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TMI Blog2018 (3) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... s completed making the disallowance u/s 40(a)(ia) of the Act for an amount of Rs. 3,35,000/- and penalty u/s 271AAB of the Act were initiated separately. During the penalty proceedings, the A.O. issued show cause notice as to why the penalty should not be levied u/s 271AAB of the Act. In reply, the assessee submitted that the assessee filed return of income on the basis of turnover and the books of accounts were regularly maintained. The said turnover was disclosed in the profit & loss account and included the sum of Rs. 1,48,84,142/- towards additional sale price offered sold/booked for sale on the date of search. The additional income was part of Rs. 4.80 crores admitted by the assessee at the time of search. The above additional admission was given on the basis of additional sale price worked out at Rs. 500/- per sq.ft. for 96000 Sq.ft. sold/booked up to the date of search. The assessee submitted before the A.O. that no incriminating material was found suggesting receipt of any additional sale price by the firm. The admission of additional income was only to buy peace and to avoid protracted litigation as stated by the assessee. The assessee had filed the return of income and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 158BFA(2) of the Act and argued that the words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under; 271AAB [Penalty where search has been initiated]: (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him-- (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee- (i) in the course of search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived. (ii) Substantiates the manner in which the undisclosed income was derived; and (iii) On or before the specified date- (A) pays the tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or [Principal Commissioner or] Commissioner before the date of search; or (ii) Any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted] 9. Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132(4). The AO must establish that there is undisclosed income on the basis of incriminating material. In the instant case a loose sheet was found according to the A.O., it was incriminating material evidencing the undisclosed income. In the penalty order the AO observed that loose sheet shows the cost per square feet is Rs. 3571/- per sft and assessee stated to have submitted in sworn statement cost per sq.feet at Rs. 2200/- to Rs. 2300/- per sq.feet. However neither the AO nor the Ld.CIT(A) has verified the cost of construction with the books and projections found at the time of search. The counsel argued that it was mere projection but not the actuals. The write ..... X X X X Extracts X X X X X X X X Extracts X X X X
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