TMI Blog2023 (7) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... osed income as per clause (c) of Explanation to section 271AAB of the Act. There is clear absence of the satisfaction as to which limb of the penalty exist in this case by the AO in the assessment order and in issuance of notice u/s. 271AAB of the Act to levy the penalty. We have also noted that in the assessment order penalty was initiated for the marriage expenses of the son for which no addition is made and the AO failed to record the satisfaction so as to whether the income disclosed were undisclosed income of the assessee or not the levy of the penalty is unsustainable in law. We see no infirmity in the order of the ld. CIT(A). Based on these observations the appeal filed by the revenue stands dismissed. - ITA No. 210/JP/2023 - - - Dated:- 10-7-2023 - Shri Sandeep Gosain, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Sh. C.M. Agarwal (CA) For the Respondent : Sh. James Kurian (CIT) And Sh. A. S. Nehara (Addl. CIT) ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by the revenue and the cross objection filed by the assessee arising out of the order of the Commissioner of Income Tax (Appeals)- Udaipur-2 [hereinafter re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appeal of the revenue and the grounds of the cross objections are reproduced here in below : 1. On the facts and in the circumstances of the case and in law the penalty order passed u/s 271AAB of Income Tax Act, 1961 is wrong, bad in law, invalid and void-ab-initio as the ld. AO initiated the penalty u/s 271AAB of the Income Tax Act, 1961 in the assessment order without specifying the limbs of section 271AAB (1A) of the Act whether it is for clause (a) or clause (b) section 271AAB(1A). Ld. CIT(A) is not correct in not accepting our ground. 2. On the facts and in the circumstances of the case and in law the penalty order passed u/s 271AAB of Income Tax Act, 1961 is wrong, bad in law, invalid and void-ab-initio as the ld. AO issued notice under section 274 r.w.s 271AAB(1A) of I.Tax Act without specifying the default of the assessee. Ld. CIT(A) is not correct in not accepting our ground. 3. On the facts and in the circumstances of the case the ld. AO has grossly erred in imposing penalty for Rs. 2,19,00,00/- u/s 271AAB of the I.T. Act, 1961, for the assessment year 2020-21. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws. 7.6. The Assessing Officer while levying penalty has concluded on following points 1. The assessee declared undisclosed income of Rs. 3,65,00,000/- in the return of income filed u/s 139(1) on the basis of discrepancies found in the seized material. 2. At the search not been conducted such additional income would not have been detected. 3. The disclosure of additional income is not voluntary. 4. The assessee did not admit undisclosed income during the search in the statement recorded u/s 132(4) of the Act. 5. The assessee could not substantiate the manner in which the said income was derived. 7.7. As against this the appellant submitted that the Assessing officer has not mentioned as to how the disclosure of additional income in the return income filed by the appellant is not voluntarly. The Assessing Officer has not mentioned as to how the additional income was detected during the course of search proceedings. Neither, in the assessment order nor in the penalty order, the Assessing Officer has referred to any document or other evidence found during the course of search which indicate towards the earning of alleged undisclosed income. In the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd if the search proceeding were not initiated the income would not be disclosed by the assessee. As the assessee has declared income after the search the levy of penalty u/s. 271AAB is automatic. 7. The ld. AR of the assessee against the appeal filed by the revenue and in response to cross objection filed by the assessee relied upon the submission filed before the ld. CIT(A). Since the said submission is already reproduced in para 5.2 of the order of the ld. CIT(A) the same is not reproduced. But he has supplied emphasized on the decision following case laws: Hon'ble ITAT Indore Bench in the decision dated 05.02.2020 in ITA No 869/Ind/2018 the case of Shri Ashok Bhatia v DCIT Central Circle-1 Indore held that for levying penalty under section 271AAB of the Act, the Ld. A.O needs to primarily issue notice under section 274 of the Act so for initiating proceedings under section 271AAB of the Act, the Ld. A.O has to first pass through the hurdle of Section 274. In this case, three notices were issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.2016, but none of the notice mention about various conditions provided under section 271 AAB. It seems that the A.O had ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in these case-laws to the fact of the case we have no other alternative but to hold that the penalty in question is bad in law as the show cause notice issued by the Assessing Officer does not specify the charge/s against the assessee for levy of penalty, as required by law. Thus on this ground, the penalty is quashed. 12. Even otherwise, Section 271AAB of the Act, contemplates imposition of a penalty pursuant to the disclosure of income in statement recorded u/s 132(4) of the Act by the assessee. It is an admitted fact that no such statement has been recorded from the assessee. Thus, on this ground also, the levy of penalty fails. Nowhere in the assessment order it is stated that undisclosed income has been assessed. The assessment was made u/s 143(3) of the Act and the returned income was accepted. Thus, for all these reason we quash the penalty levied u/s 271AAB of the Act and allow this appeal of the assessee. 