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TMI Blog2019 (4) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... her the advances so given to the farmers for purchase of wheat qualify as undisclosed income? - HELD THAT:- 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 on or before the date of search. 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. In light of above discussions and following the earlier decision of the Coordinate Bench of the Tribunal in the case of M/s Rambhajo vs ACIT (2019 (1) TMI 1057 - ITAT JAIPUR), we delete the penalty levied under section 271AAB of the Act on cash advances of ₹ 7,43,79,200 paid to farmers towards purchase of wheat. 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 Revenue is dismissed and the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whereas there is no incriminating material or evidence was found during search to prove that the assessee was having undisclosed income. c) the penalty was imposed by holding that the appellant surrendered the bogus long term capital gain while no long term capital gain was surrendered by the appellant. Therefore the penalty was imposed on incorrect and misconceived finding. d) there is no finding/reason/conclusion in the penalty order regarding imposing the penalty on income of ₹ 7,51,77,115/- declared in Income Tax Return. 4. On the facts and in the circumstances of the case and in law the CIT(A) erred in holding that the penalty u/s 271AAB of the Act is mandatory. 5. On the facts and in the circumstances of the case and in law the CIT(A) erred in not giving the finding on the allegation of AO that the appellant find in the position of mens rea and intention was of wrong doing that constitutes part of a crime. 2. Briefly stated, the facts of the case are that a search seizure operations u/s 132(1) were carried out on 02.07.2015 at the various premises of M/s Kota Dal Mill Group including the residential premises of the assessee. In his return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has to take a decision by considering all the conditions to be satisfied as provided under the said section. Since the disclosure and surrender of the amount does not fall in the definition of undisclosed income, therefore, the penalty under section 271AAB is not leviable in the case of the assessee merely because the assessee has declared and surrendered some income to tax. It was further submitted that it is undisputed that penalty is imposable under Section 271AAB on undisclosed income of the specified previous year . The word undisclosed income has been defined in the explanation (c) of the Sub Section-3 of Section-271AAB. 5. It was submitted that on bare perusal of the definition of undisclosed income given in the Income Tax Act, for the purpose of applicability of Section 271AAB(1), the characteristics, as prescribed therein shall have to be fulfilled. However, before testing upon the case of Appellant in the four corners of definition of undisclosed income as applicable for the purpose of Section-271AAB, it is submitted that case of Appellant is not related with any expenses, as such, there appears no need for any discussion pertaining to the explanation (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant during the impugned assessment year is not covered under definition of undisclosed income for the purpose of Section 271AAB(1), as prescribed under explanation (c) to Sub Section (3) of Section 271AAB. Even otherwise, it is no matter as to what is alleged but it is in fact has to be proved that the Appellant is having undisclosed income, within the meaning of section 271AAB, which is not in the instant case of Appellant, resulting proceeding ab initio void and deserves to be quashed. 6. It was further submitted that the contention of the Appellant that advance for purchase of wheat provided to the farmers, which was duly recorded in the diary and offered for tax during the course of search and seizure operation does not fall under the definition of undisclosed income as prescribed under explanation (c) to Section 271AAB (1), has also been endorsed in a number of judicial pronouncements such as that of ITAT Kolkata in case of Dy. Commissioner of Income Tax, Circle-2 (2), Kolkata V. Manish Agarwal, reported in (2018) 92 taxman.com 81 (Kolkata-Trib) wherein it was held as under: According to the ld. AR, from the facts and circumstances described above, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any eventuality or untoward incident in the family and the said savings were made during 20-25 years from the household expenses of the Appellant family and from petty gifts received time to time, which cannot termed as undisclosed income within the meaning of Section 271AAB. The same was offered for taxation only to avoid litigation. It was accordingly submitted that the penalty imposed by the AO and so sustained by the ld. CIT(A) should be deleted. 9. The ld DR is heard who has relied on the findings of the lower authorities and submitted that the case of the assessee clears falls in the definition of undisclosed income and the ld CIT(A) has already granted relief to the assessee by reducing the penalty from 30% to 10% and given the facts of the case, the order of the ld CIT(A) deserves to be sustained. 10. We have heard both the parties and perused the material available on record. This Tribunal is taking a consistent view that levy of penalty u/s 271AAB is not automatic in nature but the AO has discretion to take a decision after arriving to the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an undisclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions are regular business transactions which are required to be maintained in the regular books of accounts maintained in the normal course relating to such business and which has not been entered on or before the date of search. However, the question that remains is whether the advances so given to the farmers for purchase of wheat qualify as undisclosed income. 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 on or before the date of search. 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. A similar issue has been dealt by the Tribunal in case of M/s Rambhajo vs ACIT (ITA No. 991/JP/2017 dated 11.01.2019) wherein it was held as under: 39. Now, coming to surrender made on account of cash advances for land purchases in the statement recorded u/s 132(4) of the Act. During the course of search, a diary has been found wherein there are notings relating to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser value in the books of accounts, and such investments are deemed to be income of the assessee of the year in which such investments have been made, cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions are contained in section 69 and section 69B and therefore, the same could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings in the instant case. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been prov ..... 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