2020 (3) TMI 215 - AT - Income Tax

Penalty u/s 271AAB - undisclosed income of the specified previous year - disclosure of additional income offered in the return filed u/s 153A - Surrender statement where the stock has been valued at market price prevailing as on the date of search - HELD THAT - 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 Assessing officer has to issue a show-cause granting an opportunity to the assessee. Order levying the penalty is an appellable 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. As far as present penalty proceedings u/s 271AAB are concerned which is solely based on the search proceedings and anyways independent of the assessment proceedings, the Assessing officer is required to give a specific finding that there is an undisclosed income found during the course of search in terms of undisclosed stock and which has not been recorded in the books of account. The undisclosed stock could be in terms of physically identifiable stock not found recorded in the books of accounts or the stock not found recorded at the appropriate value so determined by the Assessing officer. In the instant case, we find that the Assessing officer has merely gone by the surrender statement where the stock has been valued at market price prevailing as on the date of search and has not examined the matter from the perspective of determining any excess stock and the cost of such stock which is not recorded in the books of accounts. There is no finding that there is any excess stock which has been physically found and which has not been recorded in the books of accounts as on the date of search. In light of above discussions, it is thus clear that difference in stock of goods as per books and as found at the time of search is on account of valuation of such stock at the market value instead of cost and the same cannot be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB - penalty levied u/s 271AAB is not sustainable and the orders of the lower authorities are set-aside and the appeal of the assessee is allowed.

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. Whether the surrendered amount qualifies as "undisclosed income" under Section 271AAB.

Issue-Wise Detailed Analysis:

1. Validity of the Penalty Notice Issued under Section 271AAB:
The assessee argued that the penalty notices dated 14.12.2016 and 15.05.2017 did not specify the specific limb of Section 271AAB under which the penalty was sought to be levied. The Tribunal examined whether Section 271AAB provides for a singular charge of undisclosed income or multiple charges under clauses (a), (b), or (c). The Tribunal found that the primary condition for levy of penalty is the existence of undisclosed income for the specified previous year found during the search. The quantum of penalty varies based on ancillary conditions under clauses (a), (b), or (c). The Tribunal held that the notice issued to the assessee made them aware of the specific charge and provided an opportunity to rebut it. Therefore, there was no infirmity in the initiation of penalty proceedings and the subsequent penalty order.

2. Whether the Penalty under Section 271AAB is Mandatory or Discretionary:
The Tribunal referred to the provisions of Section 271AAB, which state that the Assessing Officer "may" direct the assessee to pay the penalty, indicating the use of discretion. The Tribunal noted that the penalty order is appealable, which implies that the levy of penalty is not mandatory in all cases but depends on the facts and circumstances. The Tribunal agreed with the assessee's contention that the levy of penalty is not automatic and the Assessing Officer must decide based on the specific facts and merits of each case. The Tribunal emphasized that the Assessing Officer has to apply discretion judicially and provide a reasonable opportunity for the assessee to explain their case.

3. Whether the Surrendered Amount Qualifies as "Undisclosed Income" under Section 271AAB:
The Tribunal examined whether the surrendered amount during the search qualifies as "undisclosed income" as defined in the explanation to Section 271AAB. The Tribunal noted that the difference in the stock's valuation was due to the market value assessment by the Department Valuer, not the cost recorded in the books of accounts. The Tribunal emphasized that the stock should be valued based on its cost, not its market value, to determine if it qualifies as undisclosed income. The Tribunal found no discrepancy in the quantity of stock recorded in the books and the stock found during the search. Therefore, the Tribunal concluded that the difference in valuation does not constitute undisclosed income under Section 271AAB. The Tribunal cited previous decisions supporting this view and held that the penalty levied on the surrendered amount was not sustainable.

Conclusion:
The Tribunal set aside the orders of the lower authorities and allowed the appeal of the assessee. The penalty levied under Section 271AAB was found to be unsustainable based on the facts and circumstances of the case. The Tribunal emphasized the need for specific findings of undisclosed income and proper application of discretion by the Assessing Officer in penalty proceedings.