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2019 (4) TMI 952 - AT - Income TaxPenalty u/s 271AAB - defective notice - assessment u/s 153B post search and seizure - HELD THAT - Following the earlier decision of this Tribunal in the case of Ravi Mathur vs. DCIT 2018 (6) TMI 1128 - ITAT JAIPUR , we hold that the levy of penalty u/s 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB Validity of initiation of penalty proceedings for not specifying the ground and default in the show cause notice issued u/s 274 - HELD THAT - Thus it is clear that both the show cause notices issued by the AO for initiation of penalty proceedings u/s 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd 2016 (12) TMI 1603 - RAJASTHAN HIGH COURT has concurred with the view taken by Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton Ginning Factory, 2013 (7) TMI 620 - KARNATAKA HIGH COURT which was subsequently upheld by the Hon ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA s Emerald Meadows, 2016 (8) TMI 1145 - SUPREME COURT . Accordingly, following the decision of the Coordinate Bench as well as Hon ble Jurisdictional High Court, this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable. Absence of a finding that the income disclosed by the assessee is an undisclosed income as explanation to section 271AAB(1) - HOLD THAT - We hold that the entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied u/s 271AAB by the AO and confirmed by the ld. CIT (A) is not sustainable Expenditure on renovation of house - The department has not brought on record the fact of actual expenditure incurred by the assessee on the renovation work of the house or carried out during the year under consideration as well as following the decision of the Coordinate Bench of this Tribunal, the penalty levied u/s 271AAB is not sustainable Household expenditure - The household expenditure without considering the drawings of the earning members of the family cannot be treated as undisclosed income. Neither during the search proceedings or in the assessment proceedings any enquiry was conducted to find out the mis-match of drawings made by the family members as well as the household expenditure recorded in the seized document. Therefore, merely because of the expenditure recorded in the seized document, it would not ipso facto constitute the undisclosed income in terms of explanation to section 271AAB - penalty not sustainable Excess Cash Found - We find merit in this contention that when the cash was found from the residence of the assessee and from different rooms of the house, then the savings of the other family members cannot be ignored while considering the undisclosed income on account of cash found at the residential premises of the assessee. From the statement recorded u/s 132(4) itself, the department has pointed out that the cash was found from different rooms of the residential premises and, therefore, the benefit of past savings of other family members is required to be given on this account. Accordingly, in the absence of any clear cut finding about the cash not representing and belonging to the other family members as their past savings, the same cannot be treated as undisclosed income of the assessee for the year under consideration - penalty not sustainable Excess jewellery silver found - In the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded u/s 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO u/s 271AAB is deleted.
Issues Involved:
1. Validity of initiation of penalty proceedings under section 271AAB of the IT Act. 2. Levy of penalty under section 271AAB based on the alleged undisclosed income. 3. Specificity and adequacy of the show cause notice issued under section 274 read with section 271AAB. 4. Nature and sufficiency of the evidence supporting the alleged undisclosed income. 5. Treatment of various items such as advances for land, renovation expenses, household expenses, excess cash, and jewellery under the definition of undisclosed income. Issue-wise Detailed Analysis: 1. Validity of initiation of penalty proceedings under section 271AAB of the IT Act: The primary issue raised by the assessee was the validity of the initiation of penalty proceedings under section 271AAB due to the lack of specificity in the show cause notice. The Tribunal noted that the show cause notice did not specify the default under clauses (a) to (c) of section 271AAB(1), which is necessary for the assessee to understand the grounds they need to meet. The Tribunal emphasized that the penalty under section 271AAB is not automatic but discretionary, requiring the Assessing Officer (AO) to make a judicious decision after considering the facts of the case and the explanation provided by the assessee. 2. Levy of penalty under section 271AAB based on the alleged undisclosed income: The assessee argued that the penalty under section 271AAB is not mandatory but discretionary, and the AO must determine whether the disclosed income qualifies as undisclosed income as per the definition provided in the explanation to section 271AAB. The Tribunal agreed with this view, citing various decisions, including those of the Visakhapatnam Bench and the Karnataka High Court, which held that the AO must exercise discretion and provide a proper opportunity for the assessee to explain their case before imposing a penalty. 3. Specificity and adequacy of the show cause notice issued under section 274 read with section 271AAB: The Tribunal found that the show cause notices issued by the AO were vague and did not specify the default or the amount of undisclosed income on which the penalty was proposed. This lack of specificity violated the principles of natural justice, as the assessee was not given a proper opportunity to defend themselves. The Tribunal cited the decisions of the Karnataka High Court and the Chennai Bench of the Tribunal, which held that a vague notice is not valid and cannot form the basis for imposing a penalty. 4. Nature and sufficiency of the evidence supporting the alleged undisclosed income: The Tribunal examined the various items of alleged undisclosed income, including advances for land, renovation expenses, household expenses, excess cash, and jewellery. It found that the entries in the seized documents did not, by themselves, constitute undisclosed income. The Tribunal emphasized that the AO must conduct a thorough investigation to establish the nature and source of the income before concluding that it is undisclosed. The Tribunal noted that the AO had not made any effort to verify the details of the transactions or the persons involved, which is essential to determine whether the income is indeed undisclosed. 5. Treatment of various items such as advances for land, renovation expenses, household expenses, excess cash, and jewellery under the definition of undisclosed income: - Advances for Land: The Tribunal found that the entries in the seized documents were vague and did not provide sufficient details about the land or the persons involved. Without verifying these details, the entries could not be considered undisclosed income. - Renovation Expenses: The seized document was an estimate for renovation work, not evidence of actual expenditure. The Tribunal held that an estimate does not constitute undisclosed income unless it is proven that the expenditure was incurred. - Household Expenses: The Tribunal noted that the household expenses recorded in the seized document could not be treated as undisclosed income without considering the drawings of the assessee and other family members. The AO failed to conduct any inquiry to verify the source of these expenses. - Excess Cash: The Tribunal found that the cash found during the search was explained as past savings of family members. The AO did not provide any evidence to refute this explanation, and the Tribunal held that the cash could not be treated as undisclosed income without such evidence. - Jewellery: The Tribunal noted that the jewellery found during the search belonged to the family members and was received on various occasions. The AO did not make any effort to ascertain the year of acquisition or the source of the jewellery. The Tribunal held that the jewellery could not be treated as undisclosed income without such verification. Conclusion: The Tribunal concluded that the initiation of penalty proceedings under section 271AAB was not valid due to the lack of specificity in the show cause notice. It also held that the penalty under section 271AAB is discretionary and not mandatory, requiring the AO to make a judicious decision based on the facts of the case. The Tribunal found that the AO had not conducted a thorough investigation to establish the nature and source of the alleged undisclosed income, and therefore, the penalty imposed was not sustainable. The Tribunal allowed the appeal of the assessee and quashed the penalty order.
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