TMI Blog2019 (6) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee has made a surrender of ₹ 50 lacs on account of any other irregularity or discrepancy if any found. There is no dispute that no such discrepancy or irregularity was detected either by the department during search proceedings or by the AO during the assessment proceedings and penalty proceedings then mere surrender of the amount without any incriminating material or any undeclared assets it cannot be treated as undisclosed income of the assessee in terms of Section 271AAB. See SHRI RAJENDRA KUMAR GUPTA VERSUS THE DCIT, CENTRAL CIRCLE-2, JAIPUR. [ 2019 (1) TMI 1545 - ITAT JAIPUR] In the case in hand when no such discrepancy or irregularity was found by the AO then the mere surrender U/s 132(4) of the Act will not ipso facto attract the penalty U/s 271AAB until and unless the same is qualified as undisclosed income as per definition provided in the explanation to Section 271AAB. The levy of penalty U/s 271AAB is not mandatory but the AO is required to take a decision based on the facts and material and then to arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as provided in the explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other related activities. The assessee is earning income from house property, rent, remuneration and interest from partnership firms. There was a search seizure action U/s 132(1) of the Act on 17.12.2014 at various premises of Vardhman Group. The assessee was also covered by the said search and seizure action and the statement of the assessee were recorded U/s 132(4) of the Act in which the assessee has surrendered a total sum of ₹ 9,92,49,633/- in his individual hands out of which ₹ 6,19,50,193/- was surrendered for the year under consideration which comprises of ₹ 5,17,32,630/- on account of expenditure on various real estate projects, ₹ 52,17,563/- on account of jewellery and silver items and ₹ 50,00,000/- towards any other discrepancy or irregularity. The assessee filed his return of income on 29.09.2015 declaring total income of ₹ 6,34,53,360/- which included the amount quash and surrendered during the course of search of ₹ 6,19,50,193/-. The Assessing Officer passed the assessment order U/s 143(3) r.w.s. 153B(1)(b) of the Act on 29.11.2016 accepting the return of income without making any additions or disallowance. The penalty proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the words used are Assessing Officer may direct and the assessee shall pay by way of penalty . Similar words are used Section 158BFA(2). The word may indicates the discretion to the Assessing Officer. In support of his contention, he has relied upon the decision of Coordinate Bench of this Tribunal dated 05.04.2019 in case of Shri Padam Chand Pungliya Vs ACIT in ITA no. 112/JP/2018 as well as decision dated 11.01.2019 in case of M/s Rambhojo s Vs. ACIT in ITA No. 991/JP/2017. The ld. AR has also relied upon the various other decisions on this point and submitted that the Tribunal has taken a consistent view that the levy of penalty U/s 271AAB of the Act is not automatic but the AO has to take a decision to impose the penalty after giving proper opportunity of hearing to the assessee. 4.1 Further, the ld. AR has submitted that the assessee is not doing any business activities of Real Estate but he is only a partner in partnership firms and director in a company which were engaged in the business of construction of residential complexes. Therefore, the amount declared by the assessee during the statement recorded U/s 132(4) of the Act does not fall in the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(4) was on account of expenditure incurred by various Partnership firms/Companies in which the assessee was Partner/Director for the development of projects or for purchase of land etc. The accounting year of the assessee was not completed as on the date of the search. Further, the profit can be declared only after end of the year. After the end of the year, final accounts are prepared and only after that profit can be ascertained. These firms/companies would have even otherwise recorded these expenditure/investments in the books of accounts. But during the course of search proceedings, the raiding party, in their zeal to obtain maximum surrender from the assessee, obtained surrender of these amounts in the hands of the assessee. Assessment has also been completed on the surrendered amount without going into the merits of the assessee. Thus, the ld. AR has submitted that the incriminating material recording the expenditure incurred in cash on various projects are the business activities of partnership firm and the company and therefore, those entries found in the loose papers do not represent any undisclosed income of the assessee when no business activity has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just sham entries. Therefore, it was submitted that these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee. The ld. AR thus submitted that as per provisions of Sec. 271AAB, a penalty is imposed only on undisclosed income and not on investment made by the assessee. The above expenditure/investment per se represents an outflow of funds from the assessee. These capital investments and expenditures in the projects of the firms/companies and other capital assets cannot be treated as undisclosed income of the assessee in the context of section 271AAB read with the explanation thereto. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called purchase or expenditure cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. 