TMI Blog2021 (2) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... passing the penalty proceedings, the Assessing officer has given a clear finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% of the undisclosed income. As held by the Co-ordinate Bench SHRI RAJENDRA KUMAR GUPTA [ 2019 (1) TMI 1545 - ITAT JAIPUR] the uncertain charge at the time of initiation of penalty has been made good and substituted with a conclusive default at the time of passing the penalty order and that in such a case, no fault can be found in the penalty order. Therefore, the contentions advanced by the ld AR in this regard cannot accepted. Penalty levied under section 271AAB of the Act on cash advances - HELD THAT:- As mere notings in certain loose papers without any further corroboration cannot be held as conclusive to demonstrate any transactions which have been undertaken by the assessee and which have not been disclosed to the Revenue. In any case, an advance represents an outflow of funds and what has been envisaged by the legislature while defining undisclosed income in section 271AAB is an inflow of funds which has not been recorded in the books of accounts or other doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty on appellant. 3. That the CIT(A) is wrong and has erred in law in confirming the said penalty of ₹ 4,95,189/- u/s 271AAB imposed by assessing officer although 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. 4. That the Ld. CIT(A) is wrong in confirming penalty of ₹ 4,95,189/- u/s 271AAB of the Act in as much the penalty was levied by assessing officer simply on the basis that the assessee admitted the income of ₹ 49,51,885/- and disclosed in the return without proving that the said income was undisclosed income of assessee within the meaning of section 271AAB of I.T. Act, 1961. 2. Briefly the facts of the case are that the assessee derives income from house property, business and other sources. A search u/s 132 of the Act was conducted on 05.02.2015 in case of Bundi Silica Group, Kota and the assessee was part of the said Group. During the course of search proceedings, the statement of the assessee was recorded u/s 132(4) of the Act wherein he has declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 his 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 read with section 274 of the Act. In support, reliance was placed on the Hon ble Karnataka High Court decision in the case of CIT vs. M/s SSA s Emerald Meadows reported in 2015 (11) TMI 1620, in case of Manjunatha Cotton Ginning Factory [2013] 359 ITR 565 (Karnataka) and various decisions of the Co-ordinate Benches of the Tribunal. It was accordingly submitted that notice issued u/s 271AAB is bad in law and therefore, the penalty levy u/s 271AAB(1)(a) deserves to be deleted. 6. It was further submitted that the lower authorities have erred in holding the levy of penalty u/s 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. rate of 8.95% on said alleged short stock of ₹ 50,48,991/- and taken the surrender of ₹ 4,51,885/- as undisclosed profit element on unrecorded sales from assessee in the statement recorded during the course of search. The said alleged profit of ₹ 4,51,885/- offered by assessee as his additional business income is nothing but the difference in valuation of stock. Thus no short stock found during the course search. It is only difference in valuation of stock valued by registered valuer. It is submitted that there is no short stock found during the course of search. No documentary evidence or papers relevant to unrecorded sales were found during the course of search. More particularly, assessee has no unexplained purchases or sales. There is no real income and no short stock. Without establishing real income, no penalty can be imposed presuming the hypothetical income. Accordingly it was submitted that said alleged profit element on alleged unaccounted sales does not met the definition of undisclosed income given in Section 271AAB. The assessee in his statement to avoid the protracted and imposed litigation and to buy peace of mind, made surrender and disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the said levy should be upheld. 11. We have heard the rival contentions and purused the material available on record. Regarding various legal contentions raised by the ld AR, we find that the Coordinate Bench in case of Rajendra Kumar Gupta (supra) has exhaustively dealt with each of these contentions and we deem it appropriate to refer to its findings which read as under: 6. Heard both the parties. The penalty proceedings are separate from assessment proceedings, which are initiated with the issue of notice u/s. 274 and culminate with passing of the penalty order u/s. 271AAB of the Act. Further, there cannot be any dispute that the assessee should be confronted with the charge against him which is sine qua non for any valid penalty proceedings. It is only when the assessee is made aware of such a charge against him that he can present his contentions. Thus prescribing the charge in the penalty notice and penalty order is must. Absence of a charge in the penalty notice and not finding the assessee guilty of a clear offence in the penalty order vitiates the penalty order. 