TMI Blog2020 (8) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... 271AAB of the Act. Under these facts the notice is improper and is not in accordance with requirement of law. The assessing officer is expected to make his direction clear as to which clause of section 271AAB of the Act, he wishes to invoke. There is clear absence of such direction. Ld. counsel for the assessee has relied upon various judicial pronouncements in support of his contention that where the notice is being defective, therefore, no penalty can be levied or sustained. CIT(A) observed that the impugned amount would not have been offered for taxation had there been no search and seizure operation, this observation goes to demonstrate that convers of such observation gives benefit of doubt to the taxpayer. In our considered view that it is purely a guess work without being substantiated by any material evidence. The impugned penalty therefore, cannot be sustained. The Assessing Officer is directed to delete the penalty. Assessee appeal allowed. - ITA No.699/Ind/2019 - - - Dated:- 19-8-2020 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER Appellant by Shri S.N. Agrawal, CA Revenue by Shri V.J. Boricha, Sr. DR ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 132 of the Income Tax Act were carried out at the business as well as residential premises of the Moira Group of Indore including the appellant and other concerns/business associates on 17-06-2015. A.3] The appellant accepted additional income to the tune of Rs. 8,00,00,000/- during the course of search in his statement recorded under section 132(4) of the Income-Tax Act, 1961 which was duly offered for tax in his income-tax return and legitimate amount of tax due was also paid on such additional income. The appellant subsequently also filed an affidavit dated 30-11-2015 during the course of post search proceedings wherein the break-up of additional income of Rs. 8,00,00,000/- as accepted during the course of search was given. A.4] It was further stated that an amount of Rs. 68,34,975/- on account of investment in construction of house pertained to the previous year relevant to the Assessment Year 2015-16 and balance amount of additional income pertained to the previous year relevant to the Assessment Year 2016-17. A.5] The income-tax return of the appellant for the Assessment Year 2015-16 was thereafter filed on 31-03-2016 wherein total income was decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld CIT (A) erred in maintaining the levy of penalty under section 271AAB of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law. 3] The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him. 1] GROUND NO. 2 CHALLENGING THE LEVY OF PENALTY OF RS. 6,83,498/- UNDER SECTION 271AAB OF THE INCOME-TAX ACT, 1961 SINCE THE SHOW CAUSE NOTICE ISSUED PRIOR TO THE LEVY OF PENALTY WAS DEFECTIVE WHEREIN NO SPECIFIC CHARGE WAS FRAMED 1.1] The appellant in the ground of appeal has challenged the levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 since the show cause notice issued prior to the levy of penalty was defective wherein no specific charge was framed against the appellant. 1.2.1] The provision of sub-section (3) of section 271AAB of the Income-Tax Act, 1961 provides that provisions of section 274 and 275 shall apply in relation to penalty referred to in this section which implies that the assessing officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice issued under section 274 of the Income-Tax Act, 1961 does not refer to the charges of provision of section 271AAB of the Income-Tax Act, 1961, makes the alleged notice defective and invalid and thus, penalty order passed consequentially deserves to be set-aside. Relevant extracts from few of these judicial precedents which have enunciated the above mentioned principles are reproduced hereunder for your ready reference: 1.4.2] The Hon ble ITAT Indore Bench in the case of Dr. Rajesh Jain Vs. DCIT (Central)-1 [ITA No. 905/Ind/2018] vide order dated 19-02- 2020 has categorically held that: 16. We, therefore respectfully following the judgment/decision referred above and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cotton and Ginning Factory (supra) had held as under:- 2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot be declared invalid in the penalty proceedings . View taken by the Hon ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA s Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. [Emphasis Supplied] 1.4.5] The Hon ble ITAT Jaipur Bench in the case of Shri Ravi Mathur Vs. DCIT [ITA No. 969/JP/2017] has held that: 7. As regards the validity of notice under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed income not recorded in the books of accounts does not exists, then the same has to be specified by the AO in the show cause notice and further the AO is required to give a finding while imposing the penalty under section 271AAB. Even if the AO is satisfied and come to the conclusion that the assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4.7] The Hon ble Madhya Pradesh High Court in the case of Pr CIT Vs Kulwant Singh Bhatia [ITA No. 9 to 14 of 2018] held that no penalty under section 271(1)(c) of the Act is leviable when there is no specific charge mentioned in the show cause notice [refer Para 11 of the decision]: 11. On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (supra) and CIT V/s. SSA'S Emerald Meadows(supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is arising in these appeals. ITA.No(s).9/2018, 10/2018, 11/2018, 12/2018, 13/2018 and 14/2018, filed by the appellant have no merit and are hereby dismissed. [Emphasis Supplied] 1.5] In view of the above discussion and judicial precedents cited supra, it is quite clear that the assessing officer mechanically issued the show