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2019 (8) TMI 1196 - AT - Income TaxPenalty u/s 271AAB - undisclosed investment - HELD THAT - In M/S SILVER ART PALACE VERSUS THE DCIT, CENTRAL CIRCLE-4, JAIPUR 2019 (4) TMI 634 - ITAT JAIPUR held that the undisclosed investment by way of purchase of land can be subject matter of addition in the quantum proceedings but the same does not fall strictly within the meaning of undisclosed income as so defined in section 271AAB and deeming fiction u/s 69B cannot be extended and applied automatically in the context of section 271AAB The fact that the transaction so found recorded in a document has not been disputed by the Revenue. Given that the assessee is a salaried person who is not required to maintain any books of accounts and there is no mechanism to report the investment in the tax return, the said investment cannot be held as undisclosed investment and more so, undisclosed income so defined in section 271AAB. In light of the same, the investment so found in purchase of Villa at Suncity Township at Sikar Road, Jaipur cannot be termed as undisclosed income within the meaning of undisclosed income as so defined u/s 271AAB and penalty levied thereon is liable to be set aside. Penalty for cash deposit in bank account - In respect of cash of ₹ 9 lacs, it is not in dispute that the said cash has been physically found in possession of the assessee, however the question remains is where the assessee is a salaried person who is not required to maintain books of accounts, merely having cash in hand of ₹ 9 lacs, can it be held that the same represents his undisclosed income. In the present case, it is true that the assessee is not required to maintain books of accounts and there is no mechanism to report cash in hand in the tax return or otherwise to the Revenue authorities. The factum of the matter is that there is no explanation which has been advanced by the assessee in terms of source of such cash physically found in his possession at the time of search in terms of past savings or cash withdrawals from his bank account. In absence thereof, there can be no dispute that the same falls in the definition of undisclosed income and the penalty levied thereon is sustained. - Appeal of the assessee is partly allowed.
Issues Involved:
1. Imposition of penalty under section 271AAB of the Income Tax Act, 1961. 2. Classification of income declared during the search as 'undisclosed income'. 3. Application of legal precedents and interpretation of 'undisclosed income'. 4. Discretionary nature of penalty under section 271AAB. 5. Validity of penalty notice under section 271AAB. Issue-wise Detailed Analysis: 1. Imposition of Penalty under Section 271AAB: The primary issue was whether the penalty of ?2,61,660/- imposed under section 271AAB of the Income Tax Act, 1961, was justified. The assessee argued that the penalty was illegal, unjustified, and arbitrary. The Tribunal noted that the assessee had surrendered an amount of ?26,16,594/- during the search and subsequently included this amount in his income tax return. 2. Classification of Income Declared During Search as 'Undisclosed Income': The assessee contended that the income declared during the search did not qualify as 'undisclosed income' under section 271AAB. The Tribunal examined the definition of 'undisclosed income' and noted that the assessee, being a salaried person not required to maintain regular books of accounts, had recorded the transactions in the seized documents. The Tribunal relied on precedents such as DCIT vs. Manish Agarwal and Shri Ravi Mathur vs. DCIT, which held that income recorded in 'other documents' does not qualify as 'undisclosed income'. 3. Application of Legal Precedents and Interpretation of 'Undisclosed Income': The Tribunal referred to the case of Silver & Art Palace vs. DCIT, which clarified that investments cannot be deemed as 'undisclosed income' unless explicitly defined under section 271AAB. The Tribunal emphasized that the deeming provisions under sections 69, 69A, and 69B, which treat certain investments as income, cannot be automatically applied to section 271AAB penalty proceedings. The Tribunal concluded that the cash payment of ?17,16,594/- towards the purchase of a villa and the cash of ?9 lacs found during the search did not qualify as 'undisclosed income' under section 271AAB. 4. Discretionary Nature of Penalty under Section 271AAB: The assessee argued that the penalty under section 271AAB was discretionary and not mandatory. The Tribunal noted that the penalty proceedings under section 271AAB were initiated correctly, but emphasized that the penalty provisions must be strictly construed. The Tribunal found that the penalty was not mandatory and could be set aside if the conditions specified in section 271AAB were not met. 5. Validity of Penalty Notice under Section 271AAB: The assessee argued that the penalty notice did not specify the exact limb under which the penalty was being levied. The Tribunal did not explicitly address this argument but focused on the broader issue of whether the income in question qualified as 'undisclosed income' under section 271AAB. Conclusion: The Tribunal partially allowed the appeal, setting aside the penalty on the cash payment of ?17,16,594/- towards the purchase of a villa, as it did not qualify as 'undisclosed income' under section 271AAB. However, the Tribunal sustained the penalty on the cash of ?9 lacs found during the search, as the assessee failed to provide a satisfactory explanation for its source. The Tribunal emphasized the importance of strict interpretation of penalty provisions and the necessity for clear classification of 'undisclosed income'. The order was pronounced on 21/08/2019.
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