2019 (8) TMI 1262 - AT - Income Tax

Penalty u/s 271AAB - assessee himself has surrendered undisclosed income - HELD THAT - We found that during the course of search, one diary and Annexure-A exhibit 5 was found. In this diary certain advances given to various villagers amounting to ₹ 627 lacs was stated. Statement of assessee was also recorded U/s 132(4) of the Act on 23/1/2013 wherein in reply to question No. 8, the assessee himself has surrendered these advances as income. On this surrendered income, the A.O. has levied penalty U/s 271AAB - As observed that what have been found during the course of search are certain entries relating to investment made in purchase of land. However, the said entry in the loose paper giving advances for purchase of land itself is not an undisclosed income. Besides the said entries, there are no other documents/material in terms of any agreement to sell, description of the property etc. which was found during the course of search. As per the definition of undisclosed income u/s 271AAB, undisclosed investment in so called purchase of land cannot be stated to be income which is represented by any money bullion, jewellery or other valuable article or thing. We further observe that the assessee was having only income from house property and interest income. The diary was found on the basis of which disclosure was made also contained list of advances made which formed basis of disclosure by the assessee. Since the assessee was not carrying on any business, he was not required to maintain any such books of account under the law. The amount so surrendered was duly recorded in other documents maintained in the normal course and therefore, the same cannot be said to be undisclosed income. CIT(A) has dealt with the issue threadbare and after applying the various judicial pronouncements including pronouncements of the Coordinate Bench in the cases of Ravi Mathur Vs DCIT 2018 (6) TMI 1128 - ITAT JAIPUR deleted the addition. - Decided against revenue.

Summary

Issues Involved:
1. Imposition of penalty under Section 271AAB of the Income Tax Act, 1961.
2. Definition and interpretation of "undisclosed income" under Section 271AAB.
3. Validity of the penalty notice and procedural requirements.
4. Applicability of judicial precedents to the case.

Detailed Analysis:

1. Imposition of Penalty Under Section 271AAB:
The case involves an appeal by the revenue against the order of the CIT(A) deleting the penalty imposed under Section 271AAB of the Income Tax Act, 1961. The penalty was levied on the assessee for undisclosed income discovered during a search operation. The assessee had surrendered an amount of ?627 lakhs as income, which was recorded in a diary found during the search. The Assessing Officer (A.O.) levied a penalty of ?62,70,000 under Section 271AAB(1)(a) of the Act, which was later deleted by the CIT(A).

2. Definition and Interpretation of "Undisclosed Income":
The core issue revolves around whether the surrendered income qualifies as "undisclosed income" under Section 271AAB. The CIT(A) observed that the income was recorded in a diary, which is considered a document maintained in the normal course of business. The CIT(A) referenced the case of Ravi Mathur v. DCIT, where it was held that if the income is recorded in documents maintained in the normal course, it does not fall under the definition of "undisclosed income." The Tribunal upheld this view, stating that since the assessee was not required to maintain regular books of accounts, the entries in the diary are considered as maintained in the normal course, and thus, the income cannot be presumed as undisclosed.

3. Validity of the Penalty Notice and Procedural Requirements:
The assessee contended that the penalty notice issued under Section 274 read with Section 271AAB did not specify the clause under which the penalty was being levied. The notice was deemed vague and inconsistent, as the penalty was initiated under one clause and imposed under another. The Tribunal referenced several judicial precedents, including the case of Vimal Chand Surana v. DCIT, which held that non-specification of the clause in the penalty notice makes it invalid and the consequent penalty illegal.

4. Applicability of Judicial Precedents:
The Tribunal relied on multiple judicial precedents to support its decision. In the case of M/s Rambhajo’s v. ACIT, it was held that entries relating to advances for land purchases found during a search do not qualify as "undisclosed income" under Section 271AAB. Similarly, the cases of M/s Silver & Art Palace v. DCIT and Rajendra Kumar Gupta v. DCIT reinforced that undisclosed investments or advances do not fall under the definition of "undisclosed income" for the purpose of penalty under Section 271AAB. The Tribunal concluded that the penalty imposed by the A.O. was not justified and upheld the CIT(A)'s order deleting the penalty.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the penalty imposed under Section 271AAB. The Tribunal found that the surrendered income, recorded in a diary maintained in the normal course, did not qualify as "undisclosed income." Additionally, the penalty notice was deemed vague and procedurally flawed, further invalidating the penalty. The Tribunal's decision was consistent with several judicial precedents, emphasizing the need for strict interpretation of penalty provisions and adherence to procedural requirements.