TMI Blog2019 (6) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... HIGH COURT] held that the levy of penalty u/s 271AAB is not mandatory but the AO has to take a decision on the basis of the relevant facts of the case and after considering the explanation of the assessee whether the surrender made by the assessee falls in the definition of undisclosed income as proposed in explanation to section 271AAB. Accordingly this issue is decided in favour of the assessee and against the revenue. Penalty on account of excess stock - When assessee was not found to be doing any business in his individual capacity and all business of Gem Jewellery are run through the proprietorship concern of the assessee s HUF as well as the other firms and companies in which the assessee and his family members are partners and directors, the said income on account of excess stock disclosed by the assessee cannot be regarded as undisclosed income for the purpose of levy of penalty u/s 271AAB. The definition of Undisclosed Income as provided in explanation to section 271AAB has to be considered for the purpose of levy of penalty and not the mere disclosure of undisclosed income u/s 132(4). Accordingly, we delete the penalty levied u/s 271AAB in respect of the Income su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JM For the Assessee : Shri S.R. Sharma (CA) And Shri Rajni Kant Bhatra (CA) For the Revenue : Shri B.K. Gupta (CIT) ORDER PER VIJAY PAL RAO, JM : This appeal by the assessee is directed against the order dated 14.12.2017 of ld. CIT (A)-4, Jaipur arising from penalty order passed under section 271AAB of the IT Act for the A.Y. 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 ₹ 1,09,98,000/- imposed by the ld. Assessing Officer u/s 271AAB of the I.T. Act, 1961. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them. 2. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAB(1) of the IT Act. Thus non-specification of the limb or ground by the AO in the show cause notice has resulted not giving a proper opportunity to the assessee to respond to the show cause notice and, therefore, there is a violation of principles of natural justice. The ld. A/R has contended that in a series of decisions it has been held that the assessee should know the grounds on which the AO proposed to levy the penalty so that he has to meet the charges levied by the AO, otherwise, the principles of natural justice are violated. In support of his contention he has relied on the decision of Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton Ginning Factory, 359 ITR 565 (Kar.) as well as the decision in case of CIT vs. M/s. SSA s Emerald Meadows, 73 taxmann.com 241 which was challenged by the revenue before the Hon ble Supreme Court but the SLP of the revenue was dismissed by the Hon ble Supreme Court reported in 242 Taxman 180. The ld. A/R has also relied upon the decision of the Coordinate Bench of this Tribunal in case of Ravi Mathur vs. DCIT in ITA No. 969/JP/2017 dated 13.06.2018. He has also relied upon the decision of Hon ble Jurisdictional High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notice for levy of penalty under section 271AAB, no fault can be found in the show cause notice. The ld. D/R has further submitted that even in case of Rambhajo s vs. ACIT in ITA No. 991/JP/2017 the Tribunal has taken a similar view and rejected the objection of the assessee regarding validity of initiation of penalty. The ld. D/R has then referred to the Finance Bill 2012 thereby a new section 271AAB was inserted and submitted that the legislatures have made it clear that the assessee shall pay by way of penalty in addition to tax a sum computed @ 10%, 20% or 30% as the case may be. Hence the levy of penalty is mandatory in nature. He has further referred to section 273B and submitted that the reasonable explanation in case of penalty under section 271AAB is not available to the assessee as provided under section 273B of the IT Act. Therefore, all these provisions make it clear that the levy of penalty under section 271AAB is mandatory in nature. 6. We have considered the rival submissions as well as the relevant material on record. The AO has issued show cause notice dated 20th December, 2016, 10th March, 2017 and 15th May, 2017. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observations made in the said judgment, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing Officer in the assessment order it is held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order. We find that though the Tribunal in some of the cases relied upon by the ld. D/R has taken a view that no fault can be found in the show cause notice for not specifying the specific clause of section 271AAB(1) of the Act, however, in those cases the decision of the Hon ble Jurisdictional High Court has not been considered. In the recent decision in case of Shri Padam Chand Pungliya vs. ACIT (supra), the Tribunal after considering an identical argument on behalf of both the parties have held in para 5.1 as under :- 5.1. The second limb of challenging the validity of initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) had held as under:- 2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings . View taken by the Hon ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA s Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. 6. Since we have set aside the penalty order for the impugned assessment year, the appeal filed by the Revenue has become infructuous. In view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable. We further note that in the case in hand, the AO in the show cause notice has neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard in person or through Authorized Representative, you may reply to show cause in writing on or before the said date which will be considered before any such order is made. Yours faithfully, Sd/- ( Devangi Swarnkar ) Asstt. Commissioner of Income-tax, Central Circle-1, 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 penalty was proposed to be levied. Even the Hon ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton Ginning Factory, 359 ITR 565 (Karnataka) 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, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed 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 agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, 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 President50], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving 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, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f undisclosed income as proposed in explanation to section 271AAB of the Act. Accordingly this issue is decided in favour of the assessee and against the revenue. 