TMI Blog2019 (8) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is represented by any money bullion, jewellery or other valuable article or thing. We further observe that the assessee was having only income from house property and interest income. The diary was found on the basis of which disclosure was made also contained list of advances made which formed basis of disclosure by the assessee. Since the assessee was not carrying on any business, he was not required to maintain any such books of account under the law. The amount so surrendered was duly recorded in other documents maintained in the normal course and therefore, the same cannot be said to be undisclosed income. CIT(A) has dealt with the issue threadbare and after applying the various judicial pronouncements including pronouncements of the Coordinate Bench in the cases of Ravi Mathur Vs DCIT [ 2018 (6) TMI 1128 - ITAT JAIPUR] deleted the addition. - Decided against revenue. - ITA No. 424/JP/2019 - - - Dated:- 21-8-2019 - Shri Ramesh C Sharma, AM And Shri Vijay Pal Rao, JM For the Assessee : Shri P.C. Parwal (CA) For the Revenue : Ms. Anuradha (JCIT) And Shri B.K. Gupta (CIT-DR) ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the return declaring an income of ₹ 6,50,14,880/- including the surrendered income of ₹ 627 Lakhs and paid tax thereon. 5.2 The arguments of the Ld. AR is that 1. The penalty is not mandatory as the word used is MAY and the Hon'ble ITAT Jaipur Bench in the similar circumstances deleted the penalty levied. 2. The appellant disclosure of income relating to the specified A Yr does not fall into the definition of 'undisclosed income' as provided in the section 5.3 It is seen that the Hon'ble ITAT Jaipur Bench in the case of Ravi Mathur V. DCIT ITA 969/JP/2017 dated 13.06.2018 deleted the similar penalty. The brief facts of this case was that in search assessee surrendered ₹ 10.02 as income and offered the same in the return. The AO also assessed the same and levied penalty thereon. On further appeal the CIT(A) confirmed the penalty. On further appeal, the ITAT deleted the penalty by discussing the issue at page 10 to 35 and finally concluding that when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required to be examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified previous year. As per sub-clause (i) of clause (c) of the Explanation, the undisclosed income means any income of the specified previous year represented by any money, bullion, jewellery or valuable article or things or any entry in books of accounts or other documents or transactions found in the course of search. This definition is further subject to two conditions that the said income has not been 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 being disclosed to the Principal Chief Commissioner, Principal Commissioner or Commissioner before the date of search. The other forms of undisclosed income as defined in sub clause (ii) is any entry in respect of expenses recorded in the books of accounts or other documents maintained in the normal course. Therefore, the clause (ii) contemplates undisclosed income in the form of false entries of expenses recorded in the books of accounts which is not relevant for the case in hand. Since in the case of assessee the transactions of investment were found in the diary, therefore, whether these entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the default committed by the assessee, then it also cast an equally stringent and strict duty on the authority responsible to take such action. Therefore, when the provisions for levy of penalty under section 271AAB is a specific provision to deal with the undisclosed income and it provides a strict penal action then the corresponding duty of the tax authority is also equally stringent. The AO cannot escape from following the strict mandatory requirement of law and particularly the principle of natural justice. The AO has neither specified the grounds and clause of section 271AAB nor has dealt with the same in the impugned order passed under section 271AAB. The AO has also not given a finding that the case of the assessee falls in the definition of undisclosed income provided under clause (c)(i) of Explanation to section 271AAB. When the transactions of investment in real estate are recorded in the diary being other documents maintained by the assessce for the said purpose, then in the absence of any requirement of maintaining regular books of accounts by the assessee, the case of the assessee would not fall in the definition of undisclosed income as per clause (c) of Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been adjudicated on those averments, which the Ld. AR urges before us to consider while adjudicating the appeal of the Revenue. The Ld. AR also pointed out that the contentions which he is going to raise has been taken up before the AO also, however, according to Ld. Counsel, those legal arguments were not considered by the AO in the right perspective. The first contention of the Ld. AR is that since Sec. 271AAB of the Act is a penalty section it should be construed strictly, which we agree being it is a trite law that penalty provisions have to be strictly interpreted. Next contention of Ld. AR is that sec. 271AAB of the Act is not mandatory because Parliament in its wisdom has used the word 'may' and not 'shall'. So, according to him, it is the discretion bestowed upon the AO whether to initiate and impose penalty u/s. 271AAB of the Act. We agree with the said contention of Ld. AR because when a similar issue was adjudicated by 'TAT Lucknow (the author of this order was a member of the Bench) in Sandeep Chandak Ors. Vs. CIT (2017) 55 ITR (Trip) 209 and 2017 (5) TMI 675- ITAT-Lucknow in ITA No. 416, 417 and 418/LKW/2016 dated 30.01.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 271AAB of the Act is exigible. In this regard, we find that the Ld. AR drew our attention to the computation of the total income wherein the assessee had offered income from commodity trading only under the head income from other sources. We also find that the ld. AO had also specifically stated in the body of the assessment order vide column no. 10 that the assessee is having only salary income and income from other sources. We find that due to the absence of the assessee at the time of hearing this particular fact had escaped the attention of the Tribunal. On perusal of the fact available on record, we find that the finding recorded by this Tribunal in para 9 of its order dated 10.11.2017 that the assessee is mandated to maintain books of accounts u/s 44AA of the Act is factually incorrect and deserves to be rectified. This mistake of primary fact had lead to a conclusion of upholding the levy of penalty uls 271AAB of the Act. Hence, in these facts and circumstances and in view of the aforesaid mistake of primary fact rightly pointed out by the Id. AR, we deem it fit to recall the orders of this Tribunal dated 10.11.20 1 7 in the case of aforesaid assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act. (2) Every person carrying on business or profession [not being a profession referred to in subsection (1)] shall,-- (i) if his income from business or profession exceeds [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds [ten lakh] rupees in any one of the three years immediately preceding the previous year; or (ii) where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed [one lakh twenty] thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed [ten lakh] rupees, [during such previous year; or (iii) where the profits and gains