4.2 Alternatively, the ld. AR of the assessee has submitted that the assesse was not required by law to maintain any books of accounts in his individual capacity. The assessee is not maintaining any books of accounts in his individual capacity. The returned income was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Tribunal in case of Shri Padam Chand Pungliya vs. ACIT (supra) as well as decision dated 11.04.2019 in case of Gopal Das sonkia vs. DCIT in ITA No. 306/JP/2018. Thus, the ld. AR has contended that when this jewellery belongs to the family members of the assessee then the same would not represent undisclosed income of the assessee. 4.4. As regards of ₹ 50 lacs surrendered by the assessee on account of any other irregularity the same cannot be treated as undisclosed income as no irregularity or discrepancy was found by the department at any stage either during the course of search and seizure or during the post search inquiry as well as during the assessment proceedings. When the Assessing Officer has not found any material or any irregularity or discrepancy then the said surrender of ₹ 50 lacs cannot be held as undisclosed income for the provisions of Section 271AAB of the Act. In support of his contention, he has relied upon the decision of this Tribunal in case of M/s Rambhojo s vs. ACIT (supra) as well as decision dated 18.01.2019 in case of Shri Rajendra Kumar Gupta vs. DCIT in ITA No. 359/JP/2017. 5. On the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crown, Horigon and Arcadia Greens etc. Apart from the documents certain jewellery were also found at the residence of the assessee and subsequently the assessee has made the surrender including an amount of ₹ 5,94,42,193/- comprising of ₹ 5,17,32,630/- on account of unaccounted expenditure on various projects, ₹ 62,17,563/- on account of jewelry, ₹ 2,17,563/- on account of silver items and ₹ 50 lacs for any other irregularity or discrepancy. We will be deal each of the three items of surrender one by one. 6.1 Surrender of ₹ 5,17,32,630/- on account of unaccounted expenditure on various projects:- In the statement recorded U/s 132(4) of the Act the assessee has stated in response to question no. 4 about the source of his income as interest, remuneration from firms and salary from company. The assessee in response question no. 7 has also given the details of various firms and companies in which the assessee is partner as well as director. It is also explained that these companies were engaged in the business of real estate, construction of residential complexes and other related activities. Nothing was found or ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, even if some unaccounted expenditure fund recorded in the seized material the same do not disclose any income of the assessee muchless the undisclosed income of the assessee. We have carefully perused the seized material as well as statement recorded U/s 132(4) of the Act. It is apart from the record that though the unaccounted expenditure found recorded in the seized material undisputedly and undoubtedly pertains to the various projects of the companies and firms however, for their own convenience the department has obtained the surrender from the assessee in his individual capacity instead of his capacity as the partner and director in those companies to disclose and surrender undisclosed income of various companies and partnership firms. There is no ambiguity about the identification of the particular expenditure pertains to a particular projects and in turn pertains to a particular firm or company therefore, a mere surrender by the assessee of the amount which does not belong to the assessee would not be treated as undisclosed income in terms of Section 271AAB of the Act. It is manifest from the record that the unaccounted expenditure pertains to the firm or the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the seized documents but these are based on the valuation of the stock as well as the jewellery found at the time of search and seizure action. First, we take up the undisclosed income on account of expenditure on house construction of ₹ 2,44,63,575/-, the relevant alleged seized document in this respect are the entries in the diary on 04.04.2013, 14.04.2013, 28.04.2013, 28.05.2013 and 01.06.2013. It is pertinent to note that all these notings are done during the month of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of ₹ 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like ₹ 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of expenditure in construction of the house. Similarly, the entries in respect of advances of ₹ 5,62,000/- also very vague and ambiguous not giving any details about the purpose or date on which these advances were given. Only a date is mentioned at the bottom of the page but not against each and every entry of the page. Further, we note that the department has not tried to ascertain the full particulars of the alleged persons whose names are noted in the seized documents against certain amounts which are considered as advances given by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee. The Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. DCIT (supra) has considered the issue of out flow of funds from the assessee can be an undisclosed income for the purpose of section 271AAB of the Act in para 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue 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 specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of search, a diary has been found wherein there are notings relating to advance given to various persons towards purchase of land. The notings describe the name of the persons, the amount advanced which ranges from ₹ 2 lacs to ₹ 50 lacs to 4 persons totaling to ₹ 1.12 Crores and the date of such advance during the period 28.07.2013 to 3.9.2013 just before the date of search on 4.9.2013. