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TMI Blog2019 (10) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the same belongs to such person. Cash was found from the locker of the wife of the assessee which means it was found from the possession and control of the wife and therefore, cannot be presumed to be belonging to the assessee. Accordingly, without considering the cash being an undisclosed income of the assessee as per definition provided in the explanation to Section 271AAB the levy of penalty in respect of such surrender made by the assessee is not sustainable. Hence, the same is deleted. Penalty is not automatic as a result of surrender made by the assessee but the A.O. has to first decide whether the surrender made by the assessee is falling in the definition of undisclosed income as provided in the explanation to Section 271AAB(1) - When the assessee has furnished explanation that the cash found from the locker of wife of the assessee is representing the past savings of the wife then in absence of giving a finding on the part of the A.O. that the cash actually belongs to the assessee and not to the wife, the levy of penalty U/s 271AAB of the Act is not sustainable and the same is deleted. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of the undisclosed income of ₹ 8,53,500/- U/s 271AAB of the Act. The assessee challenged the action of the A.O. before the ld. CIT(A) but could not succeed. 3. Before the Tribunal, the ld AR of the assessee has contended that a show cause notice issued by the A.O. is defective as the A.O. has not specified the provisions under which he proposed to levy the penalty. The notice was issued U/s 274 r.w.s. 271 of the Act and therefore, even the provisions of Section 271AAB of the Act were not mentioned in the show cause notice. Thus, the ld AR has submitted that the initiation of proceedings for levy of penalty U/s 271AAB of the Act are bad in law and consequently the order passed by the A.O. U/s 271AAB of the Act is liable to be quashed. In support of his contention, he has relied upon the following decisions: (i) Manjunatha Cotton & Ginning Factory 359 ITR 565 (ii) ITAT Jaipur Bench in the case of Shri Dinesh Kumar Agarwal Vs ACIT, Central Circle-1, Jaipur in ITA No. 855 & 856/JP/2017 order dated 24/07/2018. Further the ld. AR has submitted that the additional business income declared by the assessee in the return of income U/s 139(1) of the Act cannot be treated as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U/s 271AAB of the Act for undisclosed income of the specified previous year. Thus, even if it is taken that the last part of the defaults was intended by the A.O., though, it is not specified in the said notice. It begins with the phrase that "You have concealed the particulars of income or furnished inaccurate particulars of such income". Therefore, even the initiation of penalty proceedings U/s 271AAB of the Act as proposed in the said show cause notice is not based on the correct default on the part of the assessee. Though, the A.O. then again issued notice dated 07/07/2015 which as per the penalty order for granting an opportunity of hearing to the assessee and not initiation of the proceedings. Accordingly, the initiation of the penalty proceedings suffers from serious defects which are not curable. The Coordinate Bench of this Tribunal in the case of Shri Dinesh Kumar Agarwal Vs ACIT (supra) has held in para as under: "8. Having considered the rival submissions as well as relevant material on record we note that there is no quarrel on the fact that in the show cause issue U/s 271AAB r.w.s. 274 of the Act the AO has not specified the particular clause which is applicable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case 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 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53[section 270A or] 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) 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 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 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. High Court in the case of Radhakrishna Vihar 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." 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. 7. As regards the validity of notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of 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." Thus, the Tribunal in the said decision has arrived to the conclusion that the levy of penalty U/s 271AAB of the Act is not mandatory but the AO has discretion to take a decision and the same shall be based on judicious decision of the AO." Accordingly, when the A.O. has issued show cause notice without application of mind and without specifying the default as well as the levy of penalty in which clause of Section 271AAB(i) of the Act. The said initiation is illegal and liable to be quashed. 6. As regards the merits of penalty levied U/s 271AAB of the Act, there is no dispute that the cash of ₹ 8,53,500/- was found from the locker of the wife of the assessee and this fact is also manifest from the state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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