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2019 (10) TMI 395

..... search was conducted, matter relating to levy of penalty was examined at length by the Coordinate Bench in cases of Surajmal Bansal HUF, Jaipur vs. DCIT, Jaipur [2019 (4) TMI 1113 - ITAT JAIPUR] wherein, the penalty was deleted by the Tribunal We delete the penalty levied under section 271AAB on cash advances towards purchase of land. The levy of penalty @ 10% on the excess silver found during the course of search and valued at ₹ 575,000 is however confirmed. Since the issue of levy of penalty u/s 271AAB of the Act has been decided on merits, therefore, the issue of validity of initiation of the penalty proceeding due to defective show cause notice become academic in nature and we do not propose to adjudicate the same. - Appeal of the assessee is partly allowed. - ITA No. 122/JP/2018 - 3-10-2019 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri S. R. Sharma And Shri R. K. Bhatra (CA) For the Revenue : Smt. Runi Pal (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-4, Jaipur dated 21.11.2017 wherein the assessee has taken the following grounds of appeal:- 1. That the notice issued .....

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..... 271AAA(2), there is no immunity clause provided from penalty u/s 271AAB. Being aggrieved, the assessee is now in appeal before us. 5. At the outset, the ld AR submitted that the matter is squarely covered in favour of the assessee by the decision of the Coordinate Bench in other Group cases of the assessee in cases of Surajmal Bansal HUF, Jaipur vs. DCIT, Jaipur (ITA No. 124-127/JP/2018 dated 08/04/2019) wherein under identical set of facts and circumstances, the penalty was deleted by the Tribunal. 6. It was further submitted by the ld AR that the show cause notice issued by the Assessing Officer initiating the penalty proceedings has been issued in a routine manner without mentioning under which clause of section 271AAB of the Act, the assessee is liable for penalty. It was submitted that section 271AAB(1) has three clauses (a) to (c) and each clause of sub-section (1) to section 271AAB provides for separate rate of penalty and unless the same is specified, the assessee is not in a position to respond and thus, the principles of natural justice are violated. It was submitted that there is no application of mind on the part of the AO, at the time of issuing the show cause notice, .....

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..... the surrender of income from the assessee. In support, the reliance was placed on the CBDT Circular No. F. No. 286/2/2003-IT (Inv.) dated 10.03.2003 wherein the CBDT has expressed its concern about the practice of obtaining the confession of additional income during the course of search and seizure proceedings. It was submitted that the provisions of section 271AAB clearly requires that such undisclosed income to be substantiated and, therefore, the assessee is required to specify the manner in which such income has been derived and further substantiate the same furnishing material available with him. In the absence of any record or material to show any undisclosed source of income, the entire disclosure was on papers is to avoid undue harassment and unwanted litigation and the assessee could not have substantiated such income so declared during the course of search. It was submitted that there is no iota of evidence that surrendered income was undisclosed income of the assessee. It was submitted that said surrender was made to buy piece and avoid long litigation with department on the request that no penalty proceedings etc. be initiated against it. In support, reliance was place .....

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..... the rates as prevailing in the year of acquisition and some of the silver even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the silver would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. The Ld. AO has not determined it as income from other sources u/s 69 of the Income Tax Act in the assessment but accepted as income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as Undisclosed Income for the purpose of levy of penalty u/s 271AAB. 10. It was finally submitted that there is no valid ground given in the assessment order for initiating penalty proceedings, the initiation of penalty is statutorily defective, the assessee has filed its return of income in good faith including the additional income surrendered during the course of search to purchase peace of mind and avoid litigation, assessment has been completed accepting the income declared by the assessee and there is no undisclosed income found during the course of search and penalty so levied should be deleted. 11. Per contra, the .....

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..... pur vs. DCIT, Jaipur (ITA No. 124- 127/JP/2018 dated 08/04/2019) wherein, the penalty was deleted by the Tribunal. The relevant findings of the Coordinate Bench read as under: 11. We have heard the rival contentions and persued the material available on record. This Tribunal is taking a consistent view that levy of penalty u/s 271AAB is not automatic in nature but the AO has discretion to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an undisclosed income in terms of Section 271AAB(1) r.w. explanation defining the undisclosed income. In this regard, we refer to the decision of the Tribunal in case of Rajendra Kumar Gupta vs DCIT (Supra) wherein it was held as under: 12. Now, coming to the main ground of appeal. In this regard, the ld AR has raised the contention challenging the findings of the AO that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word may is used instead of shall so it is not mandatory but same is discretionary. It was submitted that it is settled position of .....

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..... in the case of admission of income u/s 132(4) is mandatory. The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not 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 1st day of July, 2012, the assessee shall .....

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..... (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: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, w .....

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..... which reads as under: (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; 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. 13. In the instant case, during the course of search, a diary has been found wherein there are notings relating to advance given to certain persons towards purchase of land. .....

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..... s a specific definition of undisclosed income. An identical matter has come up for consideration before the Tribunal in case of Rajendra Kumar Gupta vs DCIT (Supra) wherein it was held as under: 21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to ₹ 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can .....

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..... closed 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 advances 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. 14. In light of above discussions and following the earlier decision of the Coordinate Bench of the Tribunal in the case of Rajendra Kumar Gupta (supra), we delete the penalty levied under section 271AAB of the Act on cash advances of ₹ 2,25,00,000 towards purchase of land. Since the issue of levy of penalty U/s 271AAB of the Act has been decided on merits, therefore, the issue of validity of initiation of the penalty pr .....

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