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides the said entries, there are no other documents/material in terms of any agreement to sell, the description of the property etc, which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called purchase of land 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 investment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 advance for purchase of land can be subject matter of addition in the quantum proceedings, as the same has been surrendered 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. A similar view has been taken by the Tribunal in a series of decision as relied upon by the assessee accordingly, in view of the above facts and circumstances of the case as discussed by us and following the earlier decision by this Tribunal the penalty levied U/s 271AAB of the Act in respect of the surrende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made of member of family is required be given while treating the unexplained jewellery found at the time of search and seizure action. Further, the valuation has been done by the departmental valuer at the current prevailing rate without considering the actual cost of acquisition at the relevant point of time when the jewellery was purchased. The department has also not given the benefit of the jewellery which was inherited as well as received by the women and men members at the time of marriage and other occasions. Therefore, considering all these facts as well as the status of the assessment family the jewellery found in the bank locker was required to be considered after giving all the benefits of the minimum jewellery to be held by each family members of the assessee. Further, when the assessee has declared the income of more than ₹ 15 lacs other than the surrendered made for the year under consideration then, the drawing of the assessee as well as other family members in the past 5 years is also required to be considered for the purpose of source of purchase of jewellery and silver. Thus without considering availability of the funds in the assessee bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted. In view of the above facts and circumstances of the case when the benefit of the personal jewellery of various family members is required to be given while considering the undisclosed income on account of jewellery as well as valuation of the same has been based on the cost of acquisition for treated as undisclosed income. Since, the valuation as well as the year of acquisition was not ascertained either during the course of search or in the subsequent prevailing even in the penalty proceeding. Therefore, this issue of levy of penalty U/s 271AAB of the Act in respect of surrender made on account of jewellery and silver items is set aside to the record of the AO to verify and consider all the relevant facts as discussed above and then decide the same afresh at the giving an opportunity of hearing to the assessee. 6.5 The penalty in respect of surrender of ₹ 50 lacs an account of any other discrepancy or irregularity:- It is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 132(4) of the Act. The said disclosure was made in pursuant to the entries in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :- a) Unexplained expenditure on house construction 2,44,63,575/- b) Undisclosed stock 1,91,24,877/- c) Undisclosed jewellery 60,16,265/- d) Undisclosed debtors/advances 5,62,000/- Total : 5,01,66,717/- It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal 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 source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of undisclosed income is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; or (ii) any income of the specified previous year represented, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% or 30% has to be determined subject to the explanation of the assessee for the defaults. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot mandatory but discretionary. The provisions of section 271AAB of the Act is parimateria with that of section 158BFA of the Act relating to block assessment and accordingly argued that the levy of penalty under section 271AAB is 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Marvel Associates. Thus the Tribunal has analyzed all the relevant provisions of the Act as well as various decisions on this point including the decision of Hon ble Allahabad High Court in the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision of the AO. Accordingly following the earlier decision of this Tribunal in the case of Ravi Mathur vs. DCIT (supra), we hold that the levy of penalty under section 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB of the Act. Accordingly, in view of the consistent view taken by the Tribunal we hold that the levy of penalty U/s 271AAB of the Act is not mandatory but the AO is required to take a decision based on the facts and material and then to arrive to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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