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TMI Blog2019 (2) TMI 1651X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with discovery of undisclosed income in the course or as a result of search. The expression undisclosed income for the purposes of levy of penalty u/s 271AAB has a definite and specific meaning and the said word or expression does not have any loose or colloquial meaning. Unless and until income offered to tax by an assessee comes within the mischief of undisclosed income and that too of the specified previous year it is not open for the AO to invoke provisions of Section 271AAB - Decided in favour of assessee. - I.T.A. Nos. 1608/Kol/2017 - - - Dated:- 1-2-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For The Appellant : Shri A. K. Singh, CIT, DR For The Respondent : Shri A.K. Tulsyan, FCA Ms. Shikha Agarwal, ACA ORDER Per Shri A. T. Varkey, JM This appeal is filed by the Revenue against the order dated 13/04/2017 passed by the Ld. CIT(A)-21, Kolkata for the AY 2013-14 deleting the penalty which was levied by the AO u/s 271AAB of the Income-tax Act, 1961 (in short Act ). 2. Briefly stated the facts of the case are that search and seizure operation unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and show cause notice u/s.271AAB r.w.s. 274 of the Act was issued. 4. In the penalty proceedings, vide its letter dated 21/09/2015 the assessee submitted that income of ₹ 69 crores declared voluntarily was not represented by any assets, jewellery, cash etc. found in the course of search or for that matter any document or papers which were impounded and seized in the course of search. It was therefore claimed that the income voluntarily offered did not qualify as undisclosed income as defined for the purposes of that section and hence no penalty was warranted u/s 271AAB of the Act. The Ld. AO was however of the opinion that unlike Section 271(1)(c) or 271AAA, the provisions contained in Section 271AAB were mandatory and automatic and once disclosure of income was made by an assessee in his statement u/s 132(4), then penalty had to be levied under Section 271AAB of the Act. According to AO the disclosure of ₹ 69 crores made by the assessee was with reference to seized documents bearing identification Mark RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7 and therefore it qualified as undisclosed income under Explanation (c) to Section 271AAB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is not mandatory to impose penalty u/s 271AAB in each and every case even if the assessee has made the default under the said provision. The Hon ble ITAT has held as under: We have also gone through the provisions of s. 271AAB and noted that this section specifies three different situations under which the penalty can be imposed on the assessee under different cls. (a), (b) and (c), the penalty has to be imposed on different rates. The A.O. has not specified in the notice in respect of which clause the penalty is going to be levied on the assessee. On this basis also, in our opinion, the penalty cannot be sustained. We further noted that the provisions of s. 271AAB are not mandatory which means that the penalty has (Sic-not) to be levied in each and every case wherever the assessee has made default as stated under cls. (a), (b) and (c) of the Act. Sub-s. (1) of s. 271AAB uses the word may not shall . May cannot be equated with shall especially in penalty proceedings. Using the word may in our opinion, gives a discretion to the A.O. to levy the penalty or not to levy, even if the assessee has made the default under the said provision. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 is allowed. 5. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 6. We have heard both the parties and perused the material available on record. The Ld. DR appearing on behalf of the Revenue submitted that in the present case it is not in dispute that the disclosure of ₹ 69 crores was made by the assessee in the course of search conducted u/s 132 of the Act. Not only the disclosure was made at the time of search conducted on 18.02.2013 but in the joint declaration dated 18.04.2013 the assessee along with Rashmi Cement Ltd SajjanPatwari HUF reiterated its admission of paying tax on the undisclosed income of ₹ 69 crores which was found as a result of search conducted against Rashmi Group. The Ld. DR also brought to our attention that not only such undisclosed income of ₹ 69 crores was included in the returned income but the assessee had also credited such undisclosed income in its Profit Loss Account for the relevant year. The Ld. DR submitted that once the assessee made a disclosure of income u/s 132(4) then in terms of provisions of Section 271AAB, levy of penalty was mandatory and therefore au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of Section 271AAB in a specified manner and therefore it was obligatory on the AO s part to prove that the income voluntarily offered came within the ambit and scope of the expression undisclosed income as defined in clause (c) of the Explanation. According to Ld. AR the voluntary offer made by the assessee to pay tax on income of ₹ 69 crores did not fall within any of the specified sub-clauses contemplated by clause (c) of the Explanation to Section 271AAB and therefore merely because the assessee had made offer to pay tax on income while recording his statement u/s 132(4) of the Act, that by itself did not lead to conclusion that income specified in the joint declaration u/s 132(4) was undisclosed income for the purposes of Section 271AAB attracting rigors of penalty under that Section. He further submitted that the offer to pay tax on the additional income of ₹ 69 crores was made and acted upon by the assessee in good faith on the assurance given by the search party that the assessee would not be visited with any penal consequences. The assessee was therefore under bona fide belief that since it had acted upon its bona fide offer and the income did not come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the coordinate Bench of this Tribunal at Jaipur in the case of Shri Ravi Mathur vs. DCIT in ITA No. 969/JP/2017 dated 13.06.2018 after taking note of the decision of the Hon ble Allahabad High Court (supra), had recorded following findings to hold that levy of penalty u/s 271AAB is not automatic. 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. SandeepChandak 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 have also challenged that the caption of the notice mentioned only Section 271 and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty 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 isparimateria 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 case where search has been initiated under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO. Hence we fortify our view by the above decisions of Tribunal in case of ACIT vs. Marvel Associates. 