TMI Blog2019 (4) TMI 1719X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income as defined under the provisions of section 271AAB. Except the aforesaid disallowance made by the AO on debatable issues, there is no case of the Department in respect of any inadmissible expenditure claimed by the assessee which would cover the surrendered income of ₹ 14 cores. From the facts on the file, it is established that the aforesaid surrender of ₹ 14 crores was based on the mere statement of the assessee and nothing incriminating material which would constitute undisclosed income as per the provisions of section 271AAB was detected or found during the search action. In view of the various case laws as discussed above, the aforesaid amount for ₹14 cores would not fall in the definition of undisclosed income as defined under section 271AAB and, hence, the penalty is not leviable on the said amount under the provisions of section 271AAB. So far as the surrendered amount of ₹ 39.99 lacs is concerned, same was offered on account of profits on stock found short during the search action. Admittedly, the stock was found short during the search action. In fact, the Assessing officer apart from the above surrender of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 on SEL Group, the assessee filed return on 28-11-2014 declaring loss at ₹ 41, 93, 29, 760/- which included a sum of ₹ 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 ₹ 41, 50, 72, 313/- by adding a sum of ₹ 39, 99, 258/- on account of profit on stock found short. Both the amounts of ₹ 14.00 crores and ₹ 9, 99, 258/- were part of the total surrender of ₹ 80.00 crores made by SEL Group of cases while making a statement u/s 132(4) of the Income Tax Act, 1961. Assessment was framed by the Ld. Assessing Officer computing the total income at ₹ 33, 73, 75, 950/- after making various additions / disallowances vide order dated 30-03-2016. The Assessing Officer also issued a penalty notice under Clause (a) of Sec. 271 AAB asking the assessee to show cause as to why penalty be not imposed in respect of undisclosed income found/surrendered during search action. A detailed reply was filed vide letter dated 26-09-2016. The Ld. Assessing Officer after going through the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the undisclosed 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; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic meaning and the said word or expression does not have any loose or colloquial meaning. Unless and until income offered 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 main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO, we note that in the assessment order u/s 143(3), the AO had admitted that the assessee had satisfactorily explained the contents of the documents identified 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 ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver only for the said reason, it could not be brought within the ambit of undisclosed income particularly when such income was not represented by any valuable asset or entry in books of accounts 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 ₹ 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 ₹ 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted in sworn statement cost per sq. feet at ₹ 2200/- to ₹ 2300/- per sq. feet. However neither the AO nor the Ld.CIT(A) has verified the cost of construction with the books and projections found at the time of search. The counsel argued that it was mere projection but not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. The details of the surrendered income pertains to the year under consideration are as under:- On account of debtors (advances given) ₹ 80, 00, 000/- Unexplained cash found ₹ 10, 00, 000/- Accrued interest on debtors ₹ 20, 00, 000/- Excess stock found during search ₹ 55, 38, 920/- Total ₹ 1, 65, 38, 920/- We find that out of these four items of surrenders only advances of ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group on 21.11.2012, the assessee had admitted additional income of ₹ 5, 00, 000/- u/s 132(4) which she had offered to tax in her return of income. The AO levied penalty u/s 271AAB on such additional income offered to tax. The Tribunal noted that neither the Investigation Wing in the post search nor during the course of assessment proceedings, the Assessing Officer found any incriminating evidence of undisclosed income otherwise the declaration of the assessee for making the addition. Following the decision rendered in the case of ACIT Vs Kanwar Sain Gupta (supra), the Tribunal deleted the penalty levied u/s 271AAB of the Act. 23. Respectfully following the decisions in the foregoing and having regard to our finding that the income of ₹ 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 befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 14 crores on account of disallowance of expenditure / addition was concerned. Even the Assessing officer did not allow the telescopic benefit / set off of the amount surrendered as against the disallowance made by the Assessing officer under the provisions of section 40A, 36 (1)(iii) and 36 (1)(v) of the Act. There is no mention in the assessment order that the assessee had claimed any extra or inadmissible expenditure in respect of any other item. It also apparent from the facts on the file that even during the search action, no incriminating material in respect of excessive or inadmissible expenditure was found during the search action.The assessee simply surrendered the amount of ₹ 14, 39, 99, 158/- and in the bifurcation offered ₹ 39.99 lacs towardsprofits of stock found short and remaining amount or ₹ 14 crores 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for ₹14 cores wouldnotfall in the definition of undisclosed income as defined under section 271AAB of the Act and, hence, the penalty is not leviable on the said amount under the provisions of section 271AAB of the Act. 13. So far as the reliance of the Ld. DR on the decision in the case of Hon'ble Allahabad High Court in the case of Principal CIT Vs. Shri Sandeep Chandak and Ors. (supra) is concerned, as discussed in the aforesaid decision of the Coordinate Bench of the Tribunal in DCIT Vs. Rashmi Cement Ltd, (supra) the facts in the case of Principal CIT Vs. Shri Sandeep Chandak and Ors (supra) are distinguishable and do not apply to the facts and circumstances of the case in hand in the light of the discussion made in the above referred to decision of the Kolkata Bench of the Tribunal. 14. However, so far as the surrenderedamount of ₹ 39.99 lacs is concerned, same wasoffered on account of profits on stock found short during the search action. Admittedly, the stock was found short duringthe search action. In fact, the Assessing officer apart from the above surrender of ₹ 39.99 lacs has made further addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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