from the business arc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We note that the AO has accepted the aforesaid statement of total income filed before him without contesting the claim of the assessee as to whether the assessee's claim of income other than from salary should be from Income from Business . The confusion that has arisen in this case, we note is on the misdirection of AO in the assessment proceedings wherein the assessment order of the assessee, the AO has observed during search and seizure operation, Shri Manoj Beswal had made a consolidated disclosure of ₹ 32 crore vide his disclosure petition. Out of this consolidated disclosure, the assessee owned up ₹ 3 cr. In the disclosure petition Shri Manoj Beswal it was stated that the source of such undisclosed income was out of commodity profit. It has been submitted that the amount has already been disclosed in his Income Expenditure account for the AY 2013-14 under the head 'Income out of Speculative Business from sale of commodities'. Verification of accounts confirms his claim. This observation is flawed because, we note that AO got carried away by perusal of the Income Expenditure Account for AY 2013-14 submitted by the assessee before him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether a principal receipt is of the nature of income and falls within the charge of sec. 4 of the Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and interpretation of the term 'income' given in a large number of decisions of the Hon'ble Supreme Court, High Court and Privy Council. After taking note of the Apex Court order as above, we note that the AO in the assessment order after having accepted the statement of total income (supra) and the return wherein the assessee has shown the income from commodities under the head Income from Other Sources cannot now after perusal of Income Expenditure Account determine the character of transaction in the penalty proceedings as Income from Business or Profession which approach/action is erroneous. We note that the assessee in his statement of total income along with return has classified his income under two heads (i) Salary and (ii) from other sources and the income of ₹ 3 cr. as income ftom other sources, which we find the AO has not contested in the assessment order, has thus crystallized and the necessary inference drawn is that assessee an individual wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been initiated under section 132 on or after the 1st day 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- ******** Explanation - For the purposes of this section, - (a) .. (b) .. (c) undisclosed income means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner before the date of search; (ii) any income of the specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue. Therefore, when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required to be examined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the diary which is nothing but the record maintained in the normal course, thus the same would not fall in the definition of undisclosed income. Once the said income is found as recorded in the other documents maintained in the normal course, then it cannot be presumed that the assessee would not have disclosed the same in the return of income to be filed after about one year from the date of search. Hence, in view of the above facts and circumstances of the case as well as the various decisions on this point, we hold that the penalty levied under section 271 AAB is not sustainable and the same is deleted. 5.5 In the present case also, the appellant is having only income from house property and interest income. Same is evident from the computation of income filed with the return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f completion of the proceeding. Therefore the initiation of the proceeding after completion of the assessment proceeding is not vitiated by law. Further last line of the notice clearly mention section 271AAB and the assessee has given the reply to the notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB, Thus the decision of the high court is on the legality of the notices issued. We may further point out that in our earlier submission we have referred to the decision of the ITAT Jaipur Bench wherein the Hon'ble ITAT held that the income recorded in the other records do not form part of the undisclosed income itself and therefore deleted the penalty. The facts of the assessee's case is exactly same. In these facts, the decision of the Allahabad High Court is not applicable to the facts of the present case whereas the ITAT decision is directly applicable to the facts of the present case. Accordingly the penalty levied by the AO is uncalled for and be deleted. 6.3 I have carefully perused the submissions made and the judgment too. I am in agreement with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; 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. 7. As per the ld DR as the assessee himself has surrendered undisclosed income, the A.O. was justified in levying penalty U/s 271AAB of the Act. 8. On the other hand, it was contended by the ld AR that during the course of search certain loose papers were found wherein there are notings relating to advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 under 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 s. 132. An investment per se represents an outflow of funds from the assessee s hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there could be subsequent outflow by way of investment. Investment and income thus connote different meanings and connotation and thus cannot be used interchangeably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of search in the statement recorded under 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 s. 271AAB read with the Explanation thereto and penalty so levied thereon deserved to be set aside. 9. Reliance was also placed on the decision in the case of M/s Silver Art Palace Vs. DCIT ITA No.236/JP/18 order dated 11.02.2019. The relevant finding at Para 42 to 44 is as under:- 42. Now, coming to surrender made on account of cash advances for land purchases in the statement recorded u/s 132(4) of the Act. During the course of search, a diary has been found wherein there are notings relating to advance given to various persons towards purchase of land. 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 investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are contained in section 69, 69A and section 69B and therefore, the same 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 in the instant case. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clause and finally imposing penalty in different clause shows that even AO was not certain as to under which clause assessee has committed the default. Thus, the penalty notice issued by the AO is vague and consequent penalty imposed by AO is illegal and bad in law. For this purpose, reliance is placed on the following cases: - Sh. Vimal Chand Surana Vs. DCIT 72 ITR(Trib.) 583 order dated 30.05.2019 Sh. Padam Chand Pungliya Vs. ACIT 71 ITR(Trib.) 562 order dated 05.04.2019 Sh. Gopal Das Sonkia Vs. DCIT ITA No.306/JP/2018 order dated 11.04.2019 Sh. Dinesh Kumar Agarwal Vs. ACIT ITA No.855 856/JP/2017 order dated 24.07.2018 13. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. From the record we found that during the course of search, one diary and Annexure-A exhibit 5 was found. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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