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2019 (6) TMI 923 - AT - Income TaxPenalty u/s 271AAB - residual surrender of income made during recording of statements u/s 132(4) - Surrender on account of jewellery and silver items found at the residence of the assessee - HELD THAT - When the benefit of the personal jewellery of various family members is required to be given while considering the undisclosed income on account of jewellery as well as valuation of the same has been based on the cost of acquisition for treated as undisclosed income. Since the valuation as well as the year of acquisition was not ascertained either during the course of search or in the subsequent prevailing even in the penalty proceeding. Therefore this issue of levy of penalty U/s 271AAB in respect of surrender made on account of jewellery and silver items is set aside to the record of the AO to verify and consider all the relevant facts as discussed above and then decide the same afresh at the giving an opportunity of hearing to the assessee. The penalty in respect of surrender of 50 lacs an account of any other discrepancy or irregularity - It is clear from the record that the assessee has made a surrender of 50 lacs on account of any other irregularity or discrepancy if any found. There is no dispute that no such discrepancy or irregularity was detected either by the department during search proceedings or by the AO during the assessment proceedings and penalty proceedings then mere surrender of the amount without any incriminating material or any undeclared assets it cannot be treated as undisclosed income of the assessee in terms of Section 271AAB. See SHRI RAJENDRA KUMAR GUPTA VERSUS THE DCIT CENTRAL CIRCLE-2 JAIPUR. 2019 (1) TMI 1545 - ITAT JAIPUR In the case in hand when no such discrepancy or irregularity was found by the AO then the mere surrender U/s 132(4) will not ipso facto attract the penalty U/s 271AAB until and unless the same is qualified as undisclosed income as per definition provided in the explanation to Section 271AAB. The levy of penalty U/s 271AAB is not mandatory but the AO is required to take a decision based on the facts and material and then to arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as provided in the explanation to Section 271AAB. Since we have decided the issue of levy of penalty on merits in favour of the assessee therefore we do not propose to go into the issue challenging the validity of initiation of the penalty U/s 271AAB. - Decided in favour of assessee.
Issues Involved:
1. Legality of the AO and CIT(A) orders. 2. Imposition of penalty under Section 271AAB. 3. Imposition of penalty on residual income. 4. Additional ground on undisclosed income. 5. Proper notice under Section 274 read with Section 271AAB. Issue-Wise Detailed Analysis: 1. Legality of the AO and CIT(A) Orders: The assessee argued that the orders of the AO and CIT(A) were "bad in law and against facts of the case." The Tribunal examined the facts and found that the penalty levied was not in accordance with the law. The Tribunal emphasized that the penalty under Section 271AAB is not mandatory but discretionary, and the AO must decide based on the facts and circumstances of each case. 2. Imposition of Penalty under Section 271AAB: The Tribunal noted that the AO imposed a penalty of ?59,44,219/- under Section 271AAB, which was confirmed by the CIT(A). The Tribunal highlighted that the penalty under Section 271AAB is not automatic and depends on the conduct of the assessee. The section uses the term "the AO may," which indicates discretion. The Tribunal cited various decisions to support its view that the penalty is not mandatory but discretionary. 3. Imposition of Penalty on Residual Income: The assessee argued that the AO erred in imposing a penalty at 10% on a residual surrender of income of ?50 lakhs. The Tribunal found that the surrender of ?50 lakhs was made without any incriminating material or discrepancy found by the department. Therefore, it could not be treated as undisclosed income under Section 271AAB. The Tribunal relied on the decision in the case of Rajendra Kumar Gupta vs. DCIT, where it was held that mere surrender without any discrepancy does not qualify as undisclosed income for penalty purposes. 4. Additional Ground on Undisclosed Income: The assessee contended that the AO imposed a penalty without proving that the assessee had any undisclosed income as per the provisions of Explanation (c) to Section 271AAB. The Tribunal examined the seized documents and statements recorded under Section 132(4) and found that the expenditure recorded pertained to various projects of firms and companies in which the assessee was a partner or director. Therefore, the expenditure did not represent the undisclosed income of the assessee. The Tribunal held that the surrender made by the assessee did not fall within the definition of undisclosed income provided in the explanation to Section 271AAB. 5. Proper Notice under Section 274 read with Section 271AAB: The assessee argued that the AO imposed a penalty without serving a proper notice specifying the exact clause under which the penalty was to be levied. The Tribunal emphasized the importance of issuing a proper show cause notice and giving an opportunity of hearing to the assessee before imposing a penalty. The Tribunal noted that the AO must first issue a show cause notice and then decide on the penalty after considering the assessee's explanation. Separate Judgments: The Tribunal referred to several decisions, including: - Shri Padam Chand Pungliya vs. ACIT - M/s Rambhojo’s vs. ACIT - Rajendra Kumar Gupta vs. DCIT These decisions consistently held that the penalty under Section 271AAB is not automatic and depends on the specific facts and circumstances of each case. The Tribunal reiterated that the AO must establish that the surrendered income qualifies as undisclosed income under the provisions of Section 271AAB before imposing a penalty. Conclusion: The Tribunal concluded that the penalty under Section 271AAB is discretionary and not mandatory. The AO must consider the facts and circumstances of each case and provide a proper opportunity of hearing to the assessee before imposing a penalty. The Tribunal partly allowed the appeal, setting aside the penalty on certain grounds and remanding the issue of penalty on jewellery and silver items to the AO for fresh consideration.
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