holding amounts as rupees given to various persons as advances for purchase of land. It was submitted that no incriminating material was found during the search and said Annexure-As Exhibit-11 was containing imaginary names and some figures. Further the officers of search proceedings and ld. AO didn t make any further enquiry/investigation regarding entries in the seized papers. It was submitted that the said entries in the pocket diary giving advances itself is not an undisclosed income. The Revenue authorities have exerted undue pressure and obtained the surrender of income from the assessee. In support, the reliance was placed on the CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10.03.2003 wherein the CBDT has expressed its concern about the practice of obtaining the confession of additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od faith including the additional income surrendered during the course of search to purchase peace of mind and avoid litigation, assessment has been completed accepting the income declared by the assessee and there is no undisclosed income found during the course of search and penalty so levied should be deleted. 10. Per contra, the ld. DR heavily relied on the findings of the lower authorities. It was submitted by the ld DR that the assessee has surrendered the undisclosed income of ₹ 2,25,00,000/- in its statement recorded during the course of search u/s 132(4) of the Act and the said surrender is clearly an admission on the part of the assessee that there is undisclosed income which has been found during the course of search. Once the surrender of undisclosed income has been made by the assessee, there is no cause of action which lies with the Assessing Officer to establish further that there is any undisclosed income so earned by the assessee. In this case, the search was conducted on 5.02.2015 wherein the statement of the assessee was recorded u/s 132(4) wherein he has surrendered the amount of ₹ 2,25,00,000. Subsequently, the assessee has disclosed the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was placed on provisions of section 158BFA(2) wherein similar phraselogy has been used by the legislature and the decisions of the Coordinate Benches in case of DCIT vs Manish Agarwal 92 taxmann.com 81 and ACIT vs Marvel Associates 92 taxmann.com 109. 13. Per contra, the ld. DR submitted that the assessee has surrendered the undisclosed income in his statement recorded u/s 132(4) and therefore, there cannot be any question of said surrender of income not falling in the definition of undisclosed income. It was submitted that the penalty U/s 271AAB is mandatory in nature and is imposed at the varying rate of 10%, 20% or 30% depending on the fulfillment of certain conditions therein. It was submitted that all the conditions specified in Section 271AAB have been fulfilled in the instant case, therefore, the penalty U/s 271AAB being in the nature of mandatory penalty and there being no discretion with the Income tax authorities, the penalty so imposed by the AO was rightly confirmed by the ld CIT(A) and the order of the ld CIT(A) should be upheld. 14. In this regard, we refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed 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 has been derived. (ii) Substantiates the manner in which the undisclosed income was derived; and (iii) On or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein, 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 opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n persons towards purchase of land. The notings describe the name of certain persons, the amount advanced which ranges from ₹ 25 lacs to ₹ 70 lacs and the date of such advance is from 16.12.2014 to 28.01.2015 before the date of search on 5.02.2015. Therefore, what has been found during the course of search is certain entries relating to undisclosed advances/investment in purchase of land. Besides the said entries, there are no other documents/material in terms of full particulars and address of the person to whom the advance has been given, any agreement to sell, the description and location of the property etc, which has been found during the course of search. The assessee HUF is a partner in two partnership firms and derives income from share in the profit and interest from such partnership firms which it has reported in its return of income and therefore, as far as maintenance of books of accounts is concerned, the assessee HUF not carrying on any business is thus not required to maintain regular books of accounts. The diary found during the course of search and seizure at the premises of the assessee contains the entries of advances given for purchase of land and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery 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 party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about 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 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the issue of validity of initiation of the penalty proceeding due to defective show cause notice become academic in nature and we do not propose to adjudicate the same. 15. In the result, the appeal of the assessee is allowed. ITA No. 125/JP/18 16. In ITA No. 125/JP/18 in case of Ashok Bansal, both the parties submitted that the facts and circumstances of the case are identical except the fact that besides the surrender of additional income during the course of search consist of cash advances of ₹ 1,00,50,000 towards purchase of land, there is surrender on account of jewellery valued at ₹ 49,62,554 found during the course of search. 17. As far as jewellery valued at ₹ 49,62,554 which has been physically found in possession of the assessee, and which is in excess of what has been disclosed in the wealth tax return, during the course of search is concerned, there cannot be any dispute that the same represents undisclosed income so defined in section 271AAB and which has not been disclosed on or before the date of search. Regarding the contention of the ld AR that such jewellery is personal jewellery of the assessee and his family members ..... X X X X Extracts X X X X X X X X Extracts X X X X
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