9911796707
TMI Blog2024 (3) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... sels, these were heard together at the request of parties and are being disposed of by this consolidated order for the sake of convenience, brevity and clarity. Since the grounds in all appeals are identical, except change of figures, the first appeal being ITA No. 97/Ind/2024 of Mukesh Ranka for AY 2017-18 is taken as a lead case and the effective grounds taken therein are only re-produced below. However, the decision taken in lead case shall apply equally to all other appeals: 1. The Ld. CIT(A)-3, Bhopal erred in fact and in law in confirming the action of Ld. ACIT, Central Circle, Ujjain, [the AO"] in initiating penalty u/s 271AAB of the Income-tax Act, 1961. 2. The Ld. CIT(A) erred in fact and in law in confirming the action of Ld. AO in levying penalty of Rs. 15,00,000/- u/s 271AAB(1A) of the Act. 3. The Ld. CIT(A) erred in fact and in law in confirming the action of Ld. AO in levying penalty u/s 271AAB(1A) of the Act without appreciating the fact that the penalty initiated by the ld. AO is void-ab-initio. 4. The Ld. CIT(A) erred in fact and in law in confirming the action of Ld. AO in levying penalty u/s 271AAB(1A) of the Act without satisfying the conditions prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO passed penalty-orders dated 28.06.2021/18.09.2021 imposing penalties of Rs. 15,00,000/- in AY 2017-18 and Rs. 90,00,000/- in AY 2018-19 upon both assessees u/s 271AAB(1A). The penalties were computed as equal to 60% of additional incomes. Aggrieved, the assessees filed first-appeal to CIT(A) and made a detailed submission but did not find any favour from CIT(A) who upheld penalties. Now, the assessees have come in next appeals before us challenging the orders of lower-authorities. 4. Ld. AR for assessee carried us to the assessment-order, penalty-order, order of first-appeal, the documents filed in paper-books and copies of judicial rulings separately filed in a case-law paper-book. Ld. Representatives of both sides also made vehement oral arguments. We have heard them peacefully at length and considered the documents held on record as well as their submissions. 5. Ld. AR for assessee firstly drew our attention to Para 5 & 7 of assessment-order passed by AO. Those paras read as under: "5...... Further, the return for the A.Y. 2017-18 was filed on 11.01.2019 u/s 153A declaring total income of Rs. 45,27,800/- including undisclosed income of Rs. 25,00,000/-, which was admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to tax." 8. Analysing above orders, Ld. AR submitted that (i) The Para No. 5 & 7 of assessment-order passed by AO does not refer any incriminating material and the AO has merely assessed the surrendered income already offered by assessee in the return of income, and (ii) In the 'Office Notes' appended to assessment-order the AO has clearly mentioned that he has examined the seized-material and nothing incriminating was found & the bank a/c of assessee was also examined and no adverse view is required. Despite this, the AO has imposed penalty u/s 271AAB(1A), vide Para No. 4.1 & 4.2 of penalty-order re-produced above, merely by observing that (i) Had the search not been carried, the assessee would have not offered income for taxation, and (ii) If there would have not been any corroborative document to prove the undisclosed income, there would have been no need for the assessee to offer income for taxation. Ld. AR contended that while making such observations, the AO has travelled beyond the scope and ambit of section 271AAB(1A). To show this, Ld. AR carried us to the provision of section 271AAB(1A) which reads as under: "(1A) The Assessing Officer may, notwithstanding anythin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief 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 to be so had the search not been conducted." 9. Ld. AR submitted that a simple reading of section 271AAB(1A), without making any effort, clearly shows that the section prescribes penalty @ 30% or 60% of the "undisclosed income" and the term "undisclosed income" has also been defined by Parliament in the Explanation to section 271AAB itself. The said Explanation prescribes "For the purposes of this section, ..... (c) "undisclosed income" means .....". Thereafter, the term "undisclosed income" is defined, in clause (c) of the Explanation to mean (i) any income represented 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, or (ii) any income represented by any entry of an expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant falls within the ambit of this definition, section 271AAB cannot be invoked. 4.1.4. Looking to the intricacies of the case, I feel that it would be pertinent to examine the scheme of penalty provisions as given in the IT Act, 1961 and also to further look at the role of an 'Explanation' while interpreting a statute. In the Income-tax Act, there are three mutually exclusive sections for levying penalty on an assessee viz. section 270A, section 271(1)(c) and section 271AAB. Here one is referring to cases where there is a discrepancy between the assessee's returned income and the income determined by the I.T. Authorities. It will be seen that each of these penalty sections deals with a different species of income:- (i) Section 270A imposes a penalty for 'under-reporting' and misreporting of income. Sections 270A(2) and 270A(9) give the various instances that would constitute 'under-reporting' or misreporting of income and finally section 270A(6) states that underreported income would not include the amount of undisclosed income referred to in section 271AAB. (ii) Section 271(1)(c) deals with the imposition of penalty in cases where