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TMI Blog2018 (7) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... me though the source of the advances can be added to the income of the assessee. The assessee has explained the source of the said advances from his activities. Accordingly, by following the earlier order of this Tribunal, we delete the penalty levied by the AO under section 271AAB of the Act. - Decided in favour of assessee - ITA No. 931/JP/2017 - - - Dated:- 2-7-2018 - SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM For The Assessee : Shri S.L. Poddar and Ms Isha Kanungo (Advocates) For The Revenue : Smt. Seema Meena (JCIT) ORDER PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 1ST November, 2017 of ld. CIT (A) arising from the penalty order passed under section 271AAB of the I.T. Act for the assessment year 2014-15. The assessee has raised the following grounds of appeal :- 1. Under the facts and circumstances of the case the learned CIT (A) has erred in passed the order u/s 271AAB of the Income Tax Act, 1961 which is void ab-initio deserves to be quashed. 2. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the action of the learned Assessing Officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income as per the provisions of section 271AAB of the Act. Thus the assessee raised various objections before the AO including the invalid show cause notice issued by the AO for initiation of penalty proceedings. The AO did not accept the contention of the assessee and levied the penalty of ₹ 10,03,600/- under section 271AAB of the Act vide order dated 27th September, 2016. The assessee challenged the action of the AO before ld. CIT (A) and raised the objection against the validity of show cause notice and consequential penalty order. However, the ld. CIT (A) has confirmed the action of the AO of levying the penalty. 3. Before us, the ld. A/R of the assessee has submitted that the penalty proceedings were not initiated lawfully/legally. The AO has mentioned in the assessment order in para 11 12 that 11. The total income declared in ROI for the specified year included the undisclosed income of ₹ 1,03,60,000/- which represented the undisclosed income. Accordingly penalty u/s 271AAB of the Act is initiated on such amount of ₹ 1,03,60,000/- by way of issue of notice u/s 274 r.w.s. 271AAB of the Act. 12. Penal proceedings u/s 271AAB are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation of proceedings under section 271AAB and following the decision of Hon ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory (supra) as well as the decision of Hon ble Supreme Court dismissing the SLP filed by the revenue in the case of CIT vs. SSA s Emerald Meadows, 242 Taxman 150 (SC) held that the notice issued under section 274 read with section 271AAB of the Act not specifying the ground and clauses for levy of penalty was not valid and consequently the penalty order was set aside. The ld. A/R has also relied on the decision of Hon ble Jurisdictional High Court in the case of Sheveta Construction Co. Pvt. Ltd. in DBIT Appeal No. 534/2008 dated 06.12.2016. Thus the ld. A/R has submitted that the order of imposing penalty under section 271AAB is unlawful and not sustainable in law. The second leg of contention of ld. A/R is that without giving the finding that the income in question is an undisclosed income as per sec. 271AAB and particularly the explanation under section 271AAB defining the term undisclosed income the order passed by the AO is a non-speaking illegal order. He has further submitted that no undisclosed income was found durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls under the purview of section 271AAB, the impugned order passed by the AO is contrary to the provisions of the Act and, therefore, liable to be quashed. In the instant case no query was raised by the authorized officer during the course of recording of statement of assessee u/s 132(4) about manner in which undisclosed income has been derived and about its substantiation. In the absence of query raised by authorized officer, the AO was not justified in imposing penalty u/s 271AAB specially when offered undisclosed income had been accepted and due tax had been paid by assessee. The ld. A/R submitted that in section 271AAB the word may is used instead of shall so it is not mandatory but it is discretionary. Secondly, the intention of the legislature is clear by making the order passed u/s 271AAB as appealable order by amending sub clause (B) of clause (hb) of section 246A w.e.f. 01.07.2012 that it is discretionary and not mandatory to give relief to the assessee where the authorities have not used their discretion to provide relief to the assessee. It is settled position of law that penalties are not compulsory, not mandatory but are always discretionary considering the over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Sandeep Chandak (Allahabad High Court) ITA No. 122 of 2017 dated 27.11.2017. DCIT vs. Madan Lal Beswal (ITAT Kolkata) in ITA No. 1475/Kol2015 dated 14.3.2018. ACIT vs. M/s. Marvel Associates (ITAT Vizag) in ITA No. 147/Vizag/2017 dted 16.03.2018. DCIT vs. Shri R. Elangovan (ITAT Chennai) in ITA No. 1199/CHNY/2017 dated 05.04.2018. ACIT vs. Mothukuri Somabrahmam (ITAT Vizag) in ITA No. 126/Vizag/2017 dated 16.03.2018. The ld. A/R submitted that in view of the aforesaid discussion and various case laws cited above the penalty in this case would not be levied because of the following facts :- (i) There is no valid ground given in the assessment order for initiating penalty proceedings. (ii) The initiation of penalty is statutorily defective. (iii) The assessee filed the return in good faith and surrendered income to purchase peace of mind and avoid litigation. (iv) Assessment has been completed accepting the income declared by the assessee. (v) If at all there is any default it is technical. There is virtually no concealment of income. No particulars of income have been filed inaccurately. 