TMI Blog2019 (8) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... d do not apply to the facts of the case in which no incriminating material is found during the search action. Assessee has been fair enough to admit that it is not in all the cases that no incriminating material was found. That certain items of jewellery of silver were found / noticed during the search action, the source of income from which as held by the Assessing Officer also stood explained and also the manner of earning of the income was also substantiated. He, therefore, has been fair enough to admit that penalty under the provisions of section 271AAB (1)(a) of the Act was liable to be confirmed to the extent of the property / material found during search action. In the case of Mrs. Rama Rani for assessment year 2016-17, as noted from the above chart, jewellery worth ₹ 1.33 crores was found, whereas, income surrendered by her during the search action was of ₹ 2 crores. In view of the discussion made above, the penalty us 271AAB(1)(a) of the Act is restricted to the value of the jewellery found during search action i.e. ₹ 1.33 crores, the 10% of which comes to ₹ 13.30 lacs, hence, the penalty in the case of Mrs. Rama Rani is restricted to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also. The Assessing Officer further observed that as per section271AAB of the Act, the levy of penalty was mandatory in the case of surrendered unexplained income found during the search action. He further observed that since the assessees herein above, had disclosed the sources of income and substantiated the manner of earning of such income and had paid the due taxes on such surrendered income, hence, the minimum penalty @ 10% under the provisions of section 271AAB(1) (a) of the Act was leviable. He, accordingly initiated penalty proceedings u/s 271AAB of the Act and levied the penalty @ 10% of surrendered undisclosed income in the case of the aforesaid assessees. 4. Being aggrieved by the above order of the Assessing Officer, the assessees preferred appeals before the Ld. CIT(A) but remained unsuccessful. 5. Before us, the Ld. Counsel for the assessees, at the outset, has submitted that no incriminating documents or material was found during the search action u/s 132 of the Act at the premises of the above named assessess. That though the assessees had offered the additional income during the search action but the same does not fall in the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is not mandatory as the provisions of section 274 of the Act have been made applicable in relation to the penalty referred to section 271AAB of the Act. It has been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of undisclosed income as defined under explanation to section 271AAB of the Act. The relevant part of the order of the Tribunal in M/s SEL Textiles Ltd. Vs DCIT dated 18.04.2019(supra) for the purpose of ready reference is reproduced as under:- 6. The Ld. DR, on the other hand, has submitted that the assessee himself had surrendered an amount of ₹ 14,39,99,258/- as its undisclosed income of the year and since the assessee did not substantiate the manner of earning of the said income, hence, the Assessing officer rightly imposed the penalty under the provisions of seciton271AAB (1)(c) of the Act. He has further submitted that even otherwise, as per the provisions of section 271AAB of the Act, the levy of penalty is mandatory. However, the rate at which the penalty is to be levied depends upon certain conditions as enumerated in clause (a), clause (b) and clause (c) respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified 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 subsection (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (3) The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation:--- For the purpose of this section,__ (a) (b) . (c) undisclosed income means- (i) any income of the specified previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee admits of any undisclosed income in his statement u/s 132(4) of the Act. Such a view goes against the words used in section 271AAB and section 274 of the Act. For saying so we note that if the intention of the Legislature to levy the penalty was mandatory and automatic then the right of appeal u/s 246A would not have been provided for by the Legislature against the order of penalty passed u/s 271AAB of the Act. We also note that while enacting Section 271AAB the Legislature has consciously used the word may in contradistinction to the word shall in the opening words of Section 271AAB of the Act. The choice of the expression may and not shall in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the AO but the AO was given discretion in the matter of levy of penalty. Our foregoing view finds support in the decision of the coordinate Bench of the Tribunal at Vishakhapatnam in the case of ACIT Vs Marvel Associates (170 ITD 353) which in turn relied on Hon ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (infra). The following observations of the Tribunal in the said decision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Pr. CIT Vs Sandeep Chandak (supra) is concerned, we note that the facts of the present case are distinguishable from the facts involved in that judgment. In Sandeep Chandak (supra) the assessee had not only made the disclosure/surrender of the amount but also had specified the manner in which such income has been derived i.e. from the trading of F O and derivatives and was advanced for purchase of land. That is not the case in the present appeal; there is no explanation by the assessee the manner of deriving the surrender made during search. As discussed in the foregoing, it is a matter of record that in the course of search no undisclosed asset or thing was found nor any incriminating material was found from which any undisclosed income or unexplained expenditure could be inferred. In the circumstances the bald offer made by the assessee to pay tax on additional income in the statement u/s 132(4) cannot be considered to be undisclosed income within the meaning of sec. 271AAB of the Act. So the rigors of Section 271AAB of the Act is not attracted. Having regard to these material facts the judgment of Hon ble Allahabad High Court relied upon by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was found in the course of search. Since no sum of money, bullion, valuable or article equivalent to ₹ 69 crores was discovered by the Revenue in the course of search, the additional requirement of the same being found not recorded in the books or other documents was redundant. We therefore find that the conditions prescribed in first limb of clause (i) of clause (c) of Explanation were not satisfied. 13. The second limb of sub-clause (i) provides that undisclosed income shall mean any income represented either wholly or partly by any entry in the books of accounts or other documents or transactions found in the course of search under Section 132 but which were 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 been disclosed to the Commissioner before the date of search. We find that even in respect of the second limb no material or evidence has been brought on record by the AO which showed that the income of ₹ 69 crores was represented by any entry in the books of accounts or other documents or transactions found in the course of search. