2020 (3) TMI 214 - AT - Income Tax

Penalty u/s 271AAB - assessee has made disclosure of additional income as offered in the return filed u/s 153A - credit of jewellery disclosed in the wealth tax returns - HELD THAT - In the instant case, the AO has recorded his satisfaction while passing the assessment order that there is undisclosed income found during the course of search and other conditions being satisfied and therefore, the assessee is liable for penalty u/s 271AAB, thereafter the notice initiating the penalty proceedings U/s 271AAB was issued to the assessee - Assessing officer has given a specific finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% on the undisclosed income found during the course of search and admitted in statement recorded u/s 132(4) of the Act. Therefore, we donot see any infirmity in the initiation of penalty proceedings and consequent penalty order so passed by the Assessing officer on this account and the contentions so raised by the ld AR in this regard cannot be accepted. As per sub-section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be applied in relation to penalty under this section which means that before levying the penalty, the AO has to issue a show-cause granting an opportunity to the assessee. Order levying the penalty is an appealable order and therefore, the fact that the statue has provided for an appellate remedy against the levy of penalty, the levy of penalty cannot be held as mandatory but the same will depend upon facts and circumstances of each case. Thus, we agree with the contentions of the ld AR that the levy of penalty is not mandatory in all cases but the Assessing officer has to decide based on facts and circumstances of the case. In fact, it is a consistent view of this Tribunal across various Benches that levy of penalty u/s 271AAB is not automatic in nature but the AO has the discretion and has to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an undisclosed income in terms of Section 271AAB(1) r/w. explanation defining the undisclosed income. Where the discretion so applied by the Assessing officer has been rightly exercised or not in a particular case can be reviewed and subject to appellate remedy as so provided in the Act. In the instant case as well, it is an undisputed fact that the jewellery so found during the course of search has been found from the bedrooms of various members of the assessee s family and thus, such jewellery found in possession of family members belongs to them and doesn t belong to assessee alone. Therefore, merely because the assessee has declared the same in his statement recorded u/s 132(4), it will not be regarded as undisclosed income of the assessee in absence of any fact or material to establish that entire jewellery was acquired by the assessee and belongs to the assessee alone - credit has been allowed in respect of jewellery disclosed in the wealth tax returns by some of the members of the family. However, there are other members of the family not subject to wealth tax, in respect of which no credit has been allowed even as per CBDT Circular dated 11.05.1994 which the Courts have held to be reasonable possession looking at the customs prevailing in our country and useful guidance can be drawn from the decision of Hon ble Rajasthan High Court in case of CIT vs Shri Satya Narain Patni 2014 (5) TMI 1002 - RAJASTHAN HIGH COURT jewellery so found during the course of search was old jewellery except for 98 grams, therefore, for the purposes of determining undisclosed income by way of investment in such jewellery, valuation at current rates by Department Valuer is not correct and what needs to be determined is the value/cost in the year of acquisition/investment however, no efforts have been made by the Department. Therefore, mere disclosure of such jewellery in the statement of the assessee recorded u/s 132(4) of the Act would not represent undisclosed income as defined in the explanation to section 271AAB. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the penalty notice issued under section 271AAB of the I.T. Act, 1961.
2. Whether the penalty under section 271AAB is mandatory or discretionary.
3. Classification of the surrendered income as "undisclosed income" under section 271AAB.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Notice:
The assessee argued that the penalty notices issued did not specify the specific limb of section 271AAB under which the penalty was sought to be levied, thereby violating the principles of natural justice. The Tribunal analyzed the provisions of section 271AAB and concluded that the primary condition for the levy of penalty is the existence of undisclosed income for the specified previous year found during the course of search. The Tribunal found no infirmity in the initiation of the penalty proceedings, stating that the notice made the assessee aware of the specific charge against it, thereby granting an opportunity to rebut such charge. The Tribunal held that even if there were multiple charges, any uncertain charge at the initiation stage could be clarified in the penalty order, which was done in this case.

2. Mandatory or Discretionary Nature of Penalty:
The assessee contended that the penalty under section 271AAB is not mandatory. The Tribunal agreed with this contention, stating that the provisions of section 271AAB allow the Assessing Officer to use discretion in levying the penalty based on the facts and circumstances of each case. The Tribunal emphasized that the penalty is not automatic and must be decided judicially, considering the explanation and evidence provided by the assessee. The Tribunal also noted that the penalty order is appealable, further indicating that the penalty is not mandatory.

3. Classification of Surrendered Income as "Undisclosed Income":
The Tribunal examined whether the surrendered income qualified as "undisclosed income" under section 271AAB. The Tribunal referred to the definition of "undisclosed income" in the explanation to section 271AAB and concluded that the jewellery found during the search, which was declared by the assessee, did not qualify as "undisclosed income." The Tribunal noted that the jewellery belonged to various family members and was not solely acquired by the assessee. The Tribunal also highlighted that the jewellery was old and inherited, and its valuation at current rates was not appropriate. The Tribunal cited the case of Shyam Sunder Khandelwal vs. DCIT, where it was held that personal jewellery of family members acquired in the past does not fall under the ambit of "undisclosed income." Therefore, the Tribunal concluded that the penalty levied under section 271AAB was not sustainable.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and holding that the penalty levied under section 271AAB was not justified. The Tribunal emphasized that the penalty proceedings must be conducted with clear charges and proper application of judicial discretion. The Tribunal also clarified that the surrendered income in the form of old and inherited jewellery did not constitute "undisclosed income" for the purposes of section 271AAB.