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TMI Blog2019 (4) TMI 1719X X X X Extracts X X X X X X X X Extracts X X X X ..... ) whereas while levying penalty, it was levied u/s 271AAB(1)(c). 3. That the Ld. C!T(A) gravely erred in upholding the penalty despite the fact that the additional amount declared at Rs. 14.00 Crores did not fall within the ambit of definition of "undisclosed income" as defined in Section 271AAB(3)(c). 3. The facts of the case in brief are that the assessee is a Limited Company engaged in the business of manufacturing of yarns and towels and also trading in knitted cloth and towels. Consequent to search u/s 132 of the Income Tax Act, 1961 on 11-09-2013 on SEL Group, the assessee filed return on 28-11-2014 declaring loss at Rs. 41, 93, 29, 760/- which included a sum of Rs. 14.00 Crores as additional income declared at the hands of the assesseein a statementrecorded u/s 132(4) of the Income Tax Act, 1961 during search action. This return was subsequently revised on 26-02-2015 declaring loss at Rs. 41, 50, 72, 313/- by adding a sum of Rs. 39, 99, 258/- on account of profit on stock found short. Both the amounts of Rs. 14.00 crores and Rs. 9, 99, 258/- were part of the total surrender of Rs. 80.00 crores made by SEL Group of cases while making a statement u/s 132(4) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thepenalty referred to section 271AAB, thelevy ofpenalty is not mandatory. He, in this respect has relied upon the following decisions of the CoordinateBenches':- ACIT Vs. Marvel Associates, ITA No. 147/Vizag/2017 order dated 16.3.2018 (ITAT Visakhapatnam Bench); DCIT Vs. M/s Rashmi Metaliks Ltd., ITA No. 1608/Kolkata/2017 dated 1.2.2019; (ITAT Kolkata Bench); DCIT Vs. Rashmi Cement Ltd, ITA No. 1606/Kolkata/2017 order dated 28.2.2019((ITAT Kolkata Bench). 8. We have considered the rival contentions of the Ld. Counsel for the parties and gone through the record, also examined the relevant provisions of the Act and case laws on the issue. For the sake of ready reference, the relevant provisions of section 271AAB and section 274 of the Income Tax Act are reproduced as under: "Penalty where search has been initiated 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 1stday of July, 2012, 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 ten per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Section 274 Procedure 274 (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) No order imposing a penalty under this Chapter shall be made- (a) by the Income- tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer. 9. It is pertinent to mention here that Co-ordinate Kolkata Bench of the Tribunal in the case of " M/s. Rashmi Metaliks Ltd." (supra) has extensively analyzed the aforesaid provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 RadhakrishnaVihar 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered to tax by an assessee comes within the mischief of undisclosed income and that too of the specified previous year it is not open for the AO to invoke provisions of Section 271AAB of the Act. ....... ......... 12. From the foregoing definition of 'undisclosed income' we find that this expression is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. From bare perusal of the definition of the word "undisclosed income" we find that in order to bring a receipt or specie of income within the meaning of the said expression, it is obligatory for the AO to demonstrate and prove that the income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in the course of search u/s 132 and which was not recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or otherwise not disclosed to the Commissioner before the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7 and there was no finding in the said assessment order which in any manner even suggested let alone proved that the income of Rs. 69 crores offered by the assessee in its return of income was relatable to or represented by the entries made in documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. In the course of appellate hearing the foregoing submission of the Ld. AR went un-rebutted from the Ld. DR who could not bring to our attention any specific noting in the said documents from which it could be construed that the income disclosed was relatable to documents seized in the course of search. ........ ........16. From the foregoing discussion and material on record, we find that applying both the limbs contained in clause (c) of Explanation to Section 271AAB, the additional income of Rs. 69 crores offered by the assessee through its joint declaration was neither represented by any assets found in the course of search nor represented by any entry made in the books of accounts or other documents or transactions found in the course of search. We therefore find that the income voluntarily offered by the assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts or which was not found as a result of search not recorded in the books. We therefore find much force in the Ld. AR's arguments that since the sum of Rs. 69 crores voluntarily offered to tax was not in the nature of undisclosed income, the levy of penalty u/s 271AAB was unsustainable. 