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TMI Blog2019 (6) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs an account of any other discrepancy or irregularity:- It is clear from the record that the assessee has made a surrender of 50 lacs on account of any other irregularity or discrepancy if any found. There is no dispute that no such discrepancy or irregularity was detected either by the department during search proceedings or by the AO during the assessment proceedings and penalty proceedings then mere surrender of the amount without any incriminating material or any undeclared assets it cannot be treated as undisclosed income of the assessee in terms of Section 271AAB. See SHRI RAJENDRA KUMAR GUPTA VERSUS THE DCIT, CENTRAL CIRCLE-2, JAIPUR. [ 2019 (1) TMI 1545 - ITAT JAIPUR] In the case in hand when no such discrepancy or irregularity was found by the AO then the mere surrender U/s 132(4) will not ipso facto attract the penalty U/s 271AAB until and unless the same is qualified as undisclosed income as per definition provided in the explanation to Section 271AAB. The levy of penalty U/s 271AAB is not mandatory but the AO is required to take a decision based on the facts and material and then to arrive to the conclusion that the income disclosed by the assessee falls in the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group. The assessee was also covered by the said search and seizure action and the statement of the assessee were recorded U/s 132(4) of the Act in which the assessee has surrendered a total sum of ₹ 9,92,49,633/- in his individual hands out of which ₹ 5,94,42,193/- was surrendered for the year under consideration which comprises of ₹ 4,82,24,630/- on account of expenditure on various real estate projects, ₹ 62,17,563/- on account of jewellery and silver items and ₹ 50,00,000/- towards any other discrepancy or irregulairity. The assessee filed his return of income on 29.09.2015 declaring total income of ₹ 6,09,09,790/- which included the amount surrendered during the course of search of ₹ 5,94,42,193/-. The Assessing Officer passed the assessment order U/s 143(3) r.w.s. 153B(1)(b) of the Act on 29.11.2016 accepting the return of income without making any additions or disallowance. The penalty proceedings U/s 271AAB of the Act were initiated vide show cause notice dated 29.11.2016. The assessee filed his reply to show cause notice vide letter dated 30.12.2016. The AO was not impressed with the reply filed by the assessee and levied the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of Coordinate Bench of this Tribunal dated 05.04.2019 in case of Shri Padam Chand Pungliya Vs ACIT in ITA no. 112/JP/2018 as well as decision dated 11.01.2019 in case of M/s Rambhojo's Vs. ACIT in ITA No. 991/JP/2017. The ld. AR has also relied upon the various other decisions on this point and submitted that the Tribunal has taken a consistent view that the levy of penalty U/s 271AAB of the Act is not automatic but the AO has to take a decision to impose the penalty after giving proper opportunity of hearing to the assessee. 4.1 Further, the ld. AR has submitted that the assessee is not doing any business activities of Real Estate but he is only a partner in partnership firms and director in a company which were engaged in the business of construction of residential complexes. Therefore, the amount declared by the assessee during the statement recorded U/s 132(4) of the Act does not fall in the definition of undisclosed income as per explanation to Section 271AAB of the Act. The ld. AR of the assessee has submitted that a surrender of income was obtained from the assesssee under pressure through statements recorded u/s 132(4), even though, there was no necessity for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the profit can be declared only after end of the year. After the end of the year, final accounts are prepared and only after that profit can be ascertained. These firms/companies would have even otherwise recorded these expenditure/investments in the books of accounts. But during the course of search proceedings, the raiding party, in their zeal to obtain maximum surrender from the assessee, obtained surrender of these amounts in the hands of the assessee. Assessment has also been completed on the surrendered amount without going into the merits of the assessee. Thus, the ld. AR has submitted that the incriminating material recording the expenditure incurred in cash on various projects are the business activities of partnership firm and the company and therefore, those entries found in the loose papers do not represent any undisclosed income of the assessee when no business activity has been carried out of the assessee in respect of Real Estate business. Thus, firstly these are only expenses recorded in the loose sheet without any supporting bills and vouchers or other documentary evidence. Secondly no inquiry was conducted by the department to ascertain whether any actual asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the assessee. The above expenditure/investment per se represents an outflow of funds from the assessee. These capital investments and expenditures in the projects of the firms/companies and other capital assets cannot be treated as undisclosed income of the assessee in the context of section 271AAB read with the explanation thereto. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called purchase or expenditure cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. 4.2 Alternatively, the ld. AR of the assessee has submitted that the assesse was not required by law to maintain any books of accounts in his individual capacity. The assessee is not maintaining any books of accounts in his individual capacity. The returned income was accepted by the AO while framing the assessment U/s 143(3) and hence assessee's case does not fall in the category where the regular books of accounts are mandatory. There was no way he could have recorded above transactions in his books of accounts. The entries in the loose papers etc. should to be considered as recorded in the documents main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on account of any other irregularity the same cannot be treated as undisclosed income as no irregularity or discrepancy was found by the department at any stage either during the course of search and seizure or during the post search inquiry as well as during the assessment proceedings. When the Assessing Officer has not found any material or any irregularity or discrepancy then the said surrender of ₹ 50 lacs cannot be held as undisclosed income for the provisions of Section 271AAB of the Act. In support of his contention, he has relied upon the decision of this Tribunal in case of M/s Rambhojo's vs. ACIT (supra) as well as decision dated 18.01.2019 in case of Shri Rajendra Kumar Gupta vs. DCIT in ITA No. 359/JP/2017. 5. On the other hand, the ld. DR has submitted that the surrender is based on seized material which is incriminating material reflecting unaccounted cash expenditure as well as the jewellery was found in the possession of the assessee and therefore, the said amount of surrender falls in the definition of undisclosed income as per explanation to Section 271AAB of the Act. The ld. DR has emphasized that unaccounted expenditure found during the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularity or discrepancy. We will be deal each of the three items of surrender one by one. 6.1 Surrender of ₹ 4,82,24,630/- on account of unaccounted expenditure on various projects:- In the statement recorded U/s 132(4) of the Act the assessee has stated in response to question no. 4 about the source of his income as interest, remuneration from firms and salary from company. The assessee in response question no. 7 has also given the details of various firms and companies in which the assessee is partner as well as director. It is also explained that these companies were engaged in the business of real estate, construction of residential complexes and other related activities. Nothing was found or even brought on record by the department to