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2019 (10) TMI 395 - AT - Income TaxPenalty u/s 271AAB - assessee has surrendered the undisclosed income - HELD THAT - We find that under identical set of facts and circumstances of the case, in case of other Group cases where the search was conducted, matter relating to levy of penalty was examined at length by the Coordinate Bench in cases of Surajmal Bansal HUF, Jaipur vs. DCIT, Jaipur 2019 (4) TMI 1113 - ITAT JAIPUR wherein, the penalty was deleted by the Tribunal We delete the penalty levied under section 271AAB on cash advances towards purchase of land. The levy of penalty @ 10% on the excess silver found during the course of search and valued at ₹ 575,000 is however confirmed. Since the issue of levy of penalty u/s 271AAB of the Act has been decided on merits, therefore, the issue of validity of initiation of the penalty proceeding due to defective show cause notice become academic in nature and we do not propose to adjudicate the same. - Appeal of the assessee is partly allowed.
Issues Involved:
1. Validity of the notice issued for initiating penalty under Section 271AAB of the Income Tax Act, 1961. 2. Justification of the penalty imposed under Section 271AAB. 3. Nature of the penalty under Section 271AAB - whether mandatory or discretionary. 4. Definition and determination of "undisclosed income" under Section 271AAB. 5. Treatment of specific items (cash advances and excess silver) found during the search as undisclosed income. Issue-wise Detailed Analysis: 1. Validity of the Notice Issued for Initiating Penalty: The assessee argued that the notice issued by the Assessing Officer (AO) for initiating the penalty proceedings under Section 271AAB was not in accordance with the law as it did not specify the default for which the penalty was sought. The show cause notice was issued in a routine manner without mentioning under which clause of Section 271AAB the assessee was liable for penalty. The Tribunal noted that the absence of specific charges in the notice violated the principles of natural justice, as the assessee was not in a position to respond adequately. 2. Justification of the Penalty Imposed: The AO imposed a penalty of ?20,50,000 under Section 271AAB, which was confirmed by the CIT(A). The assessee contended that no incriminating material was found during the search, and the surrender of income was made under pressure to avoid litigation. The Tribunal examined whether the surrendered income qualified as "undisclosed income" under Section 271AAB and found that the penalty was not justified as the surrender did not represent undisclosed income in the context of Section 271AAB. 3. Nature of the Penalty Under Section 271AAB: The Tribunal referenced various decisions, including the case of DCIT vs. Manish Agarwal, to conclude that the imposition of penalty under Section 271AAB is not mandatory but discretionary. The AO must exercise discretion based on the facts and circumstances of each case. The Tribunal emphasized that the use of the word "may" in Section 271AAB indicates discretion rather than a mandatory requirement. 4. Definition and Determination of "Undisclosed Income": The Tribunal analyzed the definition of "undisclosed income" as per the explanation to Section 271AAB, which includes any income represented by money, bullion, jewelry, or other valuable articles not recorded before the date of the search. In the assessee's case, the Tribunal found that the entries in the diary related to advances given for the purchase of land did not qualify as undisclosed income since they represented outflows rather than inflows of funds. 5. Treatment of Specific Items Found During the Search: - Cash Advances: The Tribunal found that the cash advances recorded in the diary did not qualify as undisclosed income under Section 271AAB. The advances represented outflows and were not recorded in the books of accounts, but they did not constitute undisclosed income as defined in the section. - Excess Silver: The Tribunal confirmed the levy of penalty on the excess silver found during the search. The silver items were valued at ?5,75,000 and were not disclosed in the wealth tax returns. The Tribunal held that the silver items represented undisclosed income and upheld the penalty imposed on this amount. Conclusion: The Tribunal allowed the appeal partly, deleting the penalty imposed on the cash advances but confirming the penalty on the excess silver found during the search. The Tribunal emphasized that the penalty under Section 271AAB is discretionary and not mandatory, and the AO must exercise discretion based on the specific facts and circumstances of each case. The Tribunal also highlighted the importance of issuing specific and detailed show cause notices to ensure compliance with the principles of natural justice.
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