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TMI Blog2022 (6) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... ee appeals of assessee is as regards to the order of CIT(A) confirming the levy of penalty by the AO u/s.271AAB of the Act when there was no undisclosed income defined u/s.271AAB of the Act and there is no specified previous year represented by undisclosed income in the assessees cases. For this issue, all the three assessees have raised identically worded grounds and grounds raised in ITA No.287/Chny/2021 in the case of Narendra C. Maher read as under:- 1). The order of the learned CIT(A) -18, Chennai is against the provisions of law and contrary to the facts of the case and is therefore unsustainable. 2).The learned CIT(A) erred in confirming the penalty levied U/S271AAB of the Income Tax Act, 1961 without appreciating that there was no undisclosed income as defined under sec 27 1AAB. 3). The learned CIT(A) erred in not appreciating that U/S271AAB undisclosed income should be income of the Specified Previous Year represented by an undisclosed asset and an estimated income by a deeming provision does not constitute such undisclosed income. 2.1 As facts and circumstances are exactly identical in all the three assessees and the issue is exactly identical on the issue of jewel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed income, levy penalty of (a)10% if the taxpayer admits the undisclosed income u/s 132(4) ; substantiates the manner of earning such undisclosed income and files return of income before the specified date and pays tax;(b) (a)20% if the taxpayer does not admit undisclosed income u/s 132(4); discloses such undisclosed income and files return of income within the due date and pays tax after substantiating the manner in which such income was derived; and (c) 30%, if the taxpayer does not fall under either of the condition prescribed in (a) or (b) supra. 11. In the appellant's case, it is not disputed that the AY under consideration is a specified year; the appellant was in possession of certain quantum of unexplained jewellery; and the appellant could not explain the source for jewellery the value of which is Rs. 9,05,818/-. It is vital to observe that the factum of the impugned income represented by unexplained jewellery had not been disclosed to the Pr.CCIT or PCIT or CIT before the date of search; and that the income manifested in terms of source of the acquisition of the impugned jewellery had not been documented, as the possession of the impugned jewellery was brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during search 1948.40 gms Jewellery offered in WT return 255 gms Jewellery deemed to be unexplained as per AO 1604.8 gms Jewellery treated as unexplained by AO belonging to CIT(A) Deleted (gms) Confirmed (gms) Value - Rs. Appellant 229 gms 125 104 @2,374/-= Rs.8,11,196/- Preethi (wife) 645.7 gms 500 145.7 Sana (Daughter) 242 gms 150 92 Veena / Anil 488.10 gms 488.10 - 6.1 The ld.counsel from the above charts stated that the total jewellery found from the premises of these assessees and finally assessed in term of quantity as well as in term of value is just below 10% and this 10% is due to variation of various factors and this is just purely estimation. The ld.counsel stated that on estimation, penalty u/s.271AAB of the Act cannot be levied and for this, he relied on the Co-ordinate Bench decision of ITAT, Jaipur in the case of Padam Chand Pungliya vs. ACIT, (2020) 113 taxmann.com 446 (Jaipur-Trib), wherein it is held that once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, so penalty proceedings initiated under these sections can be dropped only if the law provides for the same in the section itself, which is provided by way of Explanation-1 of section 271(1)(c) and for under reporting u/s 270A, by way of clause(a) of sub-section (6). Thus, it will be mandatory to levy of penalty for misreporting u/s 270A, 271AAB and 271AAC. The words 'may' is used in these sections to give an opportunity of being heard to the assessee to facilitate the assessee to submit its case, if it does not fall under the criteria mentioned in the respective provisions. Hence, if penalty is initiated for misreporting the assessee should be given an opportunity to explain as to why its case does not fit within clauses mentioned in 270(9) and it falls within 270A(6) and hence penalty will be not leviable. Similarly, in respect of 271AAB, the assessee should be given an opportunity to explain why its penalty should be 30% instead of 60%. For this limited reason the word 'may' is used in these provisions. As the provisions does not empower the AO to accept the explanation offered by assessee, once for the given facts of the assessee the section gets attracted, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring in transparency and ascertainability of liability on triggering of an event etc. are not been discussed. Hence, such bald orders passed cannot lay down the law and be a precedent. 8. We have heard rival contentions and gone through the facts and circumstances of the case. The first fact is that, as is evident from the charts filed by the assessee relating to addition of jewellery, the jewellery is inherited and acquired in this year or received any gift or pertaining to any specified year is not clear. It is noted that the jewellery found in term of quantity and value and finally addition confirmed by CIT(A) in all three cases remains only to the extent of 10%. The 10% addition sustained on estimate may be on various reasons like valuation of jewellery by estimate in quantity and determination of value i.e., rate. We noted that this all depend on the social circumstances, family status and other consideration for holding of jewellery. But, the Revenue could not prove in these cases that jewellery pertains to any specified year, i.e., assessment year 2015-16. Cumulative of these factors is considered which seems that excess jewellery to the extent of 10% on estimate basis can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the undisclosed income. Thus the AO is bound to take a decision as to what default is committed by the assessee and which particular clause of section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of section 271AAB stipulate that the AO may come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec. 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AO as per the provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. Amit Agarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence. 6. The question whether levy of penalty under section 271AAB by the AO is mandatory or discretionary has been considered by the Visakhapatnam Bench of this Tribunal in case of ACIT vs. M/s. Marvel Associates (supra) in para 5 to 7 as under :- 5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of penalty in the case of admission of income u/s 132(4) is mandatory. The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not mandatory but discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, 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 (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if-- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the assessment of that part of income which is shown in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretion 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." Thus the Tribunal has held that the levy of penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and shall be based on judicious decision of the AO. Hence we fortify our view by the above decisions of Tribunal in case of ACIT vs. Marvel Associates." Thus the Tribunal has analyzed all the relevant provisions of the Act as well as various decisions on this point including the decision of Hon'ble Allahabad High Court in the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision of the AO. Accordingly following the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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