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TMI Blog2019 (4) TMI 1719X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee had claimed any inadmissible expenditure which would fall within the definition of undisclosed income as defined under the provisions of section 271AAB. Except the aforesaid disallowance made by the AO on debatable issues, there is no case of the Department in respect of any inadmissible expenditure claimed by the assessee which would cover the surrendered income of 14 cores. From the facts on the file, it is established that the aforesaid surrender of 14 crores was based on the mere statement of the assessee and nothing incriminating material which would constitute undisclosed income as per the provisions of section 271AAB was detected or found during the search action. In view of the various case laws as discussed above, the aforesaid amount for 14 cores would not fall in the definition of undisclosed income as defined under section 271AAB and, hence, the penalty is not leviable on the said amount under the provisions of section 271AAB. So far as the surrendered amount of 39.99 lacs is concerned, same was offered on account of profits on stock found short during the search action. Admittedly, the stock was found short during the search action. In fact, the Assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assesseein a statementrecorded u/s 132(4) of the Income Tax Act, 1961 during search action. This return was subsequently revised on 26-02-2015 declaring loss at ₹ 41, 50, 72, 313/- by adding a sum of ₹ 39, 99, 258/- on account of profit on stock found short. Both the amounts of ₹ 14.00 crores and ₹ 9, 99, 258/- were part of the total surrender of ₹ 80.00 crores made by SEL Group of cases while making a statement u/s 132(4) of the Income Tax Act, 1961. Assessment was framed by the Ld. Assessing Officer computing the total income at ₹ 33, 73, 75, 950/- after making various additions / disallowances vide order dated 30-03-2016. The Assessing Officer also issued a penalty notice under Clause (a) of Sec. 271 AAB asking the assessee to show cause as to why penalty be not imposed in respect of undisclosed income found/surrendered during search action. A detailed reply was filed vide letter dated 26-09-2016. The Ld. Assessing Officer after going through the reply passed an order u/s 271 AAB on 30-09-2016 whereby levied penalty under Clause (c) of Sec. 271AAB at ₹ 4, 31, 99, 747/-. 4. Being aggrieved by the above orderof the Assessing officer le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 271AAB and section 274 of the Income Tax Act are reproduced as under: "Penalty where search has been initiated 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 1stday of July, 2012, 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 search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived. (ii) Substantiates the manner in which the undisclosed income was derived; and (iii) On or before 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer. 9. It is pertinent to mention here that Co-ordinate Kolkata Bench of the Tribunal in the case of " M/s. Rashmi Metaliks Ltd." (supra) has extensively analyzed the aforesaid provisions of section 217AAB while further relying upon the decision of the Visakhapatnam Bench of the ITAT in the case of 'ACIT Vs. Marvel Associates'(supra) and other case laws. The relevant part of the said order of Kolkata Bench is reproduced as under: " At the outset we note that it has been the submission of the AO as well as the Ld. DR that the levy of penalty under Section 271AAB is mandatory and automatic and therefore in the matter of levy of penalty the AO had no discretion once the assessee admits of any undisclosed income in his statement u/s 132(4) of the Act. Such a view goes against the words used in section 271AAB and section 274 of the Act. For saying so we note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re formality but it is to adhere to the principles of natural justice. Hon'ble A.P. High Court in the case of RadhakrishnaVihar 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." 9. As far as to the judgment of the Hon'ble Allahabad High Court in the case of Pr. CIT Vs Sandeep Chandak (supra) is concerned, we note that the facts of the present case are distinguishable from the facts involved in that judgment. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of the word "undisclosed income" we find that in order to bring a receipt or specie of income within the meaning of the said expression, it is obligatory for the AO to demonstrate and prove that the income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in the course of search u/s 132 and which was not recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or otherwise not disclosed to the Commissioner before the date of search. From the bare perusal of the assessment order and the penalty order, we note that the assessee had voluntarily included ₹ 69 crores as its income for AY 2013-14. We however find that nothing has been brought on record by the AO which in any manner even suggested let alone proved with cogent material that the said income was actually represented either wholly or partly by any sum of money, bullion, jewellery or other valuable article or thing and which was found in the course of search. Since no sum of money, bullion, valuable or article equivalent to ₹ 69 crores was discovered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the said documents from which it could be construed that the income disclosed was relatable to documents seized in the course of search. ..