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TMI Blog2020 (8) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable in law. 3. The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him." 2. The facts giving rise to the present appeal are that a search and seizure action was carried out on the business as well as residential premises of the Moira Group of Indore including the assessee. It is observed by the Assessing Officer that during the course of search and seizure proceedings statement u/s 132(4) of the Income Tax Act 1961(hereinafter referred as the 'Act') was recorded wherein the assessee surrendered undisclosed income of Rs.8,00,00,000/- in various financial years after considering the seized documents in his case. Therefore, the Assessing officer issued a notice u/s 271AAB of the Act for levying penalty. In response thereto, the assessee filed written submission which was not accepted by the Assessing Officer and he passed penalty order u/s 271AAB of the Act, thereby, levied penalty @10% of the undisclosed income amounting to Rs.6,83,498/-. 3. Aggrieved against this order assessee preferred an appeal before the Ld. CIT(A) who after considering the submissions confirmed the penalty. 4. Now the assessee is in appeal before this Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case and submission made before him. 2] That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in levied penalty U/s 271AAB of the Act of Rs 6,83,498/- without recording proper satisfaction for initiation of the penalty in the assessment order and also in the show cause notice as issued. 3] The appellant reserves his right to add, alter and modify the ground of appeal taken before the first appellate authority. A.8] However, the Ld CIT (A)-3, Bhopal vide order dated 23-04-2019 confirmed the penalty of Rs. 6,83,498/- as levied by the assessing officer under section 271AAB of the Income-Tax Act, 1961 by observing that the impugned amount would not have been offered for taxation had there been no search and seizure operation. The Ld CIT (A) confirmed the levy of penalty under section 271AAB of the Income-Tax Act, 1961 without dealing with each ground of appeal raised before him which is neither legal nor proper. A.9] The appellant has therefore preferred an appeal before the Hon'ble Bench against the order of the Ld CIT (A)-3, Bhopal and has taken the following grounds of appeal: 1] That on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 271AAB of the Income-Tax Act, 1961 for the Assessment Year 2015-16 are also reproduced hereunder for your ready reference: 1.3.3] On perusal of these show cause notices, it is quite evident that the assessing officer initiated penalty proceedings under section 271AAB of the Income-Tax Act, 1961 but the appellant was show caused on the charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAB of the Income-Tax Act, 1961. 1.3.4] The assessing officer in the show cause notice did not specify the default and charge against the appellant which necessitated levy of penalty under section 271AAB of the Income-Tax Act, 1961. The show cause notice as issued prior to the levy of penalty under section 271AAB of the Income-Tax Act, 1961 was vague and issued in a casual fashion which makes the alleged show cause notice defective and invalid and consequently, order imposing penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 deserves to be quashed. 1.4.1] The aforesaid issue is duly covered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. However, in the present case at the very inception notice initiating penalty is not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable u/s 292BB of the Act. Therefore, we hereby quash the penalty order." [Emphasis Supplied] 1.4.4] The Hon'ble ITAT Chennai Bench in the case of DCIT Vs. Shri R. Elangovan [ITA No. 1199/CHNY/2017] has categorically held that: "5..............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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r case 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 proceedings. It is open to the assessee to contest th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Department against the order of the Hon'ble Karnataka High Court. The Hon'ble Karnataka High Court in the case of CIT Vs SSA's Emerald Meadows as reported in [2016] 73 taxmann.com 241 (Karnataka) following its own decision in the case of CIT Vs Manjunatha Cotton & Ginning Factory as reported in [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 dismissed the appeal of revenue by observing as under: "3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income.The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.). 4. In our view, since the matter is covered by judgment of the Division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ENGING THE LEVY OF PENALTY OF RS. 6,83,498/- UNDER SECTION 271AAB OF THE INCOME-TAX ACT, 1961 2.1] The appellant in this ground of appeal has challenged the levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 on merits of the case. 2.2] The appellant accepted additional income to the tune of Rs. 68,34,975/- on account of investment in construction of house pertaining to the Assessment Year 2015-16 in his statement recorded under section 132(4) of the Income-Tax Act, 1961. However, the assessing officer subsequently levied penalty @ 10% on such admission made by the appellant under section 132(4) of the Income- Tax Act, 1961 which comes to Rs. 6,83,498/-. 