cause notice in a general pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us year, if such assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; [Emphasis Supplied] 2.3.2] On a careful reading of the above extract of provision of section 271AAB of the Income-Tax Act, 1961, it becomes quite clear that the words used in the beginning are Assessing Officer may direct which implies that the imposition of penalty under section 271AAB of the Income-Tax Act, 1961 is not mandatory in nature but is discretionary. The legislature has included the provisions of section 274 and section 275 in section 271AAB of the Income-Tax Act, 1961 with a clear intention to consider the imposition of penalty judicially since section 274 of the Income-Tax Act, 1961 deals with the procedure to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Supplied] 2.3.4] In view of the above, it can be satisfactorily concluded that disclosure of additional income in statement recorded under section 132(4) of the Income-Tax Act, 1961 itself is not sufficient to levy penalty under section 271AAB of the Income-Tax Act, 1961 until and unless income so disclosed by the assessee falls in the definition of undisclosed income defined in Explanation to section 271AAB of the Income-Tax Act, 1961. 2.4.1] 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. Hence, it becomes significantly important to analyze as to whether investment in construction of house falls within the definition of undisclosed income so as to attract the penal provisions of section 271AAB of the Income-Tax Act, 1961. The definition of undisclosed income as provided in the Explanation to section 271AAB of the Income-Tax Act, 1961 along with corresponding explanation/justification of the appellant in respect of its applicability in the facts of the present case is summarized as under for your ready reference: Sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted. The appellant accepted additional income on account of investment in construction of house which can by no stretch of imagination be treated as entry in respect of an expense. 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 (ii) 2.4.2] On perusal of the above table, it is quite clear that the amount of additional income of Rs. 68,34,975/- as accepted by the appellant on account of investment in construction of house was outside the scope and purview of the definition of undisclosed income as provided in Explanation to section 271AAB of the Income-Tax Act, 1961. It is pertinent to note that since the amount of additional income of Rs. 68,34,975/- as accepted in the statement recorded under section 132(4) of the Income-Tax Act, 1961 did not fall within the definition of undisclosed income as provided in Explanation to section 271AAB of the Income-Tax Act, 1961; hence, there arises no question of levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 and the penalty so levied now r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to the addition on account 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded under section 132(4) any efforts were made by the search party to find out the actual existence of these assets towards which the alleged entries are recorded in the seized material/papers. Though the admission on the part of the assessee is a relevant evidence, however, when the entries/notings in the loose papers are apparently not representing the real transactions then it was incumbent upon the department to find out and establish the existence of these assets in the possession of the assessee. In the absence of such efforts and even any question put to the assessee regarding the existence of these assets, these entries alone would not ipso facto constitute undisclosed income of the assessee. Even otherwise, these entries in itself are not having any income element but these are all expenditure entries and, therefore, until and unless a corresponding asset is found in the possession of the assessee, the entries alone cannot be regarded as representing the undisclosed income of the assessee. Therefore, when the duration of the construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Smt. Aparna Agrawal v. DCIT (Central Circle), Kota as reported in [2019] 105 taxmann.com 233 (Jaipur - Trib.) has held that: 4. We have considered the rival submissions as well as the relevant material on record. The AO has levied the penalty under section 271AAB of the Act in respect of the income surrendered by the assessee on account of LTCG from purchase and sale of equity shares. The question arises whether the surrender made by the assessee in the statement recorded under section 132(4) will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) of Explanation to section 271AAB of the Act. There is no dispute that in the statement recorded under section 132(4), the assessee has disclosed the income under consideration as undisclosed income on account of LTCG. However, for the purpose of levying the penalty under section 271AAB, the primary condition is that the assessee shall pay the penalty equivalent to 10 percent, 20 percent or 30 percent of undisclosed income of specified previous year depending upon the satisfaction of the condition as provided under section 271AAB. The term undisclosed income has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other record is not recorded in the books of account on the date of search is not satisfied. The definition of undisclosed income is subjected to two conditions that the said income 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. The second condition is not relevant for our purpose since these entries are undisputedly duly recorded in the books of account of the assessee. We further note that the seized material does not reveal the nature of transaction being genuine or