2019 (7) TMI 222 - AT - Income Tax

Penalty U/s 271AAB - search and seizure operation U/s 132 - penalty imposed based on assessee admitted Undisclosed Income in its statement u/s 132(4) but could not furnish his return of income on or before the specified date - diary found in search in which certain advances are mentioned - from notice issued U/s 274 r.w.s. 271AAB it was not clear as to under which clause the case of assessee Company would fall - HELD THAT - Every additional income declared in the return filed is not per se Undisclosed Income . What has been found during the course of search is a red diary, wherein there are certain notings relating to cash advances given to various persons totaling ₹ 4 crores. Besides the said document, there were no other incriminating document/material was found during the course of search. As per the definition of undisclosed income u/s 271AAB, the said cash advance cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. In the definition of undisclosed income, it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 . The cash advance cannot be deemed as undisclosed Income in the context of section 271AAB. For this proposition, reliance is placed on the judgment of Silver Art Palace vs DCIT 2019 (4) TMI 634 - ITAT JAIPUR where Hon ble ITAT Jaipur Bench held that such cash advances cannot be deemed as Undisclosed Income for the purpose of section 271AAB. In view of the above discussion and respectfully following the judicial pronouncements (supra), we do not find any merit for imposition of penalty in respect of declared income which is not coming in the purview of undisclosed income as defined under clause (c) to explanation to Section 271AAB . It is pertinent to mention here that no contrary decision was brought to our notice by the ld DR so as to persuade us to deviate from the conclusion drawn in the above judicial pronouncements as referred and relied by us. - both the appeals of the assessees are allowed

Issues Involved:
1. Imposition of penalty under Section 271AAB of the Income Tax Act, 1961.
2. Validity of the penalty notice issued under Section 274 read with Section 271AAB.
3. Classification of the surrendered income as "Undisclosed Income."
4. Determination of the appropriate penalty rate under Section 271AAB.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271AAB:
The appeals were filed by the assessees against the imposition of penalty under Section 271AAB of the Income Tax Act, 1961, by the ld. CIT(A)-4, Jaipur. The penalty was levied due to the surrender of ?2 crores each by the assessee and his father during a search operation. The A.O. imposed a penalty at 30% under clause (c) of sub-section (1) of Section 271AAB, holding that the assessee admitted 'Undisclosed Income' but failed to file the return of income on or before the specified date.

2. Validity of the Penalty Notice:
The assessee argued that the penalty notice issued was vague as it did not specify the specific clause under which the penalty was being imposed. This lack of clarity deprived the assessee of a fair opportunity to explain or represent his case. The Tribunal referred to the decision of the Hon'ble ITAT Chennai in the case of DCIT, Coimbatore Vs. R. Elanyovan, where it was held that a notice not specifying the clause of Section 271AAB is not valid. The Tribunal also cited similar decisions by the ITAT Jaipur Bench in the cases of Shri Ravi Mathur Vs. DCIT and others.

3. Classification of the Surrendered Income as "Undisclosed Income":
The Tribunal examined whether the surrendered income could be classified as "Undisclosed Income" under Section 271AAB. The assessee contended that since he was not carrying on any business, he was not required to maintain regular books of account, and the transactions recorded in the 'Red Diary' did not fall under the definition of "Undisclosed Income." The Tribunal referred to the decision of the Kolkata Bench in DCIT Vs. Manish Agarwal, where it was held that income recorded in 'other documents' cannot be termed as "Undisclosed Income" under Section 271AAB. The Tribunal also noted that the Jaipur Bench of ITAT consistently followed this view in several cases, including Shri Ravi Mathur Vs. DCIT and others.

4. Determination of the Appropriate Penalty Rate:
The assessee argued that if the penalty under Section 271AAB was upheld, it should be at the rate of 10% instead of 30%. The Tribunal considered the conditions stipulated under Section 271AAB(1)(a), which provides for a 10% penalty if the assessee admits the undisclosed income, specifies the manner of derivation, substantiates the manner, pays the tax, and files the return of income declaring such undisclosed income. The Tribunal noted that filing the return within the due date is a procedural requirement and should not lead to a higher penalty rate if other substantive conditions are met. The Tribunal cited the decision of the Hon'ble ITAT Chandigarh in DCIT Vs. Hari Singh, where the penalty was reduced from 30% to 10% due to procedural lapses.

Conclusion:
The Tribunal concluded that the penalty imposed under Section 271AAB was not sustainable as the surrendered income did not qualify as "Undisclosed Income" under the definition provided in the section. The Tribunal also found that the penalty notice was vague and did not provide a fair opportunity for the assessee to represent his case. Consequently, the Tribunal allowed the appeals of the assessees and quashed the penalty orders. The order was pronounced in the open court on 22nd May 2019.

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