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TMI Blog2019 (1) TMI 1546X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the learned CIT(A) has erred in confirming the order of the Learned Assessing Officer u/s 271AAB of the Income Tax Act on the basis of notice dated 15.03.2016 which is void-ab-initio and issued without application of mind by the Learned A.O. without striking off the irrelevant portion of the printed show cause notice is bad in law." 3. The ld. AR has submitted that the above ground was taken before the ld. CIT(A), however, while filing the appeal before the Tribunal, the assessee has inadvertently not taken the same in his grounds of appeal. It was submitted that the issue raised in the additional ground is purely a legal issue and it goes to the root of the matter, the same should be admitted in the interest of justice. In support, reliance was placed on the decision of Hon'ble Supreme Court in case of National Thermal Power Corporation Ltd. Vs. CIT 229 ITR 383. The ld. DR is heard who has not raised any specific objection against the admission of the additional ground. After hearing both the parties and considering the material available on record, we find that the assessee has challenged basically the issue of show cause notice by the Assessing Officer, the said addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and trivial manner. In support, reliance was placed on the decision of Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory 359 ITR 565, the decision of the Coordinate Bench in case of Sandeep Chandak vs. ACIT 55 ITR Trib (Trib) 209 (Lucknow) and in case of Ravi Mathur vs DCIT (ITA No. 969/JP/2017 dated 13.06.2018). 6. The penalty proceedings are separate from assessment proceedings, which are initiated with the issue of notice u/s. 274 and culminate in the penalty order u/s. 271AAB of the Act. Further, there cannot be any dispute that the assessee should be confronted with the charge against him which is sine qua non for any valid penalty proceedings. It is only when the assessee is made aware of such a charge against him that he can present his contentions. Thus prescribing the charge in the penalty notice and penalty order is must. Absence of a charge in the penalty notice and not finding the assessee guilty of a clear offence in the penalty order vitiates the penalty order. 7. The question that arises for consideration is the nature of charge(s) specified under section 271AAB of the Act. Whether it provides for a singular charge of undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the penalty proceedings and consequent penalty order so passed by the AO. A similar view has been taken by the Co-ordinate Bench in case of Mahesh Kumar Jain & others (ITA No. 630/JP/17 & others dated 27.11.2017) wherein it was held as under: "10. The first and foremost question that arises for consideration is the nature of penalty provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c). In other words, whether these provisions provide for levy of penalty on account of separate and independent charges or these provision provide for levy of penalty for the same charge under section 271AAB, however, subject to satisfaction of the prescribed conditions, the quantum of penalty may vary as specified in the respective sub- clauses of 271AAB of the Act. 11. In this regard, we refer to the provisions of section 271AAB which are reproduced 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, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,- (a) a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner 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. 12. On reading of the above provisions, it provides that 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are unable to accede to the contention of the ld AR that the ld CIT(A) has erred in confirming the levy of penalty u/s 271AAB(1)(a) which provides for a separate and independent charge and comes under different section than the provisions of section 271AAB(1)(c) which has been specifically invoked by the AO." 9. Further, even for sake of argument, if it is assumed that primary charge of undisclosed income has to be read along with ancillary conditions and thus multiples charges have been prescribed in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB and where the Assessing officer has not stated the specified charge at the time of initiation of penalty proceedings, in our considered view, such uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order and so long as there is a clear finding in the penalty order, no infirmity can be said to arise in terms of initiating of such proceedings and subsequent penalty order. In this regard, reference can be made to the Three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s. 271(l)(c) of the Act on two or more additions/disallowances, one or more falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income', he must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'concealment of particulars of income' and also 'furnishing of inaccurate particulars of income' in the penalty order. If the charge is not levied in the above manner in all the three clear-cut situations discussed above in the penalty notice and also in the penalty order, the penalty order becomes unsustainable in law. 16. The Hon'ble Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory has held that a person who is accused of the conditions mentioned in section 271 should be made known about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. 20. Another crucial factor to be kept in mind is that the satisfaction of the AO as to a clear-cut charge leveled by him in the penalty notice or the penalty order must concur with the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand. 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been made, but the AO is not sure at the stage of initiation of penalty proceedings of the precise charge as to 'concealment of particulars of income' or "furnishing of inaccurate particulars of income'. In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order." 11. In the instant case, the notice initiating the penalty proceedings talks about initiation of penalty proceedings U/s 271AAB of the Act. However, while passing the penalty proceedings, the Assessing officer has given a 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 Coordinate Bench (supra), 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. In such a case, we donot see any infirmity in the initiation of penalty proceedings and consequent penalty order so passed by the Assessing officer and the contentions so raised by the ld AR in this regard cannot be accepted. Further, we find that the decision of the Coordinate Bench in case of Ravi Mathur (supra) so relied upon by the ld AR, has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd gone through the orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of penalty in the case of admission of income u/s 132(4) is mandatory. The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not mandatory but discretionary. The provisions of section 271AAB of the Act is parimateria with that of section 158BFA of the Act relating to block assessment and accordingly argued that the levy of penalty under section 271AAB is not mandatory but discretionary. When there is reasonable cause, the penalty is not exigible. The Ld. A.R. taken us to the section 271AAB of the Act and also section 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, notwit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAB cannot be levied when there is no variation of income between the assessed and returned income and in support, reliance was placed on various decisions. We are unable to accede to the said contention. The reason for the same is simple. The basis for levy of penalty is not the addition or enquiry made during the course of assessment proceedings rather the basis of levy is existence of undisclosed income which has been found during the course of search. The filing of return of income disclosing such undisclosed income is a subsequent event and such filing of return of income and disclosure of undisclosed income is not the primary condition or charge for levy of penalty under section 271AAB of the Act. The primary condition or the charge is undisclosed income found during the course of search. Further, the various decisions relied upon by the ld AR were rendered in context of penalty U/s 271(1)(c) and are thus distinguishable. 16. Another contention of the ld AR is that the Assessing Officer while levying the penalty U/s 271AAB(1)(a) of the Act has not specified the satisfaction of the conditions regarding admission of undisclosed income and also the manner in which such income h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper was found that does not indicate any suppression of income. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and other documents. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma vs. DCIT (2012) 32CCH 334 held that "with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable." The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, therefore the penalty levied by the Learned Assessing Officer and confirmed by the Learned CIT(A) deserves to be deleted. 19. In order to appreciate the aforesaid contention of the ld AR, we refer to the statement of the assessee recorded during the course of search u/s 132(4) and the relevant extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 21. During the course of search, a note book (diary) has been found wherein there are notings relating to advance given to various persons towards purchase of land. The notings describe the name of the persons, the amount advanced which ranges from Rs. 2 lacs to Rs. 24 lacs to 10 persons and the date of such advance during the period November, 2013 to February, 2014. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides, the said entries, there are no other document in terms of any agreement to sell, the description of the property which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in purchase of land cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed investment represents income by way of any ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein. In light of the same, the undisclosed investment by way of advance for purchase of land can be subject matter of addition in the quantum proceedings, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied deserve to be set-aside. 22. Regarding undisclosed investment in the construction of house, we find that such undisclosed investment has been worked out based on assessee's statement of approximate investment in the construction of house and after determining the amount which has been reflected in the books of accounts, and the difference has been estimated at Rs. 31,77,000. There has been nothing tangible in terms of any entries or documents relating to actual expenditure on construction of house which has been incurred which is found to be false during the course of search and therefore, penalty levied thereon deserve to be set-aside. 23. Regarding physical stock of metal jewellery, semi-precious jewellery and silver jew ..... X X X X Extracts X X X X X X X X Extracts X X X X
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