…… ……..16. From the foregoing discussion and material on record, we find that applying both the limbs contained in clause (c) of Explanation to Section 271AAB, the additional income of ₹ 69 crores offered by the assessee through its joint declaration was neither represented by any assets found in the course of search nor represented by any entry made in the books of accounts or other documents or transactions found in the course of search. We therefore find that the income voluntarily offered by the assessee did not come within the ambit and scope of the expression 'undisclosed income' as defined for the purposes of Section 271AAB of the Act. 17. From the plain reading of Section 271AAB we find that the levy of penalty is permissible if and only if there exists 'undisclosed income'. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act is sine qua non for invoking penal provisions of Section 271AAB of the Act. Discovery and consequent assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances. In the instant case also the assessee had voluntarily offered sum of ₹ 1, 00, 00, 000/- to tax in his statement u/s 132(4) without any proof of concealment. The AO assessed such sum to tax solely based on the assessee's disclosure petition and there was no material brought on record to indicate that it was represented by any valuable asset or any entry found in any books or other documents seized in the course of search. The AO thereafter also levied penalty u/s 271AAB @ 10% which was deleted by Ld. CIT(A). On appeal this Tribunal upheld the order of Ld. CIT(A) by observing as under: "4. Learned Departmental Representative argued that the Assessing Officer had rightly imposed the impugned penalty in assessee's case @10% of his undisclosed income of ₹ 1 crore coming ₹ 10, 00, 000 in question. We find no substance in Revenue's instant arguments. We first of all make it clear that section 271AAB of the Act applies in relation to the impugned penalty @10% of the undisclosed income as stood defined in Explanation (c) thereto. There is no material in the case file to indicate that the assessee's undisclosed income represents any money, bullion, jeweller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly. The revenue did not find any undisclosed asset, any other undisclosed income or the inflation of expenditure during the search/ assessment proceedings. Though a loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. The amount of ₹ 3571/- mentioned in the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. The cost of construction in the projections projected at ₹ 2177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us by the ld. DR that the valuation report is based on the market price of the gold Jewellery prevailing on the date of search as against the cost or realization wherever is less. Therefore, the computation of excess stock based on the market price of the stock cannot be considered as undisclosed income of the assessee as it is the subject matter of regular assessment and cannot be regarded as undisclosed income based on incriminating material. There is no such fact either recorded during the search and seizure proceeding or in the assessment order or in the penalty proceeding to show that there was discrepancy in the stock as recorded in the books of account and found at the time of search. In the absence of any discrepancy in the quantity of stock the valuation of the stock is purely a question of assessment and cannot be held as undisclosed income detected during the course of search and seizure proceeding. Therefore, to the extent of excess stock based on the valuation report the disclosure of the income by the assessee would not fall in the category of undisclosed income as per explanation to Section 271AAB of the Act. It is not the case of the Revenue that any stock of je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the assessee in this case has surrendered as total income of ₹ 14, 39, 99, 158/- during the search action carried out at his premises u/s 132 of the Act, out of which₹ 14 crores was surrendered to cover any disallowance of expenses/additions, whereas, the remaining amount of ₹ 39, 99, 158/- was surrendered representing profit earned onstock found short. Thereafterthe assessee filed its return of income and duly included the surrendered amount in its income for the purpose of taxation. The Assessing officer carried out the assessment proceedings u/s 143(3) of the Act and independently scrutinized and verified the different heads of income and expenditure and computed the additional income of ₹ 33, 13, 304/- on account of stock found short duringsearch action, however, giving the assessee set off of amount of ₹ 39, 99, 158/- surrendered under the head 'profit onstock found short' added the balance amount of ₹ 2, 58, 20, 577/- into the income of the assessee on account of stock found short during the search action. Apartfrom that, the Assessing officer had made the additional disallowance of ₹2, 83, 98, 545/- under section 14A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. So far as the disallowance u/s 14A is concerned, the assessee had taken a plea before the Assessing officer that it did not earn any tax-exempt income during the year. Furthermore, that investments were made out of its own / interest free funds available with the assesseeand that no disallowance u/s 14A of the Act waswarranted. Similar plea was also taken by the assessee in respect of disallowance made u/s 36(1)(iii) of the Act that the advances/investmentswere made by the assessee out of its own/interest free funds available with it. A plea was also taken that the advances were given out of commercial expediency. So far as the disallowance u/s 36(1)(v) was concerned, a plea was taken that the contribution to Employees ProvidentFund was made within the stipulatedperiod and that no disallowance was attracted. 12. Considering the nature of disallowance made by the Assessing officer and the plea of the assessee, it is quite apparent that the issue of disallowance of expenditure on the aforesaid three issues was a debatable one and in fact in the light of the various decisions of the Hon'ble High Courts, the assessee has a fair case on merits and that it cannot be said that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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