2.3.1] The relevant extract of provision of section 271AAB of the Income-Tax Act, 1961 is reproduced hereunder for your ready reference: "271AAB. (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 1st day of July, 2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty under section 271AAB of the Income-Tax Act, 1961 since penalty under this section is levied as a percentage of 'undisclosed income'. The term 'undisclosed income' has been defined in clause (c) of Explanation to section 271AAB of the Income-Tax Act, 1961 which is reproduced hereunder for your ready reference: "(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 sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account or other documents or transactions found in the course of a search which was not recorded on or before the date of search in the books of accounts or other documents. Hence, it is quite clear that the additional income of Rs. 68,34,975/- as accepted by the appellant did not fall within the definition of 'undisclosed income' as per sub-clause (i) (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 to be so had the search not been conducted As stated above, the appellant accepted and offered additional income on account of investment in construction of house pertaining to the year under consideration. It was absolutely not a case wherein the additional income was represented by any entry in respect of expense recorded in the books of accounts or other documents which was found to be false or would not have been found had the search not been conducted. The appellant accepted additional income on account of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se sheet is real. No other material was found during the course of search indicating the undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in the books of accounts or documents transactions were found during the course of search indicating the assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly. The revenue did not find any undisclosed asset, any other undisclosed income or the inflation of expenditure during the search/ assessment proceedings. Though a loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. The amount of Rs.3571/- mentioned in the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. The cost of construction in the projections projected at Rs.2177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of Rs. 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like Rs. 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there is an entry of some marble fixing of Rs. 5 lacs. From these entries in the alleged seized material, it is manifest that most of them are unrealistic as entry of Rs. 70 lacs is shown towards furniture which is highly impossible. Another entry of Rs. 45 lacs is shown towards steel. Thus from the notings of these papers it is clear that these are not entries representing the real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee.....................Accordingly, in view of the facts and circumstances of the case as well as the decision of the Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta (supra), we hold that the entries in the seized documents representing the expenditure on account of construction of the house and purchase of other assets as well as advances in the absence of the real transactions do not constitute the undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied under section 271AAB in respect of the said amount is not sustainable and liable to be set aside."[Emphasis Supplied] 2.5.3] The Hon'ble ITAT Jaipur Bench 'A' in the case of Smt. Aparna Agrawal v. DCIT (Central Circle), Kota as reported in [2019] 105 taxmann.com 233 (Jaipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f search 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. In the case in hand, since the surrender was made in respect of the LTCG recorded in the seized material, therefore, it is based on the entries in the other documents found during the course of search. The income in the shape of entries in other documents found during the course of search would be considered as undisclosed income if the said income has not been recorded in the books of account on or before the date of search. In the case in hand, it is undisputed fact that all the transactions of purchase and sale and LTCG arising from the sale of equity shares of the listed companies are duly recorded in the books of account. Therefore, it is not the case of any income of the specified year representing the entry in the other documents which has not been recorded in the books of account on the date of search. Therefore, the primary condition of undisclosed income that the income represented by the entry in the other record is not recorded in the books of account on the date of search is not satisfied. The de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dabad Bench 'C' in the case of M/s Shree Vallabha Developers Vs. DCIT, Central Circle-2 [ITA No. 1873 & 1874/AHD/2018] has held that: "5. We find that a total disclosure of Rs.10.51 Crores was made with respect to various entities including assessee as well as Bharatkumar Parikh besides other entities. In the case of assessee, the disclosure was on account of inflated expenses. However, no incriminating material was found during search operations and the undisclosed income was not represented by any money, bullion, Jewellery or other valuable article or thing or any entry in the books of accounts. None of the entries in the books was found to be false and the disclosure was voluntary. Therefore, the same would not fall within the term undisclosed income as defined in Explanation-c(ii) to Sec.271AAB. Hence, the factual matrix does not convince us to confirm the impugned penalties. By deleting the same, we allow both the appeals."