8. On merits of levy of penalty, the ld. A/R of the assessee has submitted that there are three items of surrender made by the assessee during the course of search and seizure under section 132 of the IT Act. The first item is regarding undisclosed stock of ₹ 10,11,30,000/-. The ld. A/R has submitted that in the statement recorded under section 132(4) of the IT Act the assessee surrendered a sum of ₹ 10,11,30,000/- on account of excess stock. The said surrender is based on the value of the stock determined by the Departmental Valuer found at the business premises of M/s. Bhuramal Rajmal Surana, the business concern of assessee s HUF. Besides that, 2 kg gold valued at ₹ 54,35,220/- was kept at the residence which was also included in the said undisclosed stock. The alleged undisclosed stock amounting to ₹ 10,11,30,000/- was found and kept at the business premises of M/s. Bhuramal Rajmal Surana. The assessee has never done any business in Gem Jewellery in his individual capacity neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewellery during the year under consideration. The assessee has also explained that the excess stock found during the search is on account of undisclosed income from the business of jewellery during the year under consideration and the same has not been recorded in the books of account. Thus once the excess stock was found during the course of search at the premises of the assessee covered under search action and the value of the stock was not disputed by the assessee at the time of statement recorded under section 132(4) of the Act, then the assessee cannot be allowed to take a stand that the stock was not belonging to the assessee. Further, in the return of income the assessee has shown the undisclosed income as business income and also filed Audit Report under section 44AB of the IT Act showing the business activity as trading. Therefore, the assessee was doing the business activity of Gem Jewellery during the year under consideration. A statement recorded on oath under section 132(4) has evidentiary value and the same is to be presumed to be true unless rebutted by the person making the statement with corroborative evidence. The ld. D/R has also referred to the affidavit dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, the stock which was treated as unaccounted excess stock of the assessee was found at the business premises of M/s. Bhuramal Rajmal Surana and the assessee has surrendered the said amount in his individual capacity instead of in the hands of this proprietorship concern of his HUF. From the facts it is clear that the alleged excess stock/unaccounted stock was nothing but the stock of M/s. Bhuramal Rajmal Surana but when the assessee offered the same in his individual hands, the department did not try to get the disclosure and surrender in the hands of the right person. It appears that the department is more concerned about the surrender whether it is in the hands of the Individual assessee or in the hands of the business concern of the HUF. Once the department has accepted the surrender in the hands of the assessee though the stock was not of the assessee but of the HUF business concern, then after receiving the tax for levy of penalty under section 271AAB of the Act, the AO was under the statutory obligation to establish that the said stock found at the time of search and disclosure made by the assessee falls in the definition of undisclosed income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account of the assessee. However, the entries in the names of two individuals were not found to be recorded in the books of the assessee at the time of search. These entries are as under :- Shri Hari Kishan - ₹ 30 Lac on 02.08.2014. Shri Ram Nath Ji - ₹ 20 Lac on 03.08.2014. The assessee made disclosure of ₹ 50,00,000/- in the statement recorded under section 132(4) of the Act. The ld. A/R of the assessee has submitted that the entry of advances of ₹ 50,00,000/- is not an income of the assessee but it is an out go and, therefore, it cannot be held as undisclosed income for the purpose of levy of penalty under section 271AAB of the Act. The ld. A/R has submitted that the department has taken the disclosure on account of these entries from the assessee whereas there was not an iota of evidence that the assessee was having any undisclosed income. He has referred to the CBDT Instruction No. 286/2/2003-IT (Inv.) dated 10.03.2003 and submitted that the CBDT has issued the guidelines that no forced confession shall be obtained regarding undisclosed income during the course of search and seizure and survey oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income disclosed on account of advance/loans given to the individuals found recorded in the seized material and not recorded in the books of account is an undisclosed income of the assessee. He has relied upon the orders of the authorities below. 13. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the disclosure is based on the entries in the seized material showing advances of ₹ 50,00,000/- to two persons. These entries of advances in itself are not the income of the assessee but these are the out go of money from the assessee and source of which can be the income of the assessee. The Coordinate Bench of this Tribunal in case of Rajendra Kumar Gupta vs. DCIT (supra) while considering an identical issue has held in para 21 as under :- 21. During the course of search, a note book (diary) has been found referred on as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to ₹ 82,80,000/-. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld. CIT (A) has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f provisions wherein they have been brought on the statute book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the status of the assessee family, their business income from the various firms, companies as well as the income declared by the various persons, the said amount of quantity or jewellery cannot be regarded as undisclosed income. Thus the ld. A/R has submitted that the penalty levied on account of cash found of ₹ 38,50,000/- is not justified. 15. On the other hand, the ld. D/R has submitted that the assessee has failed to explain the cash at the time of search and also admitted the same as undisclosed income. The penalty levied under section 271AAB of the Act is justified as the cash found at the time of search clearly falls in the definition of Undisclosed Income as per the explanation to section 271AAB of the Act. He has relied upon the orders of the authorities below. 16. We have considered the rival submissions as well as the relevant material on record. During the search and seizure action, a total sum of ₹ 38,50,000/- was found at the residence of the assessee. Out of which, a sum of ₹ 11,844/- and ₹ 67,001/- were treated as the money belonging to the wife of the assessee and daughter-in-law of the assessee respectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 739000 Pushpendra Kumar Surana 57 years 760000 388000 1537000 422000 2270000 354000 1609000 772000 Puneet Surana 35 years 828000 1154000 2319000 1260000 803000 711000 485000 1023000 38640000 3171000 29852000 4928000 21501000 2967000 162039000 3740000 Therefore, during the last four years the incomes of these family memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not speak about the questioning of the said jewellery from the person who has been found with possession of the said jewellery. However, the Board, looking to the Indian customs and traditions, has fairly expressed that jewellery to the said extent will not be seized and once the Board is also of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possesion of a married lady to the extent of 500 gms, 250 gms per unmarried lady and 100 gms per male member of the family will also not be questioned about its source and acquisation. We can take notice of the fact that at the time of wedding, the daughter/daughter-in-law receives gold ornaments jewellery and other goods not only from parental side but in-laws side as well at the time of 'Vidai' (farewell) or/and at the time when the daughter-in-law enters the house of her husband. We can also take notice of the fact that thereafter also, she continues to receive some small items by various other close friends and relatives of both the sides as well as on the auspicious occasion of birth of a child whether male or female and the CBDT, looking to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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