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TMI Blog2019 (4) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty is not valid and consequently the order passed u/s 271AAB is not sustainable and liable to be quashed. Levy of penalty u/s 271AAB being unjust and against the provisions of law - undisclosed income as perexplanation to section 271AAB(1) - HELD THAT:- The entries in the seized documents representing the payment on account of land in the absence of the other essential facts regarding the particulars of the land as well as the persons do not constitute undisclosed income of the assessee as defined in the explanation to section 271AAB. Accordingly, the penalty levied under section 271AAB by the AO and confirmed by the CIT (A) is not sustainable and liable to be deleted. Excess cash found in search and seizure - Having considered the facts and circumstances of the case that out of ₹ 21,20,000/-, the department has accepted ₹ 1,20,000/- as petty pocket money and from remaining ₹ 20,00,000/-, the assessee already stated that ₹ 7 to 8 lacs were already recorded in the books of account of the family members as well as of the assessee, then the balance amount of ₹ 12 lacs has to be considered in the light of the fact that the cash was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) is wrong, unjust and has erred in law in confirming penalty of ₹ 90,10,000/- imposed by the ld. Assessing Officer u/s 271AAB of the IT Act, 1961. 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them. Ground No. 1 is regarding validity of initiation of penalty proceedings under section 271AAB of the IT Act for want of specifying the default as per clause (a) to (c) of section 271AAB(1) of the IT Act. 2. The assessee is an individual deriving income from trading in shares and securities, LTCG and STCG on sale of shares and interest under the head Income from other sources. A search and seizure action under section 132(1) of the I.T. Act was carried out on 15th October, 2014 in case of Surana group, Jaipur in which the case of assessee was also covered. In the course of search and seizure action, certain documents were found and seized marked as Annexure-B Exhibit-1 containing the entries of advances for land and other loans/advances. In the statement recorded under section 132(4) of the Act the assessee offered an additional income of ₹ 9,01,00,000/- as recorded in the seized docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of penalty for which the assessee could put his defence. Thus in the absence of specific charge against the assessee, the assessee was not given the proper opportunity to counter the show cause notice issued by the AO as well as to file the cogent reply to the same. In the absence of any grounds specified in the show cause notice as well as any amount to be treated as undisclosed income of the assessee for the purpose of levy of penalty under section 271AAB, the initiation of penalty is not valid and, therefore, the consequential order passed under section 271AAB of the Act is also liable to be quashed. In support of his contention, he has relied upon the following decisions :- CIT vs. Manjunatha Cotton Ginning Factory 359 ITR 565 (Karnataka) Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka) CIT vs. SSA s Emerald Meadows 73 taxmann.com 248 (SC) Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018. Apart from the above decisions, the ld. A/R has also referred to a series of decisions on this point that penalty proceedings under section 271AAB is not mandatory but discretionary and the AO has to take a decision by considering the reply and explanation of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s below. 4.1. The ld. D/R has also relied upon the decision of Hon ble Allahabad High Court in case of Principal CIT vs. Sandeep Chandak and Others dated 27th November, 2017 in I.T. Appeal No. 122, 128 and 129 of 2017 and submitted that even otherwise if the show cause notice does not mention the section correctly it will not be invalid as the AO will get the benefit of section 292BB of the Act. The ld. D/R has also relied upon the decision of Kolkata Bench of the Tribunal in the case of DCIT vs. Amit Agarwal, 88 taxmann.com 288. 5. We have considered the rival submissions as well as the relevant material on record. During the course of search and seizure action under section 132 of the Act conducted on 15th October, 2014, the assessee disclosed income of ₹ 9,01,00,000/- in his statement made under section 132(4) of the Act. The said disclosure was made in pursuant to the entries on account of advances for land, excess cash and excess jewellery found in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :- Found from Annexure/Exhibit No. Relevant Page No. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para 4 to 6 as under :- 4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of ₹ 10,02,00,000/- in pursuant to the entries of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of ₹ 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the assessee would not have offered this income to tax if the sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specified date- (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if 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 51 [computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 52 [(1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 54 [Principal Chief Commissioner or] Chief Commissioner or 54 [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.] The section begins with the stipulation that the AO may direct the assessee shall pay by way of penalty if the conditions as prescribed under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assessee is fit for levy of penalty under section 271AAB and then only the quantum of penalty being 10% or 20% or 30% has to be determined subject to the explanation of the assessee for the defaults. 5. Before we proceed further, the decisions relied upon by the ld. D/R are to be considered. In the case of Principal CIT vs. Sandeep Chandak Others (supra) the issue before the Hon ble High Court was the defect in the notice issued under section 271AAB on account of mentioning wrong provision of the Act being 271(1)(c) of the Act. The Hon ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon ble High Court has held as under :- The ld. A.Rs hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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, notwithstanding anything contained in any other provisions of this Act, direct that, in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section. 7. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision of the AO. Accordingly following the earlier decision of this Tribunal in the case of Ravi Mathur vs. DCIT (supra), we hold that the levy of penalty under section 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB of the Act. 5.1. The second limb of challenging the validity of initiation of penalty proceedings for not specifying the ground and default in the show cause notice issued under section 274 has been considered by the Coordinate Bench of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para in para 7 as under :- 7. As regards the validity of notice under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We further note that in the case in hand, the AO in the show cause notice has neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty was proposed to be levied. For ready reference we reproduce the show cause notices issued by the AO under section 274 read with section 271AAB on 14th December, 2016, 10th March, 2017 and 15th May, 2017 as under :- NOTICE UNDER SECTION 274 READ WITH SECTION 271 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. Dated : 14.12.2016. To, Name Shri Gopl Das Sonkia Address 367, Sonkia Bhawan, SMS Highway, Opp. Tarkeshwar Mandir, Chaura Rasta, Jaipur. PAN BJQPS 9676 A Whereas in the course of assessment proceedings for the AY 2015-16 penalty proceedings were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of being heard in person or through Authorized Representative, you may show cause in writing on or before the date fixed for hearing on 25.05.2017 at 11.00 AM which will be considered before any such order (s) is/are made. Sd/- ( Kamlesh Kumar Meena ) Dy. Commissioner of Income-tax, Central Circle-2, Jaipur. Thus it is clear that all the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA s Emerald Meadows, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate Bench as well as Hon ble Jurisdictional High Court, this issue is decided in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the Board has time and again advised the taxing authorities to avoid obtaining an admission/confession of undisclosed income under coercive/undue influence. He has then referred to the Circular dated 18th December, 2018 and submitted that the CBDT has repeated its earlier instructions. Thus the ld. A/R has submitted that in the absence of any undisclosed income indicated or discovered on the basis of seized material, the disclosure made in the statement under section 132(4) is not sufficient to levy the penalty under section 271AAB of the Act. In support of his contention, he has relied upon the following decisions :- Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018. Dinesh Kumar Agarwal vs. ACIT ITA Nos. 855 856/JP/2017 dated 24.07.2018. Raja Ram Maheshwari vs. DCIT ITA No. 992/JP/2017 dated 10.01.2019. M/s. Rambhajo s vs. ACIT ITA No. 991/JP/2017 dated 11.01.2019. Rajendra Kumar Gupta vs. DCIT ITA No. 359/JP/2017 dated 18.01.2019. Thus the ld. A/R has submitted that even if the seized material discloses some outflow of funds from the assessee s hands, the same cannot necessarily be an income of the assessee. Therefore, in the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducted by the department to find out the particulars of the details or transactions for which the alleged advances were given by the assessee. The mere entries in these documents do not reveal the correct nature of transaction and the existence of the corresponding asset for which the alleged advances were given. The department has concentrated only to obtain the surrender from the assessee but no relevant question or enquiry was conducted to find out the particulars of the land and the full particulars of the persons to whom the advances were given. In the absence of the existence of the land for which the alleged advances were given, these entries alone would not ipso facto undisclosed income of the assessee. Even otherwise, these entries itself are not having any element of income but these are all expenditure entries and, therefore until and unless the full particulars of the land or the asset against which the advances were given is identified along with the persons to whom the advances were given, it would not be regarded as representing the undisclosed income of the assessee. Further, the advances given in the month of May, 2014 may not necessarily be representing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that such undisclosed cash advances represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 . A cash advance per se represents an outflow of funds from the assessee s hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132 , what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 271AAB of the Act. Accordingly, the penalty levied under section 271AAB by the AO and confirmed by the ld. CIT (A) is not sustainable and liable to be deleted. 9. As regards the excess cash of ₹ 20,00,000/- found during the course of search and seizure action, the ld. A/R of the assessee has submitted that the assessee has duly explained the course of cash as past savings. He has referred to the statement recorded under section 132(4) of the Act and submitted that in response to question no. 18 regarding the cash found during the search, the assessee has explained the source of the same and also explained that a sum of ₹ 7 to 8 lacs is already recorded in the books of account of the assessee and family members and an amount of ₹ 1,20,000/- representing the petty pocket money. Therefore, despite the source explained by the assessee, an amount of ₹ 20,00,000/- was disclosed due to insistence of the search party. The ld. A/R has submitted that the said cash does not belong to one person but belong to all the five family members. It was accumulated savings of all the five family members. The AO has accepted the returned income including the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs is recorded in the books of account of the five family members of the assessee as well as the assessee himself and, therefore, to that extent the cash found during the search cannot be treated as undisclosed income of the assessee. Hence in view of the fact that once the assessee in the statement explained the fact of cash of ₹ 7 to 8 lacs recorded in the books of account, then only the balance amount can be treated as undisclosed income. As regards the balance amount of ₹ 12 lacs, the ld. A/R has submitted that it represents the past savings of the family members of the assessee and not the cash of the assessee alone. We find merit in this contention that when the cash was found from the residence of the assessee and from different rooms of the house, then the savings of the other family members cannot be ignored while considering the undisclosed income on account of cash found at the residential premises of the assessee. From the statement recorded under section 132(4) itself, the department has pointed out that the cash was found from different rooms of the residential premises and, therefore, the benefit of past savings of other family members is required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as undisclosed income for the purpose of levy of penalty under section 271AAB. 13. On the other hand, the ld. D/R has submitted that once the jewellery was found at the residence and the assessee has admitted the fact that the jewellery was not recorded in the books of account, therefore, it is an undisclosed income of the assessee for the specified previous year for the purpose of section 271AAB of the Act. He has relied upon the orders of the authorities below. 14. We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other mater ..... X X X X Extracts X X X X X X X X Extracts X X X X
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