8. In addition to the above the ld. AR of the assessee also submitted that the satisfaction made by the ld. AO while initiating the penalty proceeding relates to the marriage expenses of the son of the assessee but in fact in the assessment order there is no wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corroborate any money, bullion, jewellery or other valuable article or thing (referred to as assets) and there is no discussion in the order of the assessment that income declared by the assessee comes within the purview of the undisclosed income as defined under the provision of section 271AAB of the Act. It was explained in the statement u/s. 132(4) that undisclosed income was earned from taxable business and was based on entries mentioned in the impounded documents, inventorized in the form of 'receivables or advance money received' and due taxes had been paid on said declared income while filing the return of income. Therefore, the pre requisites as mentioned in section 271AAB for considering the said income as undisclosed income is not fulfilled as the assessee has disclosed the unaccounted income and it was not corresponding to any assets. There is no finding in the assessment order so as to consider the income disclosed by the assessee as undisclosed income of the assessee. Thus, in the absence of the clear finding in the order of the assessment the income cannot be considered as undisclosed income of the assessee. 9.2 In the order of levying the penalty the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO is satisfied and came to the conclusion that the assessee has not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the ld. AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act. The ld. AR of the assessee relied upon the following decision of this bench wherein the similar issue has been dealt: Hon'ble ITAT Indore Bench in the decision dated 05.02.2020 in ITA No 869/Ind/2018 the case of Shri Ashok Bhatia v DCIT Central Circle-1 Indore The Hon ble Jaipur Bench of the Tribunal in the decision dated 9.04.2019 in ITA No. 969/JP/2017 in the case of Shri Ravi Mathur Vs DCIT. Hon'ble ITAT Jaipur Bench in the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32(4). The definition of undisclosed income is provided in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AAB of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :- 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 49[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President50], the assessee shall pay by way of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53[section 270A or] 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) 52[or sub-section (1A)]. (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation. For the purposes of this section, (a) specified date means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) specified previous year means the previous year (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to E. Even the quantum of penalty leviable u/s 271AAB is also subject to the condition prescribed under clauses (a) to (c) of sub-section (1) and the AO has to again give a finding for levy of penalty @ 10% or 20% or 30% 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 ambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t followed by the AO. The detailed submissions of A.R in this regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed. Thus it was found by the Hon ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 subsection (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 lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because the opportunity of being heard and reasonable 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. Thus the Tribunal has held that the levy of penalty under section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 6. Since we have set aside the penalty order for the impugned assessment year, the appeal filed by the Revenue has become infructuous. In view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable. 8. Even otherwise, without restricting ourselves to the validity of show cause notice, we note that section 271AAB of the Act contemplates imposition of penalty pursuant to the disclosure of undisclosed income in the statement recorded under section 132(4) and, therefore, the levy of penalty under this section does not depend on the addition made during the assessment proceedings. Hence the penalty proceedings under section 271AAB are complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 normal course. It is not the case of the revenue that the assessee has recorded the other transactions in the other documents maintained in the regular course relating to the year under consideration and only these entries are recorded in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata Bench of the Tribunal in the case of DCIT vs. Madan Lal Beswal (supra) has considered this issue of the alleged income found recorded in the other documents would fall in the definition of undisclosed income in para 3 and 4 as under :- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We find that the issue involved herein is squarely covered in favour of the assessee in the case of DCIT vs Manish Agarwala (another member in the same Nezone Group) in ITA No. 1479/Kol/2015 for AY 2013-14 dated 9.2.2018 by the order of this tribunal , wherein it was held as under:- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has levied the penalty u/s. 271AAB on the ground that the income from commodity profit has been found during search u/s.132 of the Act which is not reflected in the regular books of account. The AO has accepted that during search the assessee has admitted u/s. 132(4) of the Act the income from speculative trading. The undisputed facts the AO has given finding pertaining to this case is as follows: i) The assessee has substantiated the manner in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and every case wherever the assessee has made default as stated in clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word may not shall . May cannot be equated with shall especially in penalty proceeding. Using the word may in our opinion, gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision. Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s. 271AAB of the Act is not mandatory and is discretionary. Before proceeding further, we note that the ex parte order passed by the Coordinate Bench relied upon by Ld. DR, Manoj Beswal, supra, have been recalled in MA Nos. 218 to 220/Kol/2017 dated 12.01.2018 by observing as under: By virtue of these miscellaneous applications, the assessee seeks to recall the order passed by this Tribunal in I.T.A. Nos. 1471, 1475 1476/Kol/2015 in the hands of Amit Agarwal, Madan Lal Beswal and Manoj Beswal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error that had crept in the order of the Tribunal. The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same group concern cases as decided by the Tribunal no longer survives and cannot be treated as covered against the assessee. 5. The third contention of the Ld. AR is that the assessee is an individual, who was drawing salary income. So, according to him, he need not maintain any books of account as per the Act. According to Ld. AR, undisputedly the assessee was engaged for the first time this AY only in trading of commodities, that too which was conducted in a non-systematic manner and the income from it was duly offered to tax by the assessee in his return of income under the head Income from Other Sources , which, according to Ld. AR was accepted as such by the AO and drew our attention to page one of assessment order, (not the penalty order) wherein we note that the AO has acknowledged that the assessee owned up Rs. 3 cr. as his income from commodity profit and it has been disclosed in his income and expenditure for AY 2013-14 under the head income out of speculative business from sale of commodities , and thereafter the AO confirmed the assessee s claim and thereafter total income was assessed by the AO as per the return submitted by the assessee. In the light of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits and gains of the assessee under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax during such previous year,] keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act. (3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained. (4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.] So from a reading of the above provisions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the Income Expenditure Account and the description given therein cannot determine the head of income prescribed under chapter IV of the Act. Therefore, the observation of the AO in assessment order in the light of his action of accepting the statement of total income filed by the assessee along with return which without being contested, is erroneous, unless the AO was able to negate the claim of the assessee by bringing the income from commodity transactions as part of business income. It should be remembered that under the Income Tax Act 1961, the total income of an assessee individual /company is chargeable to tax u/s. 4 of the Act. The total income has to be computed in accordance with the provisions of the Act. Section 14 of the Act lays down that for the purpose of computation, income of an assessee has to be classified under five heads. It is possible for an assessee/individual/company to have five different sources of income, each one of it will be chargeable to Income Tax Act. Profits and gains of business or profession is only one of the heads under which an assessee s income is liable to be assessed to tax. If an assessee has not commenced business there can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from salary and income from other sources by observing as under : Total income assessed as per return Rs.3,44,65,120/- . And further we note that the AO had specifically stated in the body of the assessment order vide column no. 10 that the assessee is having only salary income and income from other sources. Thus from a perusal of the assessment order, it is not in dispute that assessee is not engaged in any business. And the AO cannot change the character of income in a derivative proceeding which is an off-shoot of assessment proceedings i.e. the penalty proceedings without contesting and making a finding against the claim of the assessee in the assessment order as discussed above. 7. Finally, the Ld. AR submitted that during the search, the search party found the records of the assessee s transactions in speculative commodity from the drawer of assessee s accountant from which the AO could compute the income of the assessee from the said transaction which amount assessee declared during search and which was duly returned and which figure was accepted by the AO. According to Ld. AR, the fact that search happened on 01.08.2012 need to be taken note of sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate this issue. 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 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. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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