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TMI Blog2020 (3) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... search and seizure action 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 the partner of the assessee firm was recorded u/s 132(4) wherein he surrendered additional business income on account of stock amounting to Rs. 1,44,92,480/-. Thereafter, the assessee firm filed its return of income on 20.09.2015 declaring total income of Rs. 1,44,92,480/- 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 14.12.2016 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. 1,44,92,480/-, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y u/s 271AAB is mandatory in nature as 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aipur (ITA No. 112/JP/2018 dated 05/04/2019). 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 that arises for consideration is the nature of charge(s) specified under section 271AAB of the Act. Whether it provides for a singular charge of undisclosed income for the specified previous year found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other conditions being satisfied and therefore, the assessee is liable for penalty u/s 271AAB, thereafter the notice initiating the penalty proceedings U/s 271AAB was issued to the assessee. Thereafter, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 partner of the assessee firm 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: "(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and secondly, the cost at which such excess undisclosed stock has been acquired alongwith the cost of cutting and polishing such rough gemstones into finished gemstones and not the value at which such stock can fetch in the market or the fair market value of such stock. We note that in the entire valuation report and in the proceedings of search and seizure, the Department has not made any allegation that there was any discrepancy in the quantity of stock found during the course of search and stock recorded in the books of account. Further, the valuation of the stock has been made by the Department Valuer basis the market value as on the date of search and the Assessing officer has merely gone by the surrender made during the course of search and there is thus no exercise which has been undertaken by the Assessing officer to determine the cost of the goods so found during the course of search. In our view, given that the assessee has disclosed the whole of the amount surrendered during the course of search in its return of income, the amount so surrendered and disclosed in the return of income is subject matter of assessment and has rightly been brought to tax in the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in the books of account. We further note that in the entire valuation report and in the proceedings of the search and seizure, the department has not made any allegation that there was any discrepancy in the quantity of the stock found during the course of search and seizure and the stock recorded by the assessee in the books of account. Once the stock which is recorded in the books of account of the assessee and the stock physically found at the time of search has no discrepancy in terms of quantity, then only because of difference in valuation done by the departmental valuer would not amount to undisclosed income based on the definition as per explanation to section 271AAB of the Act. Therefore, once the stock is found recorded in the books of account, it does not fall in the category of valuable article or things which has 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. For ready reference, we quote the definition as provided in clause (c) of explanation to section 271AAB of the Act as under :- " (a) Xxxx xxxxx xxxxx (b) Xxxxx xxxxx xxxxxx (c) "un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by the assessee firm where it values its stock at lower of cost and net realizable value. The cost can be determined on the basis of historical and/or current cost so recorded in the books of accounts. Alternatively, past gross profit percentage can also give a reasonable basis for determining such cost. In the instant case, the ld AR has contended that where gross profit of the past year determined at the rate of 13.92% is used and applied to the stock valued by the Revenue at the current market value, it will result in a scenario where the stock as per books of account is higher than the stock valued at the time of search. As per computation prepared which we have noted above, we find that stock (including stock of silver jewellery) as per books of accounts comes to Rs. 35,11,24,031 as against Rs. 34,27,22,924 valued by the Department at the time of search and therefore, contention so advanced by the ld AR is found reasonable. Another aspect which has been submitted by the assessee relates to non-deduction on account of chapadi, wax etc for the Kundan Meena Jewellery while physically weighing the jewellery. It was submitted by the ld AR that the said fact was duly brought ..... X X X X Extracts X X X X X X X X Extracts X X X X
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