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 271AAB of the Act. Discovery and consequent assessment of undisclosed income is a condition precedent for levy of penalty under Section 271AAB of the Act. It has to be borne in mind that every offer of the assessee to pay tax on his or her income in the course of recording of statement u/s 132 does not amount to finding of undisclosed income . A mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid protracted litigation cannot and does not amount to discovery of undisclosed income for the purposes of levy penalty u/s 271AAB of the Act. The Legislature has all along been conscious in providing for levy of penalty only in respect of undisclosed income . We find that in all penal provisions such as Explanation 5A of Section 271(1)(c), Section 271AAA Section 271AAB, the Legislature has restricted the scope of penal provision only to undisclosed income and not assessed total income. Moreover the term/expression undisclosed income has been defined by the Legislature in all such penal provisions in a specific and restricted manner and not in an inclusive manner. For that reason the definition of undisclosed income nowhere provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s undisclosed income represents any money, bullion, jewellery or valuable article or any entry in the books or other documents therein. We make it clear that we are dealing with a penalty provision in tax statute which is to be strictly interpreted. We therefore are of the opinion that the CIT(A) has rightly deleted the impugned penalty as the assesee s search statement nowhere indicated the corresponding undisclosed income as per specific requirement in the Act. The CIT(A) s findings under challenge deleting penalty in question are accordingly confirmed. 19. We also rely on the decision of this coordinate Bench of Tribunal in the case of DCIT Vs Liladhar Agarwal in ITA No. 1605/Kol/2017 dated 26.12.2018 wherein identical issue had come up for consideration and the Tribunal upheld the CIT(A) s order deleting the levy of penalty since there was no material to suggest that the income offered to tax was a consequence of any valuable asset or any entry found in any books or other documents seized in the course of search. . 20. We may also refer to the decision of the coordinate Bench of the Tribunal at Vishakhapatnam in the case of ACIT Vs Marv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable. The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of the lower authorities and cancel the penalty u/s 271AAB of the Act. 10. In the result, the appeal filed by the revenue is dismissed. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of assessment and cannot be held as undisclosed income detected during the course of search and seizure proceeding. Therefore, to the extent of excess stock based on the valuation report the disclosure of the income by the assessee would not fall in the category of undisclosed income as per explanation to Section 271AAB of the Act. It is not the case of the Revenue that any stock of jewellery was found which is not recorded in the books of account but the value of stock is computed based on the valuation report of the departmental valuer. Once the difference in the value of stock is only due to market price as against the cost of the said stock, the same will not fall in the ambit of undisclosed income as defined under clause-(c) of explanation -1 of section 271AAB of the Act. 19. Similarly the accrued interest of ₹ 20,00,000/- is also only estimated and not based on any incriminating documents. This amount was estimated as there were advances as per the entries of the seized material. Even otherwise accrued interest is dependent on the outcome of the levy of penalty in respect of advances given by the assessee. We have considered the issue of advances for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort during search action, however, giving the assessee set off of amount of ₹ 39,99,158/- surrendered under the head profit on stock found short added the balance amount of ₹ 2,58,20,577/- into the income of the assessee on account of stock found short during the search action. Apart from that, the Assessing officer had made the additional disallowance of ₹ 2,83,98,545/- under section 14A of the Act which was in addition to the suo motu disallowance of ₹ 3,45,49,868/- returned by the assessee in this respect in his Income tax return. The Assessing officer also made an addition of ₹ 2,25,54,011/- u/s 36 (1)(iii) of the Act. Though the assessee during the assessment proceedings submitted that the set off of ₹ 14 crores declared on account of disallowance by the assessee of expenses/additions be given to the assessee, however, the Assessing officer rejected the above contention of the assessee since the assessee had not given any bifurcation of any surrendered income of ₹ 14 crores. Apart from that, the Assessing officer has made an addition of ₹ 9,23,231/- u/s 36(1) (v) of the Income Tax act and assessed the total income at a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated period and that no disallowance was attracted. 12. Considering the nature of disallowance made by the Assessing officer and the plea of the assessee, it is quite apparent that the issue of disallowance of expenditure on the aforesaid three issues was a debatable one and in fact in the light of the various decisions of the Hon'ble High Courts, the assessee has a fair case on merits and that it cannot be said that there was any intentional act on the part of the assessee to claim any inadmissible expenditure, rather, the assessee had put a bonafide claim of the allowance/expenditure on these issues. What we wish to convey through the aforesaid discussion is that even despite certain disallowances made by the Assessing officer, as discussed above, it cannot be said that assessee had claimed any inadmissible expenditure which would fall within the definition of undisclosed income as defined under the provisions of section 271AAB of the Act. Except the aforesaid disallowance made by the Assessing officer on debatable issues, there is no case of the Department in respect of any inadmissible expenditure claimed by the assessee which would cover the surre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it can be noticed that the Tribunal has categorically held that if no incriminating material is found during the search action and the surrendered income does not fall in the definition of undisclosed income as defined u/s 271AAB of the Act, the penalty is not warranted. The Coordinate Bench of the Tribunal has also discussed the proposition of law laid down by the Hon'ble Allahabad High Court in the Principal CIT vs Sandeep Chandak and Ors. (supra) and has held that the facts of the said case are distinguishable and do not apply to the facts of the case in which no incriminating material is found during the search action. 10. However,, Ld. Counsel for the assessee has been fair enough to admit that it is not in all the cases that no incriminating material was found. That certain items of jewellery of silver were found / noticed during the search action, the source of income from which as held by the Assessing Officer also stood explained and also the manner of earning of the income was also substantiated. He, therefore, has been fair enough to admit that penalty under the provisions of section 271AAB (1)(a) of the Act was liable to be confirmed to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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