show that the assessee has ever engaged in any business of construction of residential projects which are the activities of the various firms and company of the assessee. In reply to question no. 20 the assessee has again explained about the seized documents AS-2 page 13 being expense sheet of projects of Imperial Heights as well as summary sheet containing the entries of expenses in respect of M/s Richwell Enterprises Pvt. Ltd. and duly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n convenience the department has obtained the surrender from the assessee in his individual capacity instead of his capacity as the partner and director in those companies to disclose and surrender undisclosed income of various companies and partnership firms. There is no ambiguity about the identification of the particular expenditure pertains to a particular projects and in turn pertains to a particular firm or company therefore, a mere surrender by the assessee of the amount which does not belong to the assessee would not be treated as undisclosed income in terms of Section 271AAB of the Act. It is manifest from the record that the unaccounted expenditure pertains to the firm or the company in respect of whose projects the expenditure was incurred and found unaccounted. Therefore, in these fact and circumstances as emerged from the record we have no hesitation to hold that the surrender of ₹ 4,82,24,630/- on account of expenditure incurred for purchase of various construction material pertaining to the projects undertaken by the firm and the company in which the assessee is a partner and director cannot be treated as undisclosed income of the assessee. If the assessee as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of ₹ 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like ₹ 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there is an entry of some marble fixing of ₹ 5 lacs. From these entries in the alleged seized material, it is manifest that most of them are unrealistic as entry of ₹ 70 lacs is shown towards furniture which is highly impossible. Another entry of ₹ 45 lacs is shown towards steel. Thus from the notings of these papers it is clear that these are not entries representing the real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee. The Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. DCIT (supra) has considered the issue of out flow of funds from the assessee can be an undisclosed income for the purpose of section 271AAB of the Act in para 21 as under :- "21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to ₹ 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. 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 provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132(4) and offered in the return of income, 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 thereon deserved to be set-aside." Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc, which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called 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 entry in the books of account or other documents or transactions found in the course of a search under section 132. An investment 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 could be subsequent outflow by way of investment. Investment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside." A similar view has been taken by the Tribunal in a series of decision as relied upon by the assessee accordingly, in view of the above facts and circumstances of the case as discussed by us and following the earlier decision by this Tribunal the penalty levied U/s 271AAB of the Act in respect of the surrender made on account of unaccounted expenditure for various real estate projects belong to the firms and company and not to the assessee is deleted. 6.4 Surrender on account of jewellery and silver items found at the residence of the assessee of ₹ 62,17,563/-:- During the course of search and seizure the document exhibit-6 was found containing transactions of purchase of silver of ₹ 4,35,125/-. The assessee surrender half of the said amount in his hand and half was surrender of his son namely Vivek Shethia. Thus, the ld. AR of the assessee has surrendered an amount ₹ 2,17,563/-. Apart from purchase of silver the assessee has also surrendered of ₹ 60 lacs on account of the jewellery found in the bank lock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Further, when the assessee has declared the income of more than ₹ 15 lacs other than the surrendered made for the year under consideration then, the drawing of the assessee as well as other family members in the past 5 years is also required to be considered for the purpose of source of purchase of jewellery and silver. Thus without considering availability of the funds in the assessee being the income and drawings of the preceding year of assessee as well as other income of the family members the total quantity of the jewellery treated as undisclosed income of the assessee is not justified. The Coordinate Bench of this Tribunal in case of Shri Padam Chand Pungliya vs. ACIT (supra) has considered this issue in para 12 as under:- "12. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the jewellery found during the course of search and seizure action belongs to the assessee's family. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of jewellery and silver items is set aside to the record of the AO to verify and consider all the relevant facts as discussed above and then decide the same afresh at the giving an opportunity of hearing to the assessee. 6.5 The penalty in respect of surrender of ₹ 50 lacs an account of any other discrepancy or irregularity:- It is clear from the record that the assessee has made a surrender of ₹ 50 lacs on account of any other irregularity or discrepancy if any found. There is no dispute that no such discrepancy or irregularity was detected either by the department during search proceedings or by the AO during the assessment proceedings and penalty proceedings then mere surrender of the amount without any incriminating material or any undeclared assets it cannot be treated as undisclosed income of the assessee in terms of Section 271AAB of the Act. The Coordinate Bench of this Tribunal in case of Rajendra Kumar Gupta vs. DCIT (supra) has considered in para 22 as under:- "22. Regarding surrender of ₹ 17,20,000 made on account of other discrepancies if any found in the books of accounts, in absence of any such discrepancy so found by the Assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act has to be considered and decided in the penalty proceedings. Since the assessee has offered the said income in the return of income filed under section 139(1) of the Act, therefore, the question of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise and only when the AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Therefore, we do not agree with the contention of the ld. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 271AAB 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 course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (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 sub-section (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" 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 stipulate that the AO may come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec. 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AO as per the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of this Tribunal in case of ACIT vs. M/s. Marvel Associates (supra) in para 5 to 7 as under :- 5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est, 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 clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 case of ACIT vs. Marvel Associates." Thus the Tribunal has analyzed all the relevant provisions of the Act as well as various decisions on this point including the decision of Hon'ble Allahabad High Court in 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 pena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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