[Emphasis Supplied] 2.6] In view of the above discussion and judicial precedents cited supra, it is clearly evident that the mere disclosure of income in the statement recorded under section 132(4) of the Income-Tax Act, 1961 would not ipso facto be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on that the assessee declared Rs. 3 cr. during search and later returned income of Rs. 3 cr. as income under the head "Income from Other Sources" which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the "other documents" maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of Rs. 3 cr. offered by the assessee does not fall in the ken of "undisclosed income" defined in Sec. 271AAB of the Act. So, Rs. 3 cr. which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as "undisclosed Income" in the definition given u/s. 271AAB of the Act. Since Rs. 3 cr. cannot be termed as "Undisclosed Income" as per sec. 271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the Ld. CIT(A) on the aforesaid reasoning rendered by us."[Emphasis Supplied] 2.8.2] The Hon'ble ITAT Jaipur Bench in the case of Shri Ravi Mathur Vs. DCIT, Central Circle-4, Jaipur [ITA No. 969/JP/2017] has categorically held that: "8..............Since in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore not sustainable in law. When a stringent action is provided in the Statute against the default committed by the assessee, then it also cast an equally stringent and strict duty on the authority responsible to take such action. Therefore, when the provisions for levy of penalty under section 271AAB is a specific provision to deal with the undisclosed income and it provides a strict penal action then the corresponding duty of the tax authority is also equally stringent. The AO cannot escape from following the strict mandatory requirement of law and particularly the principle of natural justice. The AO has neither specified the grounds and clause of section 271AAB nor has dealt with the same in the impugned order passed under section 271AAB. The AO has also not given a finding that the case of the assessee falls in the definition of undisclosed income provided under clause (c)(i) of Explanation to section 271AAB. When the transactions of investment in real estate are recorded in the diary being other documents maintained by the assessee for the said purpose, then in the absence of any requirement of maintaining regular books of accounts by the assessee, the case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the assessee are that penalty proceedings u/s 271AAB as initiated is bad in law on account of firstly penalty notice so issued is defected as it does not disclose specific charge and secondly there is no concealed income as search took place prior to due date of filing of income tax return. It is also contended that even otherwise the issue is squarely covered in favour of the assessee by the decisions of the Coordinate Benches of this Tribunal. It is noteworthy that the assessing officer issue notice u/s 271AAB of the Act, the notices so issue are reproduced as under:- 7. Now we need to examine whether above notices dated 30.11.2017 and 04.05.2018 are in accordance with requirement of law. Section 271AAB of the Act reads as under: '271AAB. 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 1st 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Chief 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 to be so had the search not been conducted.'. 8. Further section 274 of the Act reads as under: 274. Procedure (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) 6 No order imposing a penalty under this Chapter shall be made- (a) by the Income- tax Officer, where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs. 2,04,900/- stands deleted. We accordingly allow the legal ground raised by the assessee challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act and quash the penalty proceeding as void ab intio. In the result appeals of the assessee(s) for Assessment Years 2014-15 is allowed on legal ground. 11. The reliance is also placed on the decision of this Bench in the case of Shri Hemant Kumar Jain vs. DCIT (ITANos.730 & others/Ind/2018), the tribunal was pleased to delete the penalty on the ground of defective notices. Similarly in the case of Shri Vivek Chugh vs. ACIT (ITANo.636/Ind/2017) the penalty was deleted. 12. Further reliance is placed on the coordinate Bench of this Tribunal in the case of ACIT vs. Marvel Associates (2018) 92 taxman.com 109 (Vishakhapatnam Tribunal) held as under: 9. Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132(4). The AO must establish that there is undisclosed income on the basis of incriminating material. In the instant case a loose sheet was found accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable. The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of the lower authorities and cancel the penalty u/s 271AAB of the Act. 13. Ld. counsel has also relied on the decision of Coordinate Bench of this Tribunal in the case of DCIT vs. Manish Agrawala (ITANo.1479/Kol/2015) has held as under: Therefore, the question is when the search took place, the assessee's transactions (in this case, the speculative transaction) has been found to be recorded in the "other documents" which is (retrieved from the assessee's accountant's drawer) and based on that the assessee declared ..... X X X X Extracts X X X X X X X X Extracts X X X X
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