7. The question that arises for consideration is the nature of charge(s) specified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, the assessee is made aware of the specific charge against him and an opportunity has thus been given to him 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. A similar view has been taken by the Co-ordinate Bench in case of Mahesh Kumar Jain others (ITA No. 630/JP/17 others dated 27.11.2017) wherein it was held as under: 10. The first and foremost question that arises for consideration is the nature of penalty provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c). In other words, whether these provisions provide for levy of penalty on account of separate and independent charges or these provision provide for levy of penalty for the same charge under section 271AAB, however, subject to satisfaction of the prescribed conditions, the quantum of penalty may vary as specified in the respective subclauses of 271AAB of the Act. 11. In this regard, we refer to the provisions of section 271AAB which are reproduced as under: 271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 271AAB(1)(a) and 271AAB(1)(c) provides for levy of penalty for an identical charge i.e, undisclosed income for the specified previous year which is found during the course of search initiated under section 132 on or after the 1st day of July, 2012. Therefore, we are unable to accede to the contention of the ld AR that the ld CIT(A) has erred in confirming the levy of penalty u/s 271AAB(1)(a) which provides for a separate and independent charge and comes under different section than the provisions of section 271AAB(1)(c) which has been specifically invoked by the AO. 9. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also in the penalty order. After initiating penalty on the charge of 'furnishing of inaccurate particulars of income', he cannot impose penalty by finding the assessee guilty of 'concealment of particulars of income'. Again, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s. 271(l)(c) of the Act on two or more additions/disallowances, one or more falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income', he must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'concealment of particulars of income' and also 'furnishing of inaccurate particulars of income' in the penalty order. If the charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus it is evident that when the AO is satisfied at the stage of initiation of penalty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. 20. Another crucial factor to be kept in mind is that the satisfaction of the AO as to a clear-cut charge leveled by him in the penalty notice or the penalty order must concur with the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand. 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee.' 23. It is thus evident that 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. 11. In the instant case, the notice initiating the penalty proceedings talks about initiation of penalty proceedings U/s 271AAB of the Act in respect of undisclosed income of the specified previous year. However, while passing the penalty proceedings, the Assessing officer has given a clear finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% of the undisclosed income. As held by the Coordinate Bench (supra), the uncertain charge at the time of initiation of penalty has been made good and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that all the conditions specified in Section 271AAB have been fulfilled in the instant case, therefore, the penalty U/s 271AAB being in the nature of mandatory penalty and there being no discretion with the Income tax authorities, the penalty so imposed by the AO was rightly confirmed by the ld CIT(A) and the order of the ld CIT(A) should be upheld. 14. In this regard, we refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per subsection (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be applied in relation to penalty under this section which means that before levying the penalty, the Assessing officer has to issue a show-cause granting an opportunity to the assessee. Thus, the levy of penalty is not automatic but the Assessing officer has to decide based on facts and circumstances of the case. Similar view has been taken by the various Co-ordinate Benches and useful reference can be drawn to the decision of the Co-ordinate Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee- (i) in the course of the search, in a statement under subsection (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (C) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of 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). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon'ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that 'we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case. 15. Therefore, we agree with the contentions of the ld AR that the levy of penalty under section 271AAB is not mandatory. In the instant case, it therefore needs to be examined whether there is any basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the assessee is required to specify the manner in which such income has been derived and further substantiate the same by furnishing material available with him. In the instance case, no such substantiation was done as in fact there existed no undisclosed income. The entire disclosure was on paper and assessee admitted such disclosure to avoid undue harassment and unwanted litigation. 18. It was further submitted that the 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 some incriminating material. In the instant case, a diary was found which according to the A.O, it was incriminating material evidencing the undisclosed income. In the penalty order the AO observed nothing related to the diary. However, neither the AO nor the Ld.CIT(A) has verified the contents of the diary as the same was maintained as books of accounts. No other material was found during the course of search indicating the undisclosed income. There is no discrepancy which has been found by the Assessing officer and therefore, there cannot be any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, there is nothing which demonstrates that there is any forced surrender by the assessee. The contention of the ld AR therefore has no legal leg to stand where he contends that the Revenue authorities have exerted undue pressure and obtained surrender of income and therefore, there was no undisclosed income in the hands of the assessee. In any case, the assessment proceedings have attained finality where such undisclosed income has been offered and brought to tax. 