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TMI Blog2019 (11) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... en the mere notings of payment being advanced for land cannot be held as undisclosed income of the assessee. The Revenue has not made any efforts to ascertain the correct and proper particulars of the land and the person to whom the alleged payment was made by the assessee. Nothing has been brought on record to show that the assessee has finally acquired these lands by executing some documents or title deeds. When there is no acquisition of land then in the absence of the corresponding asset acquired by the assessee the mere noting of the advance which is out flow of the funds cannot be held as undisclosed income. In SHRI RAJA RAM MAHESHWARI VERSUS THE DCIT, CENTRAL CIRCLE-3, JAIPUR. [ 2019 (1) TMI 1546 - ITAT JAIPUR] Tribunal has consistently held that mere entries of advance for land cannot be treated as undisclosed income. Accordingly, following the decision of the Coordinate Bench and maintaining the rule of consistency we hold that the penalty U/s 271AAB is not sustainable in respect of the income surrender on account of advance for land because of alleged transactions do not fall in the ambit of undisclosed income as defined in explanation to Section 271AAB(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining the total income at the return income. Subsequently, the AO initiated the penalty proceedings U/s 271AAB of the Act and levied the penalty being 10% of the surrender amount of ₹ 6,02,85,000/-. The assessee challenged the action of the AO of levy the penalty U/s 271AAB of the Act before the ld. CIT(A) but could not succeed. 3. Before us, the ld. AR of the assessee has submitted that the ld. CIT(A) while confirming the penalty has held that the penalty U/s 271AAB of the Act is mandatory in nature and therefore, once the assessee has disclosed the undisclosed income during the statement recorded U/s 132(4) of the Act the penalty U/s 271AAB of the Act is automatic. The ld. AR has submitted that this finding of the ld. CIT(A) is contrary to the provisions of Section 271AAB of the Act as well as various decision on this point. Therefore, the finding of the ld. CIT(A) is contrary to the binding precedents and a consistent view taken by this Tribunal is not sustainable. He has referred to the provisions of Section 271AAB of the Act and submitted that sub- section (1) begins with the termed the AO may and therefore it is not a mandatory provisions but the AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional statement violates Board s circular F. No. 286/2/2003 dated 10.03.2003 whereby the CBDT has instructed the taxing authority not to obtain confession by using force rather focus and concentration should be given together the evidence. The CBDT has again reiterated its instruction vide F. No. 286/98/2013 dated 18.12.2014 therefore, it is against the spirit of law and instruction of the CBDT to obtain the surrender in the statement recorded U/s 132(4) of the Act. Alternatively, the ld. AR has submitted that when the assessee is not required to maintain the regular books of account then the notings in the diary will be treated as recording of the transaction in the other record regularly maintained by the assessee and therefore, it is not a case of not recording the transaction in the books of accounts or other record maintained by the assessee. Hence, the ld. AR has pleaded that the penalty levied U/s 271AAB of the Act is liable to be deleted when the surrender made by the assessee during the search and seizure action does not fall in the ambit of undisclosed income. The Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132(4). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. DR has further contended that as per explanatory note on Finance Bill, 2012 the provisions of Section 271AAB of the Act are mandatory in nature and the AO has no discretion but the assessee shall pay the penalty in addition to tax on the undisclosed income surrender in the statement recorded U/s 132(4) of the Act. The ld. DR has relied upon the decision of Hon ble Allahabad High Court in case of Pr. CIT vs. Shri Sandeep Chandak 405 ITR 648. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. As regards the penalty U/s 271AAB of the Act whether it is mandatory or discretionary this issue has been considered and decided by this Tribunal in a series of decisions including the decision in case of Ravi Mathur vs. DCIT (supra) as well as in case of Shri Raja Ram Maheshwari vs.DCIT (supra). In the case of Ravi Mathur vs. DCIT the Tribunal after considering an analyzing the provisions of Section 271AAB r.w.s. 274 and 275 of the Act has held in para 4 to 6 are as under:- 4. We have considered the rival submissions as well as relevant material on record. A sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 President 50 ], 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 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) fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings 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 come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 vs. M/s. Marvel Associates (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 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 shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, because the opportunity of being heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon ble A.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. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial on record that either in the past or in the subsequent year the assessee has carried out any business in his individual capacity in real estate. Further, entries as recorded in the diary on account of advance for land or very vague and showing only the rate and the amount paid without giving the particulars of the person to whom the alleged amount was paid for purchase of land or even without giving the details of the land for which these advances were paid by the assessee. It is also pertinent to note that the first entry is regarding the land on Tok Road upto 31th December, 2013 whereas the search was conducted on 04.09.2013 therefore, how the entry can be made upto 31.12.2013 prior to the date of search. Without going into the controversy whether these entries are artificial or actual payment made by the assessee when there was no asset actually acquired by the assessee or possessed by the assessee then the mere notings of payment being advanced for land cannot be held as undisclosed income of the assessee. The Revenue has not made any efforts to ascertain the correct and proper particulars of the land and the person to whom the alleged payment was made by the assessee. Noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 section 132, which 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 Principal Chief Commissioner or Chief Commissioner or 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. 21. During the course of search, a note book (diary) has been found wherein there are notings relating to advance given to various persons towards purchase of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made, cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions are contained in section 69 and section 69B and therefore, the same have to be applied in the context of bringing to tax such investments to tax in the quantum proceedings. The same 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. In light of the same, the undisclosed investment by way of advance for purchase of land can be subject matter of addition in the quantum proceedings, however the same cannot be said to qualify ..... X X X X Extracts X X X X X X X X Extracts X X X X
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