the assessee has concealed the particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come have been concealed or inaccurate particulars have been furnished (c) a residual category of ' Undisclosed Income' unearthed by I.T. Authorities during the search action u/s 132 of the Act. Hence, the purpose of the Explanation in section 271AAB is to set apart and distinguish 'Undisclosed income' from under-reported income, misreported income and income suppressed by the concealment of particulars of income or by furnishing inaccurate particulars of income. To this end, the 'Explanation' cites the various ways in which 'Undisclosed income' can be manifested viz. money, bullion, jewellery or other valuable articles or things or any entry in the books of accounts or other documents or transactions. The purpose of this 'Explanation' is not to define 'Undisclosed Income' exhaustively but only to differentiate it from other species of suppressed income. 4.1.7. Now, if the language used is capable of bearing more than one construction, then in selecting the true meaning regard must be held to the consequences resulting from adopting the alternative constructions. Constructions that results in an anomaly or absurdity or tend to impair the working of the statute must be avoided. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, he offered the undisclosed income represented therein to tax and thereby brought further investigation to an end. The relevant extract of the statement u/s 132(4) Shri.Sushil Jain (Partner of Shri Mukesh Ranka) is reproduced hereunder:- 49. आयकर search एवम seizure की कार्यवाही के दौरान आपका शपथ पूर्वक बयान आयकर की धारा 132 (4) में दर्ज किया गया जिसमे आपने अपने परिवार एवम अपने फर्म से संबंधित अघोषित आय रु.9.24 करोड़ को अघोषि& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5;िया गया था एवं विभाग द्वारा जब्त किया गया था को चालू वित्तिय वर्ष 2017-18 की विभिन्न तरीकों से अर्जित की गई मेरे एव मेरे घरेलू मित्र श्री मुकेश रांका (उनकी स्वीकृति से ) अघोषित आय के रुप में स्वीकार करता हूँ । (2) रु. 3.60 कर ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25;ेश रांका (उनकी स्वीकृति से) एवम् हम लोगों से संबंधित फर्म की अघोषित व्यवसायिक आय एवं हम लोगों के परिसरों से प्राप्त विभिन्न दस्तावेजों में पाये गये अनिमित्ततायो को ध्यान में रखकर consolidate रूप में दोनों लोगों के head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, in next Para No. 4.1.7, went on observing that if the definition of "undisclosed income" is interpretated as exhaustive, the section 271AAB shall be reduced to a nullity and the resulting situation would be one where even though the assessee has been found to be concealing income during a search and has voluntarily surrendered the same, no penalty could be initiated. Ld. AR submitted that it is a settled law, which nobody can dispute, that penalty provisions have to be interpreted strictly. That apart, the Explanation itself states "for the purposes of this section... (c) 'Undisclosed income' means". The phraseology used by Parliament clearly shows that the Explanation as well as definition of "undisclosed income" are exhaustive. 12. Ld. AR submitted that the CIT(A) has also made a wrong observation qua the facts of assessee's case by saying "on being confronted with the various seized documents, the appellant made a voluntary surrender because he was in possession of special and private knowledge of the undisclosed income represented by those documents. In order that the IT department might not probe further, he offered the undisclosed income represented therein to tax and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Circle 2(2) - Nagpur ITAT 14. Ld. AR prayed that the case of assessee is squarely covered on facts and in law by the above decisions. Therefore, in the light of those decisions, the AO is wrong in imposing penalty and the CIT(A) is also wrong in upholding AO's order. Hence, the penalty imposed upon assessee is not tenable and must be quashed. 15. Then, Ld. AR submitted that if the assessee's grievance is resolved and penalty is quashed, the Ground No. 8 would become academic and would not require any adjudication. 16. Per contra, Ld. DR for revenue re-iterated the observations made in orders passed by lower-authorities. He submitted that the assessee has made surrender for covering irregularities in business and only because there was a search by department. He contended that that once the assessee has surrendered undisclosed income in statements u/s 132(4), the payment of tax on such income is not sufficient and the assessee must suffer penalty also. He supported the CIT(A)'s observation that the Explanation/definition of "undisclosed income" is not exhaustive. With these submissions, he requested to uphold the penalty. 17. We have considered rival contentions of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of 'u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, 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 thirty per cent of the undisclosed income of the specified previous year, if the 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 sixty per cent of the undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether the explanation furnished by the assessee is bonafide and non-compliance of the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving an 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 circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon'ble High Court has held as under :- "The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has not 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 giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which reads as under: XXX 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: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed''. 