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 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 searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% to 30% subject to compliances with the ancilliary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer. Further, the levy of penalty under Section 271AAB is not based on addition made and investigation/enquiry conducted during the course of assessment proceedings, rather it is based on search conducted on the assessee on or after the 1st day of July, 2012, in such a situation, where the penalty show-cause notice is issued u/s 271AAB, the Assessing officer is making the assessee aware of the charge against him in terms of undisclosed income found during the course of search and thus, the assessee is granted an opportunity to refute such charge and file his explanations/submissions. Unlike provisions of section 271(1)(c) which provides for separate charge of concealment of particulars of income or furnishing of inaccurate particulars of income , there is a singular charge under section 271AAB i.e, of the existence of undisclosed income for the specified previous year which is found during the course of search in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(4) wherein he has surrendered the amount of ₹ 49,51,885/-. Subsequently, the assessee has disclosed the same in his return of income filed on 27.09.2015. Therefore, the assessee was having ample time to retract from said surrender; however there is no such retraction during post-search proceedings and even the assessee has included the same in his return of income. Even from the perusal of the statement, there is nothing which demonstrates that there is any forced surrender by the assessee. The contention of the ld AR therefore has no basis where he contends that the Revenue authorities have exerted undue pressure and obtained surrender of income and therefore, there was no undisclosed income in the hands of the assessee. In any case, the assessment proceedings have attained finality where such undisclosed income has been offered and brought to tax. 16. 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 laid down in terms of clause (c) of explanation to section 271A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the course of search. The assessee HUF is a partner in two partnership firms and derives income from share in the profit and interest from such partnership firms which it has reported in its return of income and therefore, as far as maintenance of books of accounts is concerned, the assessee HUF not carrying on any business is thus not required to maintain regular books of accounts. The diary found during the course of search and seizure at the premises of the assessee contains the entries of advances given for purchase of land and therefore, the said amount of advance given for purchase of land can be recorded in the capital account of the assessee. Thus the transactions found recorded in the diary are to be recorded in the capital account of the assessee as well as in the balance sheet prepared as on 31.03.2015 and not on the date of search as on 5.02.2015. These transactions are recorded in a diary which is nothing but other documents maintained in the normal course, then it cannot be presumed that the assessee would not have disclosed the same in the return of income to be filed after the date of search. Another question that arise for consideration is whether the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities have duly considered while levying penalty @ 10%. The fact that such cash has been found in possession of the assessee and remain undisclosed to the Revenue is not under dispute and thus represents undisclosed income as so defined. In the result, we confirm the levy of penalty @ 10% on the undisclosed income of ₹ 8,00,000/-. 19. Regarding disclosure of ₹ 4,51,885/-, the ld AR has contended that the Revenue has applied previous year s gross profit rate of 8.95% on alleged short stock of ₹ 50,48,991/- and taken surrender of ₹ 4,51,885 as alleged profit on unaccounted sales, however, the same merely represent difference in valuation of stock and no short stock has been found during the course of search. We however find that the assessee has not disputed such valuation during the search or post-search proceedings and therefore, as far as valuation of stock is concerned, the same has attained finality in the quantum proceedings. The question is whether the difference in stock is arising out of and limited to valuation of stock, can the same qualify as undisclosed income. In this regard, we refer to Co-ordinate Bench decision in case of Silver A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termine the cost of the goods so found during the course of search. The Assessing officer has merely gone by the surrender made during the course of search and such surrender has been made based on market value as on the date 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 quantum proceedings. However, as far as present penalty proceedings u/s 271AAB are concerned which is solely based on the search proceedings and anyways independent of the assessment proceedings, the Assessing officer is required to give a specific finding that there is an undisclosed income found during the course of search in terms of undisclosed stock and which has not been recorded in the books of account. The undisclosed stock could be in terms of physically identifiable stock not found recorded in the books of accounts or the stock not found recorded at the appropriate value so determined by the Assessing officer. In the instant case, we find that the Assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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