TMI Blog2019 (6) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to section 271AAB. Regarding cash found during the course of search, there cannot be any dispute that the same falls in the definition of undisclosed income and the same is subject to penalty u/s 271AAB. Accordingly, the penalty levied by the AO and sustained by the ld. CIT (A) on LTCG is deleted and penalty sustained by the ld CIT(A) on cash found during the course of search is upheld. - Decided partly in favour of assessee. - ITA No. 1379/JP/2018 And ITA No. 1439/JP/2018 - - - Dated:- 25-3-2019 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Vijay Goyal (CA) And Shri Gulshan Agarwal (CA) For The Revenue : Shri Varinder Mehta (CIT-DR) ORDER PER BENCH : These two cross appeals are directed against the order dated 5th October, 2018 of ld. CIT (A)-2, Udaipur arising from the penalty order passed under section 271AAB of the IT Act for the assessment year 2016-17. The assessee is an individual and belongs to M/s. Kota Dall Mill Group. The assessee filed her return of income under section 139(1) of the IT Act on 22.07.2016 declaring tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more so when :- a) the long term capital gain of shares offered by appellant for taxation is not an undisclosed income within the meaning of section 271AAB of the Act, therefore no penalty under this section can be imposed thereon. b) the penalty was levied by drawing the inference only from the statement recorded u/s 132(4) of the Act whereas there is no incriminating material or evidence was found during search to prove that the assessee was having undisclosed income. c) documents and evidences were filed to prove the genuineness of exempted LTCG which were remained uncontroverted. d) there is no finding/reason/conclusion in the penalty order regarding imposing the penalty on income of ₹ 82,50,000/- declared in Income Tax Return. 4. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in holding that the penalty u/s 271AAB of the Act is mandatory. 5. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in not giving the finding on the allegation of AO that the appellant find in the position of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking channel and duly recorded in the books of accounts, then the transactions recorded in the separate slips will not change the character of the transaction and the income from disclosed to undisclosed. The ld. A/R has pointed out that the assessee submitted all the documents and records pertaining to purchase and sale of equity shares of listed companies through recognized Stock Exchange. The documents also include Contract Notes showing payment of STT, bills, depository statement, registered stock brokers ledger account and bank statement evidencing the payment of purchase consideration as well as the receipt of the sale consideration through proper banking channel. All these documents duly substantiated the genuineness of the LTCG earned during the year under consideration and the documents produced by the assessee were not either detected or controverted by the AO in the course of assessment proceedings. Further, during the course of search and seizure operation, no incriminating material, evidence or document whatsoever was found but only the calculation of LTCG recorded in the separate slips cannot be said to be incriminating material when all these transactions are duly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of listed companies on the Stock Exchange through registered brokers, therefore, while passing the penalty order the AO has to decide whether the surrender made by the assessee is covered under the definition of undisclosed income for the purpose of section 271AAB. The AO has imposed the penalty based on the statement recorded during the search whereas the income surrendered by the assessee is not covered under the definition of undisclosed income provided under section 271AAB of the Act. The ld. A/R has asserted that the revenue authorities have exaggerated undue pressure and obtained surrender from the assessee and this fact is manifest from all the supporting documents produced by the assessee as well as the transactions were recorded in the books of account and the shares held by the assessee were reflected in the Balance Sheet as on 31st March, 2015. Thus the ld. A/R has submitted that the mere statement recorded under section 132(4) does not by itself constitute incriminating material as held by the Hon ble Delhi High Court in case of CIT vs. Harjeev Aggarwal, 290 CTR 263 (Delhi) as well as in case of Pr. CIT vs. Best Infrastructure (India) Pvt. Ltd., 397 ITR 82 (Delhi). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement recorded under section 132(4) will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) of Explanation to section 271AAB of the Act. There is no dispute that in the statement recorded under section 132(4), the assessee has disclosed the income under consideration as undisclosed income on account of LTCG. However, for the purpose of levying the penalty under section 271AAB, the primary condition is that the assessee shall pay the penalty equivalent to 10%, 20% or 30% of undisclosed income of specified previous year depending upon the satisfaction of the condition as provided under section 271AAB. The term undisclosed income has been defined in the Explanation to section 271AAB and, therefore, the penalty under the said provision has to be levied only when the income surrendered by the assessee falls in the ambit of undisclosed income as defined under this section. The mere disclosure of income in the statement recorded under section 132(4) would not ipso facto be regarded as undisclosed income unless and until it is tested as per the definition provided in the Explanation to section 271AAB of the Act. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee falls in the ambit of undisclosed income as defined under section 271AAB of the Act. The definition of undisclosed income contemplates various forms and the primary condition is that the income of the specified previous year represented 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 during the course of search which has 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. In the case in hand, since the surrender was made in respect of the LTCG recorded in the seized material, therefore, it is based on the entries in the other documents found during the course of search. The income in the shape of entries in other documents found during the course of search would be considered as undisclosed income if the said income has not been recorded in the books of account on or before the date of search. In the case in hand, it is undisputed fact that all the transactions of purchase and sale and LTCG arising from the sale of equity shares of the listed companies are duly recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acknowledgement of ITR filed on 02.02.2016 u/s 153A of Income-tax Act, 1961 along with computation sheet of total Income of the A.Y. 2013-14. (page nos. 94-97 of paper book) Copy of Balance Sheet and Capital Account of Assessment Year 2013-14 (page No. 98 of paper book) Copy of Assessment Order dated 22.12.2017 u/s 143(3) r.w.s. 153A passed by Deputy Commissioner of Income Tax, Central Circle Kota (Raj.) for the Assessment Year 2013-14 (page Nos. 99-105 of paper book) Copy of ledger A/c of following shares brokers from the books of account of assessee depicting the details of equity shares purchased by the assessee are enclosed : (page Nos. 102 -105 of paper book) * Religare Securities Limited * Hem Securities Limited * Suresh Rathi Securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2014-15. But the AO has accepted all these details without any adverse finding or comments while passing the assessment order under section 153A or the Act. The assessee has also produced sale bills/contract notes regarding sale of shares, copy of ledger account of the assessee in the books of share broker in respect of sale transactions, bank statement showing receipt of sale consideration and Demat account having the entries of credit of shares at the time of purchase and debit of shares at the time of sale. The equity shares in question are of listed companies in the Stock Exchange and were purchased and sold by the assessee through Stock Exchange. Therefore, the transactions of purchase and sale are verifiable from the independent source including the record of the Stock Exchange without having any influence of the assessee. Hence the document produced by the assessee is the evidence which cannot be manipulated and also can be verified from the independent sources. Once the assessee has established the fact that all these transactions are recorded in the books of account and also produced, the relevant documentary evidence to establish the genuineness of the purchase an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port, reliance was placed on provisions of section 158BFA(2) wherein similar phraselogy has been used by the legislature and decision of Hon ble A.P High Court in case of RadhaKrishna Vihar (ITA no. 740/2011). 13. In this regard, we refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per sub-section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be applied in relation to penalty under this section which means that before levying the penalty, the Assessing officer has to issue a show-cause granting an opportunity to the assessee. Thus, the levy of penalty is not automatic but the Assessing officer has to decide based on facts and circumstances of the case. Similar view has been taken by the various Co-ordinate Benches and useful reference can be drawn to the decision of the Co-ordinate Bench in case of ACIT vs Marvel Associates 92 Taxmann.com 109 wherein it was held as under: 5. We have heard both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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