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TMI Blog2020 (3) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 132 of the Act was carried out on Surana Group on 15.10.2014 and assessee is one of the members of the said Group. During the course of search, the statement of assessee (since expired) was recorded u/s 132(4) wherein he surrendered income on account of excess jewellery amounting to Rs. 2,05,70,072/-. Thereafter, the assessee firm filed his return of income on 30.09.2015 declaring total income of Rs. 2,12,24,350/- which represents the additional income surrendered during the course of search. The assessment u/s 143(3) read with section 153B(1)(b) was completed on 22.12.2016 accepting the returned income. Separately, the penalty proceedings u/s 271AAB were initiated by way of issuance of notice u/s 274 read with section 271AAB of the Act and thereafter, the AO levied the penalty u/s 271AAB vide his order dated 14.06.2017 @ 10% of Rs. 2,05,70,072/-, being the undisclosed income of the specified previous year. 3. In the aforesaid penalty order, the Assessing Officer referred to the assessment order and stated that the assessee has not filed any further appeal against the said order. Further, the Assessing officer held that in view of the provisions of section 271AAB, it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 271AAB states that the Assessing Officer may levy penalty which thus permits the Assessing Officer to use his discretion to levy or not to levy a penalty depending upon facts and circumstances of the case. It was further submitted that the legislature has included the provisions of section 274 and 275 of the Act in context of section 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Therefore, 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 mandatory and it is on the basis of facts and merits placed before the AO. Once the AO is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty. It was further submitted that the penalty order u/s 271AAB is an appealable order u/s 246A before CIT(A) and therefore, it is not correct to hold that the penalty u/s 271AAB is mandatory in nature and had that being the intention of legislature, there would not have been any provision of appeal against the said lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Undisclosed Income" for the purpose of levy of penalty u/s 271AAB of the Act. In support, the reliance was placed on the Co-ordinate Bench decision in case of Shyam Sunder Khandelwal vs. DCIT, CC-2, Jaipur (ITA No. 307/JP/2018 dated 11.04.2019). 8. Per contra, the ld. DR is heard who has relied on the order of the lower authorities and submitted that once the assessee has surrendered the amount during the course of search in the statement recorded u/s 132(4) of the Act of the one of the partners of the assessee firm, therefore, there is no basis to state that there is no undisclosed income found during the course of search. It was further submitted that the provisions of section 271AAB are clear in contrast to section 271AAA wherein there is no mechanism for immunity from levy of penalty and the only discretion which lies with the Assessing Officer is in terms of quantum of levy of penalty and that to, depends upon the satisfaction of the specific terms and conditions as provided in the said provisions. The ld DR accordingly supported the findings of the lower authorities. 9. We have heard the rival contentions and perused the material available on record. Firstly, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aware of the specific charge against it and an opportunity has thus been given to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO on this account. Further, even for sake of argument, if it is assumed that primary charge of undisclosed income has to be read along with ancillary conditions and thus multiples charges have been prescribed in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB and where the Assessing officer has not stated the specified charge at the time of initiation of penalty proceedings, in our considered view, such uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order and so long as there is a clear finding in the penalty order, no infirmity can be said to arise in the penalty order. In the instant case, the AO has recorded his satisfaction while passing the assessment order that there is undisclosed income found during the course of search and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed income. Further, where the discretion so applied by the Assessing officer has been rightly exercised or not in a particular case can be reviewed and subject to appellate remedy as so provided in the Act. 11. This now takes us to next contention of the ld AR regarding amount surrendered during the course of search not qualifying as an "undisclosed income" u/s 271AAB r/w explanation thereto and merely surrender made in the statement recorded u/s 132(4) is not sufficient for levy of penalty. It is a settled legal proposition that the penalty provisions needs to be construed strictly. Therefore, where the statue has provided for a charge for levy of penalty which is "undisclosed income for the specified previous year found during the course of search in the case of assessee" and has also defined the meaning of undisclosed income, for the purposes of levy of penalty, what has to be seen is whether the surrender so made, in terms of statement of the assessee recorded u/s 132(4) during the course of search, falls in the definition of "undisclosed income" which has been specifically defined and laid down in terms of clause (c) of explanation to section 271AAB which reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the status of the family, customs of the society and other facts and circumstances the total weight of gold is reasonable and source of acquisition was explained. However, the assessee to buy peace and avoid litigation with department offered the said valuation of jewellery as his additional business income of the current year. The ld. AO has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business 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 under section 271AAB. 19. On the other hand, the ld. D/R has submitted that once the jewellery was found at the residence and the assessee has admitted the fact that the jewellery was not recorded in the books of account, therefore, it is an undisclosed income of the assessee for the specified previous year for the purpose of section 271AAB of the Act. He has relied upon the orders of the authorities below. 20. We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted." 13. In the instant case as well, it is an undisputed fact that the jewellery so found during the course of search has been found from the bedrooms of various members of the assessee's family and thus, such jewellery found in possession of family members belongs to them and doesn't belong to assessee alone. Therefore, merely because the assessee has declared the same in his statement recorded u/s 132(4), it will not be regarded as undisclosed income of the assessee in absence of any fact or material to establish that entire jewellery was acquired by the assessee and belongs to the assessee alone. Further, we find that credit has been allowed in respect of jewellery disclosed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisation of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found." Further, the jewellery so found during the course of search was old jewellery except for 98 grams, therefore, for the purposes of determining undisclosed income by way of investment in such jewellery, valuation at current rates by Department Valuer is not correct and what needs to be determined is the value/cost in the year of acquisition/investment however, no efforts have been made by the Department. Therefore, mere disclosure of such jewellery in the statement of the assessee recorded u/s 132(4) of the Act would not represent undisclosed income as defined in the explanation to section 271AAB. 14. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and respectfully following the decisions referred supra, the penalty levied u/s 271AAB is not sustainable and the orders of the lower authorities are set-aside and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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