bogus but the entry in the seized material is only the computation of long-term capital gain on sale of shares. Therefore, the documents which were found and seized during the course of search and seizure action contains the details of LTCG would not be regarded as incriminating material disclosing any income not recorded in the books of account. Hence the primary condition for treating such income as undisclosed income in terms of section 271AAB is not satisfied For bringing the income surrendered by the assessee in the fold of undisclosed income as per the definition of undisclosed income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the statement recorded under section 132(4) of the Income-Tax Act, 1961 would not ipso facto be regarded as undisclosed income unless and until it is tested as per the definition provided in the Explanation to section 271AAB of the Income-Tax Act, 1961. However, in the facts of the present case, the assessing officer merely levied penalty @ 10% on the additional income accepted in the statement recorded under section 132(4) of the Income-Tax Act, 1961 without testing whether the additional income fell within the definition of undisclosed income as provided in Explanation to section 271AAB of the Income-Tax Act, 1961. Hence, penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 in absence of such a finding is neither legal nor proper and deserves to be deleted in entirety. WITHOUT PREJUDICE TO THE ABOVE 2.7] The appellant is an individual and he maintains separate books of accounts for the proprietorship business carried out in the name of M/s Shree Engineers. However, the appellant is not required to maintain his personal books of accounts. Hence, it is submitted that details of construction expenses as incurred by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Circle-4, Jaipur [ITA No. 969/JP/2017] has categorically held that: 8 ..Since in the case of assessee the transactions of investment were found in the diary, therefore, whether these entries in the diary constitute undisclosed income as per clause (c)(i) of Explanation to Section 271AAB of the Act. The assessee is an Individual and for the year under consideration the assessee has not reported any business income nor it was assessed by the AO. Therefore, it is clear that the assessee was not required by any mandate of law to maintain regular books of accounts. In the computation of income, the assessee has shown income from Salary, income from house property and income from other sources. The returned income was accepted by the AO while framing the assessment under section 143(3) and hence assessee s case does not fall in the category where the regular books of accounts are mandatory. The entries of investment in real estate were found recorded in the diary and in the absence of any other document maintained in the normal course relating to the year under consideration, the entries in the diary are to be considered as recorded in the documents maintained in the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any requirement of maintaining regular books of accounts by the assessee, the case of the assessee would not fall in the definition of undisclosed income as per clause (c) of Explanation to section 271AAB of the Act. 9 ..Therefore, when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required to be examined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the diary which is nothing but the other record maintained in the normal course, thus the same would not fall in the definition of undisclosed income. Once the said income is found as recorded in the 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 about one year from the date of search. Hence, in view of the above facts and circumstances of the case as well as the various decisions on this point, we hold that the penalty levied under section 271AAB is not sustainable and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, 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 specified previous year, if such assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under sub-section (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 undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) 7 An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer'.] 9. A conjoint reading of both these sections would suggest that where a search has been initiated the AO may direct payment of penalty in addition to tax if any payable by him. However, provisions of section 274 and 275 shall so far as may apply in relation to the penalty refer to in section 271AAB of the Act. As per section 274 of the Act no order imposing a penalty shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. In this case the assessing officer has given notices and in response thereto the representative of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1AAB 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 according to the A.O., it was incriminating material evidencing the undisclosed income. In the penalty order the AO observed that loose sheet shows the cost per square feet is Rs 3571/- per sft and assessee stated to have submitted in sworn statement cost per sq.feet at Rs.2200/- to Rs.2300/- per sq.feet. However neither the AO nor the Ld.CIT(A) has verified the cost of construction with the books and projections found at the time of search. The counsel argued that it was mere projection but not the actuals. The write up heading also mentioned that summary of the projected profitability statement. There is no evidence to establish that projections reflected in the loose 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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. 14. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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