TMI Blog2019 (10) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee which means it was found from the possession and control of the wife and therefore, cannot be presumed to be belonging to the assessee. Accordingly, without considering the cash being an undisclosed income of the assessee as per definition provided in the explanation to Section 271AAB the levy of penalty in respect of such surrender made by the assessee is not sustainable. Hence, the same is deleted. Penalty is not automatic as a result of surrender made by the assessee but the A.O. has to first decide whether the surrender made by the assessee is falling in the definition of undisclosed income as provided in the explanation to Section 271AAB(1) - When the assessee has furnished explanation that the cash found from the locker of wife of the assessee is representing the past savings of the wife then in absence of giving a finding on the part of the A.O. that the cash actually belongs to the assessee and not to the wife, the levy of penalty U/s 271AAB of the Act is not sustainable and the same is deleted. Appeal of the assessee is allowed. - ITA No. 542/JP/2018 - - - Dated:- 24-10-2019 - Shri Vijay Pal Rao, Judicial Member For the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.s. 153B(1)(b) of the Act on 27/02/2015 accepting the returned income. Subsequently, the A.O. initiated the proceedings U/s 271AAB of the Act and levied the penalty @ 10% of the undisclosed income of ₹ 8,53,500/- U/s 271AAB of the Act. The assessee challenged the action of the A.O. before the ld. CIT(A) but could not succeed. 3. Before the Tribunal, the ld AR of the assessee has contended that a show cause notice issued by the A.O. is defective as the A.O. has not specified the provisions under which he proposed to levy the penalty. The notice was issued U/s 274 r.w.s. 271 of the Act and therefore, even the provisions of Section 271AAB of the Act were not mentioned in the show cause notice. Thus, the ld AR has submitted that the initiation of proceedings for levy of penalty U/s 271AAB of the Act are bad in law and consequently the order passed by the A.O. U/s 271AAB of the Act is liable to be quashed. In support of his contention, he has relied upon the following decisions: (i) Manjunatha Cotton Ginning Factory 359 ITR 565 (ii) ITAT Jaipur Bench in the case of Shri Dinesh Kumar Agarwal Vs ACIT, Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was issued. It contains various defaults in the pretyped proforma which includes the violation of non-furnishing of the return of income, non-compliance of the notices issued U/s 142(1) and 143(2) as well as concealment of particulars of income or furnishing inaccurate particulars of income and finally the penalty U/s 271AAB of the Act for undisclosed income of the specified previous year. Thus, even if it is taken that the last part of the defaults was intended by the A.O., though, it is not specified in the said notice. It begins with the phrase that You have concealed the particulars of income or furnished inaccurate particulars of such income . Therefore, even the initiation of penalty proceedings U/s 271AAB of the Act as proposed in the said show cause notice is not based on the correct default on the part of the assessee. Though, the A.O. then again issued notice dated 07/07/2015 which as per the penalty order for granting an opportunity of hearing to the assessee and not initiation of the proceedings. Accordingly, the initiation of the penalty proceedings suffers from serious defects which are not curable. The Coordinate Bench of this Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of undisclosed income is provided in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AAB of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee- (i) in the course of the 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; and (iii) on or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53 [section 270A or] clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) 52 [or sub-section (1A)]. (3) The provisions of sections 274 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether the explanation furnished by the assessee is bonafide and non-compliance of the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving an opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice. Hence the Hon ble High Court has held as under :- The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R in this regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 1 st 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 specifies the manner in which such income has been derived. (ii) Substantiates the manner in which the undisclosed income was derived; and (iii) On or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclo sed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act. The Channai Bench of the Tribunal in the case of DCIT vs. Shri R. Elangovan (supra) at pages 7 to 10 has held as under :- It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for having undisclosed income within the meaning of Section 271AAB of the Act. Notice in our opinion was vague. Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee ; ) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law ; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings ; The findings recorded in the assessment proceedings in so far as concealment of income and furnishing of incorrect particulars would not operate as res judicata in the penalty pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cash from the locker of the wife demonstrate that the same belongs to the wife of the assessee and even as per the provisions of Section 132(4A) of the Act, the presumption can be raised regarding any money, bullion, jewellery or other valuable articles or things is found in the possession or control of any person in the course of search, the same belongs to such person. The cash was found from the locker of the wife of the assessee which means it was found from the possession and control of the wife and therefore, cannot be presumed to be belonging to the assessee. Accordingly, without considering the cash being an undisclosed income of the assessee as per definition provided in the explanation to Section 271AAB of the Act, the levy of penalty in respect of such surrender made by the assessee is not sustainable. Hence, the same is deleted. 6.1 Further the penalty is not automatic as a result of surrender made by the assessee but the A.O. has to first decide whether the surrender made by the assessee is falling in the definition of undisclosed income as provided in the explanation to Section 271AAB(1) of the Act. When the assessee has furnished explanation that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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