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2019 (1) TMI 1545 - AT - Income TaxPenalty u/s 271AAB - Absence of a charge in the penalty notice and not finding the assessee guilty of a clear offence in the penalty order - undisclosed investment - whether there is any basis for levy of penalty or non-levy? - undisclosed income surrendered during the course of search in his statement recorded u/s 132(4) - existence of undisclosed income for the specified previous year found during the course of search in the case of assessee - Whether it provides for a singular charge of undisclosed income for the specified previous year found during the course of search initiated u/s 132 on or after the 1st day of July, 2012 or it provides for multiples charges as so contended by the AR in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB? - HELD THAT - The provisions of Section 271AAB(1)(a)(ii) clearly requires that such undisclosed income admitted u/s 132(4) requires to be substantiated. The assessee is required to specify the manner in which such income has been derived and further substantiate the same by furnishing material available with him. In the instance case, no such substantiation was done as in fact there existed no undisclosed income. The entire disclosure was on paper and assessee admitted such disclosure to avoid undue harassment and unwanted litigation. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. The undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside. Regarding surrender on account of other discrepancies if any found in the books of accounts, in absence of any such discrepancy so found by the Assessing officer either during the assessment or penalty proceedings, the said surrender may be the basis for assessment but can t form the basis for levy of penalty which are separate and distinct proceedings in absence of a specific finding as to how the same qualify as an undisclosed income so defined u/s 271AAB. Hence, penalty levied thereon is liable to be set-aside. - Decided in favour of assessee.
Issues Involved:
1. Validity of penalty notice under Section 271AAB. 2. Nature of penalty under Section 271AAB—mandatory or discretionary. 3. Definition and substantiation of "undisclosed income" under Section 271AAB. Detailed Analysis: 1. Validity of Penalty Notice under Section 271AAB: The appellant argued that the penalty notice issued under Section 271AAB was vague as it did not specify under which limb of the section the penalty proceedings were initiated. The tribunal admitted this additional ground for adjudication, considering it a purely legal issue. The appellant contended that the notice was too general and did not allow for a proper defense. The tribunal, however, found that the primary condition for penalty under Section 271AAB is the existence of undisclosed income found during a search. It held that the penalty notice sufficiently informed the assessee of the charge against him, thus providing an opportunity to rebut the charge. The tribunal referred to various judicial precedents and concluded that an uncertain charge at the initiation stage could be rectified by a clear charge in the penalty order. Since the penalty order clearly specified the charge under Section 271AAB(1)(a), the tribunal found no infirmity in the penalty proceedings. 2. Nature of Penalty under Section 271AAB—Mandatory or Discretionary: The appellant argued that the use of the word "may" in Section 271AAB indicates that the penalty is discretionary, not mandatory. The tribunal agreed, stating that the penalty is not automatic and must be decided based on the facts and circumstances of each case. It referred to similar provisions under Section 158BFA(2) and various judicial precedents to support this view. The tribunal emphasized that the Assessing Officer must issue a show-cause notice and provide an opportunity for the assessee to be heard, adhering to principles of natural justice. Therefore, the tribunal concluded that the levy of penalty under Section 271AAB is discretionary. 3. Definition and Substantiation of "Undisclosed Income" under Section 271AAB: The appellant contended that no undisclosed income was found during the search and that the surrender of income was made under undue pressure. The tribunal examined the definition of "undisclosed income" under Section 271AAB, which includes income not recorded in the books of account or disclosed before the date of search. The tribunal found that the appellant's statement during the search did not demonstrate any forced surrender. It noted that the appellant had ample time to retract the statement but did not do so and included the surrendered amount in the return of income. The tribunal also analyzed the notings in a diary found during the search, which recorded cash advances. It concluded that cash advances do not represent income but an outflow of funds, and thus, cannot be considered "undisclosed income" under Section 271AAB. The tribunal emphasized that deeming provisions under Sections 69 and 69B cannot be automatically applied to penalty proceedings under Section 271AAB. Therefore, the tribunal set aside the penalty, stating that the cash advances and the additional surrender of ?17,20,000 did not qualify as "undisclosed income" under the specific definition provided in Section 271AAB. Conclusion: The tribunal dismissed the additional ground regarding the validity of the penalty notice but allowed the main ground of appeal, setting aside the penalty under Section 271AAB. It concluded that the penalty is discretionary and that the surrendered amounts did not meet the definition of "undisclosed income" as per Section 271AAB. The appeal was allowed in favor of the assessee.
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