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2019 (1) TMI 1057 - AT - Income TaxPenalty u/s 271AAB (1)(a) - amount surrendered during the course of search - additional income duly declared in the return of income filed u/s 139(1) - Held that - Levy of penalty under section 271AAB is not mandatory. Firstly, regarding stock of Kundan Meena, and diamond and other gemstones studded jewellery which has been surrendered during the course of search, we find that AO has merely gone by the surrender statement and has not examined the matter from the perspective of determining the cost of such stock and the quantification thereof after allowing deduction for Chapadi, wax, etc. which is a well established step as part of valuation methodology of such kind of jewellery and which has been followed at other locations except at Jaipur. No finding that there is any excess stock which has been physically found and which has not been found recorded in the books of accounts as on the date of search - difference in stock of jewellery and silver items as per books and as found at the time of search is on account of valuation of such stock at the market value instead of cost and such valuation difference and on account of non-deduction of Chapadi, wax, etc while weighing the Kundan Meena Jewellery and the same cannot be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB and the penalty levied thereon is liable to be set-aside. Surrender made on account of cash advances for land purchases in the statement recorded u/s 132(4) undisclosed investment by way of advance for purchase of land 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. Surrender on account of other discrepancies, 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 in absence of a specific finding as to how the same qualify as an undisclosed income so defined u/s 271AAB of the Act. Hence, penalty levied thereon is liable to be set-aside. Regarding surrender of cash found from the residence of the partners and which has been admitted as belonging to the assessee firm in statement recorded u/s 132(4) and not found recorded in the books of accounts at the time of search, there cannot be any dispute that the same represents undisclosed income and liable for penalty u/s 271AAB which is hereby confirmed. The penalty U/s 271AAB is sustained to the extent of cash found during the course of search and penalty is hereby directed to be deleted on rest all items of surrender made during the course of search in absence of the same qualifying as undisclosed income as so defined under section 271AAB of the Act. Appeal filed by the assessee is partly allowed.
Issues Involved:
1. Imposition of penalty under Section 271AAB(1)(a) of the Income Tax Act, 1961. 2. Imposition of penalty under Section 271AAB(1)(b) of the Income Tax Act, 1961. 3. Validity of penalty proceedings initiated under Section 271AAB without specifying the clause. 4. Nature of penalty provisions under Section 271AAB - whether mandatory or discretionary. 5. Definition and scope of "undisclosed income" under Section 271AAB. 6. Validity of surrender of income during search proceedings. 7. Examination of specific surrendered items as "undisclosed income." Detailed Analysis: 1. Imposition of Penalty under Section 271AAB(1)(a): The assessee was penalized for an undisclosed income of ?5,73,33,348 surrendered during search proceedings. The penalty was levied at 10% under Section 271AAB(1)(a). The assessee argued that the surrendered amount was not "undisclosed income" as defined under the Act, and the penalty was not justified. 2. Imposition of Penalty under Section 271AAB(1)(b): An additional penalty was levied at 20% on ?1,77,039 under Section 271AAB(1)(b), representing the difference between the surrendered income and the income declared in the return. The assessee contested this penalty, claiming the amount did not qualify as "undisclosed income." 3. Validity of Penalty Proceedings Initiated under Section 271AAB: The assessee raised an additional ground challenging the initiation of penalty proceedings without specifying the clause of Section 271AAB under which the penalty was initiated. The Tribunal admitted this ground, emphasizing that the penalty notice must specify the exact charge to allow the assessee to present a defense. 4. Nature of Penalty Provisions under Section 271AAB - Mandatory or Discretionary: The Tribunal examined whether the penalty under Section 271AAB was mandatory or discretionary. It concluded that the use of the word "may" in the section indicated discretion, not compulsion. The Assessing Officer must decide based on the facts and circumstances of each case, making the penalty discretionary. 5. Definition and Scope of "Undisclosed Income" under Section 271AAB: The Tribunal analyzed the definition of "undisclosed income" under Section 271AAB. It determined that the primary condition for penalty is the existence of undisclosed income found during the search. Further, the income must not be recorded in the books of account or disclosed to tax authorities before the search. 6. Validity of Surrender of Income during Search Proceedings: The Tribunal rejected the assessee's claim that the surrender of income was made under duress. It noted that the assessee had ample time to retract the statement but did not do so. The surrendered amount was included in the return of income, indicating voluntary disclosure. 7. Examination of Specific Surrendered Items as "Undisclosed Income": - Stock of Jewellery and Silver Items: The Tribunal found that the difference in stock valuation was due to market value assessment instead of cost. The valuation discrepancies, including non-deduction for chapadi and wax, did not constitute undisclosed income. - Cash Advances for Land Purchases: The Tribunal held that undisclosed investments in land purchases could not be deemed undisclosed income under Section 271AAB. The deeming provisions of Sections 69 and 69B could not be extended to penalty proceedings. - Other Discrepancies: The Tribunal noted that the Assessing Officer did not find any specific discrepancies during assessment or penalty proceedings. Hence, the surrendered amount could not be treated as undisclosed income. - Cash Found: The Tribunal confirmed the penalty on ?5,00,000 cash found during the search, as it was not recorded in the books of account and qualified as undisclosed income. Conclusion: The Tribunal partly allowed the assessee's appeal. It sustained the penalty on the cash found during the search but deleted the penalty on other surrendered items, as they did not qualify as undisclosed income under Section 271AAB. The penalty proceedings were found valid despite the initial lack of specificity in the notice, as the final penalty order provided clear charges. The Tribunal emphasized the discretionary nature of the penalty under Section 271AAB, requiring a case-by-case analysis.
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