18. In this regard we rely on the decision of the coordinate Bench of the Tribunal in the case of ACIT Vs KanwarSain Gupta in ITA No.538/Kol/2017 dated 29.06.2018 involving similar set of facts and circumstances. In the instant case also the assessee had voluntarily offered sum of Rs. 1, 00, 00, 000/- to tax in his statement u/s 132(4) without any proof of concealment. The AO assessed such sum to tax solely based on the assessee's disclosure petition and there was no material brought on record to indicate that it was represented by any valuable asset or any entry found in any books or other documents seized in the course of search. The AO thereafter also levied penalty u/s 271AAB @ 10% which was deleted by Ld. CIT(A). On appeal this Tribunal upheld the order of Ld. CIT(A) by observing as under: "4. Learned Departmental Representative argued that the Assessing Officer had rightly imposed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actuals. The write up heading also mentioned that summary of the projected profitability statement. There is no evidence to establish that projections reflected in the loose sheet is real. No other material was found during the course of search indicating the undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in the books of accounts or documents transactions were found during the course of search indicating the assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly. The revenue did not find any undisclosed asset, any other undisclosed income or the inflation of expenditure during the search/ assessment proceedings. Though a loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. The amount of Rs. 3571/- mentioned in the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. The cost of construction in the projections projected at Rs. 2177/- which is in synch with the statement given by the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp;Total Rs. 1, 65, 38, 920/- We find that out of these four items of surrenders only advances of Rs. 80, 00, 000/- is based on the incriminating material and all other items are not based on the seized material. The interest on advances/ debtors is only an estimated amount disclosed during the year but no record or any document was found during the search and seizure action. As regards the excess stock we find from the record as produced before us by the ld. DR that the valuation report is based on the market price of the gold Jewellery prevailing on the date of search as against the cost or realization wherever is less. Therefore, the computation of excess stock based on the market price of the stock cannot be considered as undisclosed income of the assessee as it is the subject matter of regular assessment and cannot be regarded as undisclosed income based on incriminating material. There is no such fact either recorded during the search and seizure proceeding or in the assessment order or in the penalty proceeding to show that there was discrepancy in the stock as recorded in the books of account and found at the time of search. In the absence of any discrepancy in the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the income of Rs. 69 crores voluntarily offered to tax was not in the nature of 'undisclosed income' defined in clause (c) of Explanation to Section 271AAB, we hold that the Ld. CIT(A) was justified in cancelling the penalty levied u/s 271AAB of the Act. Accordingly the order of the Ld. CIT(A) is upheld for the reasons discussed above and the Revenue's appeal stands rejected." 10. Now coming to the facts of the case before us, the assessee in this case has surrendered as total income of Rs. 14, 39, 99, 158/- during the search action carried out at his premises u/s 132 of the Act, out of whichRs. 14 crores was surrendered to cover any disallowance of expenses/additions, whereas, the remaining amount of Rs. 39, 99, 158/- was surrendered representing profit earned onstock found short. Thereafterthe assessee filed its return of income and duly included the surrendered amount in its income for the purpose of taxation. The Assessing officer carried out the assessment proceedings u/s 143(3) of the Act and independently scrutinized and verified the different heads of income and expenditure and computed the additional income of Rs. 33, 13, 304/- on account of stock found short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s wassurrendered on account of disallowance of expenses/addition. However, neitherduring the search actionnor during the assessment proceedings, no such disallowance of expenditure and consequent addition has been made exceptas discussed above. However, the Assessing officer has added the aforesaid disallowance made by him separately into the income of the assessee. So far as the disallowance u/s 14A is concerned, the assessee had taken a plea before the Assessing officer that it did not earn any tax-exempt income during the year. Furthermore, that investments were made out of its own / interest free funds available with the assesseeand that no disallowance u/s 14A of the Act waswarranted. Similar plea was also taken by the assessee in respect of disallowance made u/s 36(1)(iii) of the Act that the advances/investmentswere made by the assessee out of its own/interest free funds available with it. A plea was also taken that the advances were given out of commercial expediency. So far as the disallowance u/s 36(1)(v) was concerned, a plea was taken that the contribution to Employees ProvidentFund was made within the stipulatedperiod and that no disallowance was attracted. 12. Consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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