5. In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- "N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded 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 completely independent of the enquiry and finding of the AO in the assessment order except for the limitation provided as per section 275 of the Act. We have already held that the penalty is not automatic but the AO has to take a decision to impose the penalty after giving an opportunity of hearing to the assessee in terms of section 274 of the Act. Thus the AO in the proceedings under section 271AAB of the Act has to first decide that the conditions prescribed under the said section are satisfied for levy of penalty and then to further take a decision after considering the explanation of the assessee for non-compliance of any of the conditions under clauses (a) to (c) of sub-section (1) regarding the quantum of penalty. The primary condition for levy of penalty is the existence of undisclosed income as per the disclosure made by the assessee under section 132(4). The term 'undisclosed income' has been defined in Explanations to section 271AAB. Therefore, as per the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 diary. Since the levy of penalty under section 271AAB is not based on the addition and enquiry conducted by the AO in the assessment proceedings, therefore, it is incumbent on the AO to conduct a proper examination of facts, circumstances and explanation furnished by the assessee before arriving to the conclusion that penalty under section 271AAB is leviable and further whether it is 10% or 20% or 30% of such undisclosed income. Therefore, the AO is under statutory obligation to examine all the issues during the proceedings under section 271AAB after giving the assessee an opportunity to explain the charges/grounds on which the penalty is proposed to be levied. Hence it is a pre-requisite condition that the AO first specify the charges against the assessee and to make known the assessee of his default so as to afford an opportunity to explain the default/charges so brought against the assessee. Without considering the explanation of the assessee on the specific default, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which the income was derived. ii) Furnished the return of income therein and iii) Paid the tax along with interest. Based on the said finding, according to AO, the assessee satisfies the conditions enumerated in sec. 271AAB(i)(a) of the Act and thereafter levied ten per cent of Rs. 3 cr., which have been deleted by the impugned order of Ld. CIT(A). 4. The Ld. DR brought to our notice that in the very same group case of Manoj Beswal & Ors. the Tribunal had confirmed the levy of penalty and contended before us that penalty u/s. 271AAB of the Act is mandatory and therefore, according to Ld. DR, the Ld. CIT(A) erred in deleting the penalty by stating that the assessee did not had any 'mens rea' not to disclose the amount in question. According to him, penalty has to be mandatorily levied u/s. 271AAB of the Act on the undisclosed income found during search. On the other hand, Ld. AR Shri Miraz D. Shah, supporting the decision of Ld. CIT(A) made contentions though taken up before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely 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 preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on 06.11.2017 and hence, the assessee could not be present on the said date by way of personal appearance. The second objection raised by the Ld. AR was that the Tribunal had stated in para 9 of its order that the assessee himself had accepted that he is engaged in commodities trading business and therefore mandated to maintain books of accounts in terms of section 44AA of the Act and thereby inferring that the assessee had reported the profit from commodities trading business under the head "income from business or profession". Based on this crucial finding, the Tribunal had concluded that since the transaction of commodities trading had not been entered by the assessee in his books of accounts as on the date of search on 01.08.2012 and thereby it takes the character of undisclosed income for which penalty u/s 271AAB of the Act is exigible. In this regard, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aforesaid facts discerned from assessment order, the assessee's case is that for the first time in this AY he was doing unsystematic speculative activity which earned income and, it was brought under the head "Income from Other Sources", and so, accordingly, he is not required to maintain books of account as stipulated in Sec. 44AA or Sec. 44AA(2)(ii) of the Act because, these provisions are only for assesses who are earning income under the head "Business or profession". We note that Sec. 44AA or Sec. 44AA(2)(ii) of the Act casts a duty upon the assessee who are into "Business or Profession" and such assessee's are bound to maintain books of account as stipulated therein. For appreciating this submission let us go through the provisions of law. "44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments 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 clearly stipulates that assessee who are carrying on business or profession shall keep and maintain such books of account and other documents which may enable the AO to compute the total income. We note that assessee in the statement of total income filed before the AO has shown income only under two heads (i) salary income (ii) income from other sources. We would like to reproduce the summary of total income of the assessee filed along with the return: Income from Salary Rs. 45,57,600 Income from Other sources