11. So for the reasons as aforerstated and relying on the Hon ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (supra), we cannot agree with the Revenue that the levy of penalty under Section 271AAB was mandatory and automatic. We further note that the penalty leviable under Section 271AAB must have necessary and proximate nexus with discovery of undisclosed income in the course or as a result of search. The expression undisclosed income for the purposes of levy of penalty u/s 271AAB has a definite and specific meaning and the said word or expression does not have any loose or colloquial meaning. Unless and until income offered to tax by an assessee comes within the mischief of undisclosed income and that too of the specified previous year it is not open for the AO to invoke provisions of Section 271AAB of the Act. We note that the expression undisclosed income has been defined in clause (c) and the said clause reads as follows: undisclosed income means - ( i) any income of the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 by the Revenue in the course of search, the additional requirement of the same being found not recorded in the books or other documents was redundant. We therefore find that the conditions prescribed in first limb of clause (i) of clause (c) of Explanation were not satisfied. 13. The second limb of sub-clause (i) provides that undisclosed income shall mean any income represented either wholly or partly by any entry in the books of accounts or other documents or transactions found in the course of search under Section 132 but which were 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 been disclosed to the Commissioner before the date of search. We find that even in respect of the second limb no material or evidence has been brought on record by the AO which showed that the income of ₹ 69 crores was represented by any entry in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: 4.4 Documents found/seized during the course of search: During the course of search, the following documents were found and seized from the premises mentioned below: 4.5 The assessee was asked to furnish page wise explanation of the documents seized. Reply furnished by the assessee has been examined with reference to the seized documents. 15. From the foregoing findings of the AO, we note that in the assessment order u/s 143(3), the AO had admitted that the assessee had satisfactorily explained the contents of the documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7 and there was no finding in the said assessment order which in any manner even suggested let alone proved that the income of ₹ 69 crores offered by the assessee in its return of income was relatable to or represented by the entries made in documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. In the course of appellate hearing the foregoing submission of the Ld. AR went un-rebutted from the Ld. DR who could not bring to our attention any specific noting in the said documents from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income means . The conscious use of the expression means in contradistinction to the use of word includes indicate that the Legislature intended to restrict the scope of penal provisions only to income which came within the ken of the said expression and not beyond. Applying the definition of undisclosed income to the income of ₹ 69 crores, we find that such income was offered in the statement recorded u/s 132(4) of the Act at the time of search. However only for the said reason, it could not be brought within the ambit of undisclosed income particularly when such income was not represented by any valuable asset or entry in books of accounts or which was not found as a result of search not recorded in the books. We therefore find much force in the Ld. AR s arguments that since the sum of ₹ 69 crores voluntarily offered to tax was not in the nature of undisclosed income, the levy of penalty u/s 271AAB was unsustainable. 18. In this regard we rely on the decision of the coordinate Bench of the Tribunal in the case of ACIT Vs KanwarSain Gupta in ITA No.538/Kol/2017 dated 29.06.2018 involving similar set of facts and circumstances. In the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated u/s 271AAB on account of search operation in issue conducted in assessee s case on 20.12.2012. He heavily relies upon assessee s admission stating his undisclosed income of ₹2,79,15,065/-. His case therefore is that the same formed sufficient reasons for the Assessing Officer to imposed the impugned penalty. We sought to know from learned CIT-DR as to whether the authorized officer had found any specified asset i.e. any money, bullion, jewellery or other valuable article or things as per explanation (c) forming of sec. 271AAB. There is no such material indicated during the course of hearing. We find that co-ordinate bench s order in ITA No.538/Kol/2017 in ACIT vs. Sri KanwarSain Gupta decided on 29.06.2018 declines Revenue s identical arguments para 3-4 follows as under:- 3. We now come to the impugned penalty proceedings. The Assessing Officer levied penalty in question in his order dated 23.02.2016 by quoting section 27lAAB of the Act on the ground that all the relevant conditions stipulated therein stood duly satisfied qua the above stated undisclosed income. The CIT(A) reverses the Assessing Officer's action as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, jewellery or valuable article or any entry in the books or other documents therein. We make it clear that we are dealing with a penalty provision in tax statute which is to be strictly interpreted. We therefore are of the opinion that the CIT(A) has rightly deleted the impugned penalty as the assesee's search statement nowhere indicated the corresponding undisclosed income as per specific requirement in the Act. The CIT(A),s findings under challenge deleting penalty in question are accordingly confirmed. We adopt above detailed reasoning mutatis mutandis to affirm the CIT(A) s findings under challenge deleting the impugned penalty. The Revenue s appeal in ITA No.1605/Kol/2017 fails therefore. 20. We may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 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, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of the lower authorities and cancel t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 jewellery was found which is not recorded in the books of account but the value of stock is computed based on the valuation report of the departmental valuer. Once the difference in the value of stock is only due to market price as against the cost of the said stock, the same will not fall in the ambit of undisclosed income as defined under clause-(c) of explanation -1 of section 271AAB of the Act. 19. Similarly the accrued interest of ₹ 20,00,000/- is also only estimated and not based on any incriminating documents. This amount was estimated as there were advances as per the entries of the seized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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