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2021 (2) TMI 347 - AT - Income TaxPenalty u/s 271AAB - Undisclosed income - assessee had admitted undisclosed income in its statements u/s 132(4) paid the taxes together with interest thereon and filed his return of income before specified date - HELD THAT - Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the ancilliary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer. In the instant case, where the notice dated 28.12.2016 was issued to the assessee to show-cause why penalty should not be levied u/s 271AAB in respect of undisclosed income of the specified previous year, the assessee was made aware of the specific charge against him and an opportunity has thus been given to him to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO. In the instant case, we find that while passing the penalty proceedings, the Assessing officer has given a clear 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% of the undisclosed income. As held by the Co-ordinate Bench SHRI RAJENDRA KUMAR GUPTA 2019 (1) TMI 1545 - ITAT JAIPUR the uncertain charge at the time of initiation of penalty has been made good and substituted with a conclusive default at the time of passing the penalty order and that in such a case, no fault can be found in the penalty order. Therefore, the contentions advanced by the ld AR in this regard cannot accepted. Penalty levied under section 271AAB of the Act on cash advances - HELD THAT - As mere notings in certain loose papers without any further corroboration cannot be held as conclusive to demonstrate any transactions which have been undertaken by the assessee and which have not been disclosed to the Revenue. In any case, an advance represents an outflow of funds and what has been envisaged by the legislature while defining undisclosed income in section 271AAB is an inflow of funds which has not been recorded in the books of accounts or other documents on or before the date of search and not an outflow of funds. Further, the deeming fiction so envisaged in section 69 and 69B cannot be extended and applied automatically in context of section 271AAB which contains a specific definition of undisclosed income - As relying on SHRI SURAJMAL BANSAL HUF case 2019 (4) TMI 1113 - ITAT JAIPUR we delete the penalty levied under section 271AAB of the Act on cash advances as the same doesn t satisfy the requirement of undisclosed income as so defined U/s 271AAB. Cash physically found in possession of the assessee during the course of search - The fact that such cash has been found in possession of the assessee and remain undisclosed to the Revenue is not under dispute and thus represents undisclosed income as so defined. In the result, we confirm the levy of penalty @ 10% on the undisclosed income. Difference in valuation of stock and short stock found during the course of search - whether the difference in stock is arising out of and limited to valuation of stock, can the same qualify as undisclosed income? - HELD THAT - We find that the department valuer has carried out the valuation of stock as per the market value as on the date of search and the same has resulted in difference in valuation which cannot be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB of the Act and the penalty levied thereon is hereby deleted. Appeal of the assessee is partly allowed.
Issues Involved:
1. Confirmation of penalty under Section 271AAB of the Income Tax Act. 2. Nature of penalty under Section 271AAB—whether mandatory or discretionary. 3. Validity of the notice issued for initiating penalty proceedings under Section 271AAB. 4. Determination of "undisclosed income" under Section 271AAB. Issue-wise Detailed Analysis: 1. Confirmation of Penalty under Section 271AAB: The appellant contested the penalty of ?4,95,189 imposed by the Assessing Officer (AO) under Section 271AAB. The penalty was levied on the basis of the appellant's admission of undisclosed income of ?49,51,885 during search proceedings. The appellant argued that the penalty was imposed without proper notice specifying the exact default, thus violating principles of natural justice. The Tribunal noted that the AO had issued a show-cause notice without specifying under which clause of Section 271AAB the penalty was being levied. Despite this, the penalty was ultimately imposed under Section 271AAB(1)(a). 2. Nature of Penalty under Section 271AAB—Mandatory or Discretionary: The appellant argued that the penalty under Section 271AAB is not mandatory but discretionary, citing that the word "may" is used in the section instead of "shall." The Tribunal referred to the decision in the case of DCIT vs. Manish Agarwal, which held that the imposition of penalty under Section 271AAB is discretionary and not mandatory. The Tribunal agreed with this interpretation, stating that the AO must decide based on the facts and circumstances of each case. 3. Validity of the Notice Issued for Initiating Penalty Proceedings: The appellant contended that the notice issued under Section 274 read with Section 271AAB was invalid as it did not specify the exact clause under which the penalty was being levied. The Tribunal referred to the decision in the case of Rajendra Kumar Gupta, which held that the primary condition for levy of penalty is the existence of undisclosed income found during the search. The Tribunal found that the AO had given a clear finding in the penalty order that the penalty was being levied under Section 271AAB(1)(a). Thus, the Tribunal held that the notice, although initially vague, was clarified in the penalty order, making the proceedings valid. 4. Determination of "Undisclosed Income" under Section 271AAB: The appellant argued that the income surrendered was not "undisclosed income" as defined under Section 271AAB. The Tribunal examined whether the surrendered income met the definition of "undisclosed income" under Section 271AAB. The Tribunal noted that the definition includes any income represented by money, bullion, jewelry, or other valuable articles not recorded in the books of account before the date of search. The Tribunal found that the cash advances noted in the seized documents did not qualify as "undisclosed income" as they represented outflows, not inflows, of funds. Similarly, the difference in stock valuation was due to market value assessment, not actual undisclosed income. However, the cash amount of ?8,00,000 found during the search was considered undisclosed income, and the penalty on this amount was upheld. Conclusion: The Tribunal partly allowed the appeal, deleting the penalty on the cash advances and the difference in stock valuation but upholding the penalty on the cash amount found during the search. The Tribunal emphasized that the penalty under Section 271AAB is discretionary and must be based on the specific facts and circumstances of each case.
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