Rs.3,00,24,047 Rs.3,45,81,647 6. We note that the AO has accepted the aforesaid statement of total income filed before him without contesting the claim of the assessee as to whether the assessee's claim of income other than from salary should be from "Income from Business". The confusion that has arisen in this case, we note is on the misdirection of AO in the assessment proceedings wherein the assessment order of the assessee, the AO has observed "during search and seizure operation, Shri Manoj Beswal had made a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not commenced business there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the assessee commences its business, its income from any other source will not be taxed as held by the Hon'ble Supreme Court in the case of Tuticorin Alkali & Chemicals Ltd. Vs. CIT (1997) 227 ITR 172 (SC). It has been further held that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipt is principles of law and not in accordance with accountancy practice. Further, the Hon'ble Apex Court held that the question as to whether a principal receipt is of the nature of income and falls within the charge of sec. 4 of the Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and interpretation of the term 'income' given in a large number of decisions of the Hon'ble Supreme Court, High Court and Privy Council. After taking note of the Apex Court order as above, we note that the AO in the assessment order after having accepted the statement of total income (supra) and the return wherein the assessee has shown the income from co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2012 need to be taken note of since undisputedly there was enough and more time for the assessee to submit the accounts during assessment proceedings which fact has been taken note of and concurred by the Ld. CIT(A). Thereafter, the Ld. AR drew our attention to the definition of undisclosed income given under section 271AAB which reads as under: XXX According to the Ld. AR, from the facts and circumstances described above, since the assessee is not engaged in business or profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee's case falls in the second limb i.e. "or other documents" as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section which is very important to adjudicate 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed in the Explanation to section 271AAB of the Act. We further note that this Tribunal has considered this issue in case of Shri Raja Ram Maheshwari vs. DCIT vide order dated 10th January, 2019 in ITA No. 992/JP/2017 in para 12 to 14 as under :- "12. Now, coming to another contention of the ld AR where he has challenged the findings of the ld. CIT(A) that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word 'may' is used instead of 'shall' so it is not mandatory but same is discretionary. It was submitted that it is settled position of law that penalties are not compulsory, not mandatory but are also discretionary considering the overall facts and circumstances of the case. In support, reliance was placed on provisions of section 158BFA(2) wherein similar phraselogy has been used by the legislature and decision of Hon'ble A.P High Court in case of Radha Krishna Vihar (ITA no. 740/2011). 13. 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and to give 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to first examine the facts and circumstances under which the assessee surrendered the income as well as the seized material to arrive at a conclusion that the income so disclosed by the assessee during the course of search and seizure proceedings falls in the definition of undisclosed income as provided in the Explanation to Section 271AAB of the Act. The definition of undisclosed income provided in clause (c) of Explanation to Section 271AAB Act contemplates any income represented by any money, bullion, or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of search u/s 132 of the Act which has not been recorded in the books of account or other documents maintained in normal course on or before the date of search. If the definition of undisclosed income provided under Explanation to Section 271AAB is applied to the facts of the present case, we find the seized documents which is Plan and Map of a residential house in the name of assessee's wife Smt. Usha Jain containing only the design of the house as well as electric plan. Therefore, the said seized documents itself does not reveal any undisclosed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said to be undisclosed income for the purpose of Section 271AAB of the Act. Hence, in the facts and circumstances of the case when income surrendered by the assessee does not fall in the ambit of undisclosed income as defined in Section 271AAB of the Act, the same would not attract the levy of penalty u/s 271AAB of the Act. Accordingly, the penalty levied by the AO is deleted." [Emphasis supplied] 19. Thus, the above decisions clearly hold that mere surrender by assessee during search does not constitute an incriminating material. It is further held that penalty u/s 271AAB is imposable only if there is 'undisclosed income' in the form of (i) 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, or (ii) entry of an expense recorded in the books of account or documents maintained in the normal course which is found to be false. As noted by us in Para No. 6, the AO has made following "Office Note" in assessment-order: "1. The seized material has also been examined so far as considered relevant but nothing incriminating was found in relation to this case. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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