TMI Blog2019 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... v, 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 by assessing officer for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law not being specifically pointing out the default for which the Ld. AO sought to impose penalty u/s 271AAB. 2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case the Ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of ₹ 20,50,000/- imposed by the Ld. Assessing Officer u/s 271AAB of the I.T. Act, 1961. 2. Briefly the facts of the case are that the assessee is a partner in two partnership firms and deriving income in the form of interest and share in the profits from these two partnership firms. A search u/s 132 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, as the show cause notice issued by the AO do not specify the undisclosed income on which the assessee is required to show cause. Even the AO has not given any ground for levy of penalty for which the assessee could put its defense. Thus in the absence of specific charge against the assessee, the assessee was not in a position to respond to the show cause notice issued by the AO. It was submitted that though the AO while passing the impugned order has imposed the penalty as per clause (a) of section 271AAB(1) of the Act, however, no such ground was specified in the show casue notice issued u/s 271AAB rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 placed on the Co-ordinate Bench decision in case of ACIT vs. Marval Associates 92 Taxmann.com 109 wherein it was held that penalty u/s 271AAB is attracted on undisclosed income but not on admission made by the assessee u/s 132(4) of the Act. The AO must establish that there is undisclosed income on the basis of incriminating material. Further, reliance was placed on the Co-ordinate Bench in decision in case of Ajay Sharma vs. DCIT [2013] 30 taxmann.com 109 wherein it was held that addition on account of alleged receivables as per seized paper cannot be made as there is no direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ld. DR heavily relied on the findings of the lower authorities. It was submitted by the ld DR that the assessee has surrendered the undisclosed income of ₹ 2,05,00,000/- in its statement recorded during the course of search u/s 132(4) of the Act and the said surrender is clearly an admission on the part of the assessee that there is undisclosed income which has been found during the course of search. Once the surrender of undisclosed income has been made by the assessee, there is no cause o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 law that penalties are not compulsory, not mandatory but are also discretionary considering the overall facts and circumstances of the case. In support, reliance was placed on provisions of section 158BFA(2) wherein similar phraselogy has been used by the legislature and the decisions of the Coordinate Benches in case of DCIT vs Manish Agarwal 92 taxmann.com 81 and ACIT vs Marvel Associates 92 taxmann.com 109. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory 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 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 sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded u/s 132(4) during the course of search, falls in the definition of undisclosed income which has been specifically laid down in terms of clause (c) of explanation to section 271AAB 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 271AAB is an inflow of funds which has not been recorded in the books of accounts or other documents on or before the date of search and not an outflow of funds. Further, the deeming fiction so envisaged in section 69 and 69B cannot be extended and applied automatically in context of section 271AAB which contains 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said deeming provisions in the quantum proceedings. 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 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 discussio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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