3.3. On the other hand, the ld. D/R has submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of the assessee, a loose paper was found and seized containing various entries of advances/loans given to 8 (eight) persons. The rate of interest against each entry is also mentioned. Thus it is clear that the seized document contains the principal amount of loan given by the assessee to various persons total amounting to ₹ 1,01,10,000/-. The assessee in his statement recorded under section 132(4) has disclosed an income of ₹ 1,01,10,000/-. The assessee has also surrendered an income of ₹ 2,50,000/- on account of interest on surrendered income. In the return of income the assessee has offered the said income of ₹ 1,03,60,000/- which includes the principal loan amount and interest of ₹ 2,50,000/- to tax. The AO accepted the returned income except a disallowance of claim under section 80C of ₹ 9,400/-. Subsequently, the AO initiated the proceedings under section 271AAB of the Act by issuing the show cause notice dated 23rd March, 2016 and again by notice dated 12.08.2016. The assessee objected to initiation of penalty proceedings as well as levy of penalty proposed by the AO, however, could not succeed. The AO imposed the penalty of ₹ 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AA B of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :- 271AAB. ( 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 49[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President50], 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not covered under the provisions of clause (a).] ( 2) No penalty under the provisions of 53[section 270A or] clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) 52[or sub-section (1A)]. ( 3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation .- For the purposes of this section,- ( a) specified date means the due date of furnishing of return of income under subsection (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; ( b) specified previous year means the previous year- ( i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or ( ii) in which search was conducted; ( c) undisclosed income m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to E. Even the quantum of penalty leviable u/s 271AAB is also subject to the condition prescribed under clauses (a) to (c) of sub-section (1) and the AO has to again give a finding for levy of penalty @ 10% or 20% or 30% of the undisclosed income. Thus the AO is bound to take a decision as to what default is committed by the assessee and which particular clause of section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of section 271AAB stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed. Thus it was found by the Hon ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. Amit Agarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence. 6. The question whether levy of penalty under section 271AAB by the AO is mandatory or discretionary has been considered by the Visakhapatnam Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such assessee- (i) in the course of the search, in a statement under sub-section (4_) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity but it is to adhere to the principles of natural justice. Hon ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory . In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case. Thus the Tribunal has held that the levy of penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and shall be based on judicious decision of the AO. Hence we fortify our view by the above decisions of Tribunal in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? ( 2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? ( 3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of SSA s Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. 6. Since we have set aside the penalty order for the impugned assessment year, the appeal filed by the Revenue has become infructuous. In view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable. 8. Even otherwise, without restricting ourselves to the validity of show cause notice, we note that section 271AAB of the Act contemplates imposition of penalty pursuant to the disclosure of undisclosed income in the statement recorded under section 132(4) and, therefore, the levy of penalty under this section does not depend on the addition made during the assessment proceedings. Hence the penalty proceedings under section 271AAB are completely independent of the enquiry and finding of the AO in the assessment order except for the limitation provided as per section 275 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has not reported any business income nor it was assessed by the AO. Therefore, it is clear that the assessee was not required by any mandate of law to maintain regular books of accounts. In the computation of income, the assessee has shown income from Salary, income from house property and income from other sources. The returned income was accepted by the AO while framing the assessment under section 143(3) and hence assessee s case does not fall in the category where the regular books of accounts are mandatory. The entries of investment in real estate were found recorded in the diary and in the absence of any other document maintained in the normal course relating to the year under consideration, the entries in the diary are to be considered as recorded in the documents maintained in the normal course. It is not the case of the revenue that the assessee has recorded the other transactions in the other documents maintained in the regular course relating to the year under consideration and only these entries are recorded in the diary. Since the levy of penalty under section 271AAB is not based on the addition and enquiry conducted by the AO in the assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other documents would fall in the definition of undisclosed income in para 3 and 4 as under :- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We find that the issue involved herein is squarely covered in favour of the assessee in the case of DCIT vs Manish Agarwala (another member in the same Nezone Group) in ITA No. 1479/Kol/2015 for AY 2013-14 dated 9.2.2018 by the order of this tribunal, wherein it was held as under:- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has levied the penalty u/s. 271AAB on the ground that the income from commodity profit has been found during search u/s.132 of the Act which is not reflected in the regular books of account. The AO has accepted that during search the assessee has admitted u/s. 132(4) of the Act the income from speculative trading. The undisputed facts the AO has given finding pertaining to this case is as follows: i) The assessee has substantiated the manner in which the income was derived. ii) Furnished the return of income therein and iii) Paid the tax along with interest. Based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act uses the word may not shall . May cannot be equated with shall especially in penalty proceeding. Using the word may in our opinion, gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision. Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s. 271AAB of the Act is not mandatory and is discretionary. Before proceeding further, we note that the ex parte order passed by the Coordinate Bench relied upon by Ld. DR, Manoj Beswal, supra, have been recalled in MA Nos. 218 to 220/Kol/2017 dated 12.01.2018 by observing as under: By virtue of these miscellaneous applications, the assessee seeks to recall the order passed by this Tribunal in I.T.A. Nos. 1471, 1475 1476/Kol/2015 in the hands of Amit Agarwal, Madan Lal Beswal and Manoj Beswal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error that had crept in the order of the Tribunal. The first preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The third contention of the Ld. AR is that the assessee is an individual, who was drawing salary income. So, according to him, he need not maintain any books of account as per the Act. According to Ld. AR, undisputedly the assessee was engaged for the first time this AY only in trading of commodities, that too which was conducted in a nonsystematic manner and the income from it was duly offered to tax by the assessee in his return of income under the head Income from Other Sources , which, according to Ld. AR was accepted as such by the AO and drew our attention to page one of assessment order, (not the penalty order) wherein we note that the AO has acknowledged that the assessee owned up ₹ 3 cr. as his income from commodity profit and it has been disclosed in his income and expenditure for AY 2013-14 under the head income out of speculative business from sale of commodities , and thereafter the AO confirmed the assessee s claim and thereafter total income was assessed by the AO as per the return submitted by the assessee. In the light of the aforesaid facts discerned from assessment order, the assessee s case is that for the first time in this AY he was doing unsystematic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to incometax during such previous year,] keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act. ( 3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained. ( 4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall be retained.] So from a reading of the above provisions which clearly stipulates that assessee who are carrying on business or profession shall keep and maintain such books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cannot determine the head of income prescribed under chapter IV of the Act. Therefore, the observation of the AO in assessment order in the light of his action of accepting the statement of total income filed by the assessee along with return which without being contested, is erroneous, unless the AO was able to negate the claim of the assessee by bringing the income from commodity transactions as part of business income. It should be remembered that under the Income Tax Act 1961, the total income of an assessee individual /company is chargeable to tax u/s. 4 of the Act. The total income has to be computed in accordance with the provisions of the Act. Section 14 of the Act lays down that for the purpose of computation, income of an assessee has to be classified under five heads. It is possible for an assessee/individual/company to have five different sources of income, each one of it will be chargeable to Income Tax Act. Profits and gains of business or profession is only one of the heads under which an assessee s income is liable to be assessed to tax. If an assessee has not commenced business there cannot be any question of assessment of its profits and gains of business. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Total income assessed as per return ₹ 3,44,65,120/- . And further we note that the AO had specifically stated in the body of the assessment order vide column no. 10 that the assessee is having only salary income and income from other sources. Thus from a perusal of the assessment order, it is not in dispute that assessee is not engaged in any business. And the AO cannot change the character of income in a derivative proceeding which is an off-shoot of assessment proceedings i.e. the penalty proceedings without contesting and making a finding against the claim of the assessee in the assessment order as discussed above. 7. Finally, the Ld. AR submitted that during the search, the search party found the records of the assessee s transactions in speculative commodity from the drawer of assessee s accountant from which the AO could compute the income of the assessee from the said transaction which amount assessee declared during search and which was duly returned and which figure was accepted by the AO. According to Ld. AR, the fact that search happened on 01.08.2012 need to be taken note of since undisputedly there was enough and more time for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s transactions (in this case, the speculative transaction) has been found to be recorded in the other documents which is (retrieved from the assessee s accountant s drawer) and based on that the assessee declared ₹ 3 cr. during search and later returned income of ₹ 3 cr. as income under the head Income from Other Sources which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the other documents maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of ₹ 3 cr. offered by the assessee does not fall in the ken of undisclosed income defined in Sec. 271AAB of the Act. So, ₹ 3 cr. which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as undisclosed Income in the definition given u/s. 271AAB of the Act. Since ₹ 3 cr. cannot be termed as Undisclosed Income as per sec. 271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the Ld. CIT(A) on the aforesaid reasoning rendered by us. 8. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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