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TMI Blog2020 (3) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 10.00 lacs as unaccounted expenditure, the same would not fall in the ambit of undisclosed income as defined in explanation to Section 271AAB . A bare surrender of income not representing the money, bullion, jewellery or other valuable article or thing or any entry in the books of account will not be regarded as undisclosed income for the purpose of levy of penalty u/s 271AAB. In the case in hand, it is clear from the records that the assessee in his statement recorded u/s 132(4) of the Act has made a surrender of ₹ 10.00 lacs based on said seized materials marked as Annexure A-2 Page 60 to 62 which is Electric Plan and Site Map of the house. Therefore, in the absence of any undisclosed income revealed by said sized materials, the income surrendered by the assessee cannot be said to be undisclosed income for the purpose of Section 271AAB - Hence, when income surrendered by the assessee does not fall in the ambit of undisclosed income as defined in Section 271AAB the same would not attract the levy of penalty u/s 271AAB of the Act. - Decided in favour of assessee. - ITA No. 1129/JP/2019 - - - Dated:- 7-1-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O also initiated the penalty proceedings u/s 271AAB of the Act and levied the penalty of ₹ 3.00 lacs being 30% of undisclosed income of ₹ 10.00 lacs due to the reason that return of income filed by the assessee was belated beyond the time prescribed provided u/s 139(1) of the Act. The assessee challenged the action of the AO before the ld. CIT(A) and contended that income surrendered by the assessee of ₹ 10.00 lacs does not fall under the definition of undisclosed income as provided u/s 271AAB of the Act. The ld. CIT(A) did not accept the contention of the assessee and confirmed the penalty levied by the AO u/s 271AAB of the Act while passing the impugned order. 2.3 Before us, the ld.AR of the assessee referred to the seized material and submitted that it is nothing but only a site plan/ design of electric work and appliances of residential house No. 56, Rajeev Gandhi Nagar, Kota. The said documents found during search and seizure action does not reveal any undisclosed income or any unexplained expenditure. He has referred to the statement of the assessee and submitted that in Question No. 22, the searched party had confronted the seized documents to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to any coercive action or undue pressure on the department. It was voluntary statement of the assessee explaining the undisclosed income on account of unaccounted expenditure incurred on furniture and fixture and not entered in the books of account of the assessee. The ld. DR relied on the orders of the authorities below as well as the decision of Hon'ble Allahabad High Court in the case of CIT vs Sandeep Chandak, 405 ITR 648 (All.) 2.5 We have considered the rival submissions as well as relevant materials available on record. In the case in hand during search and seizure action u/s 132 of the Act, the assessee in his statement recorded u/s 132(4) of the Act had disclosed and surrendered income of ₹ 10.00 lacs on account of expenditure of furniture and fixture in the residential house situated at 56, Rajeev Gandhi Nagar, Kota in the name of assessee's wife Smt. Usha Jain. It is settled proposition of law that penalty u/s 271AAB of the Act is not mandatory in nature but the AO has to take the decision after considering all the facts of the case as well as to ensure that conditions as specified u/s 271AAB of the Act are satisfied. Thus the penalty u/s 271AAB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(1)(c) of the Act and then to consider the explanation of the assessee whether bonafide and beyond the control of the assessee for not fulfilling the said condition. Even there is no finding by the authorities below whether the amount in question falls in the ambit of undisclosed income as defined under clause (c) of the explanation to section 271AAB of the Act. Accordingly, in the facts and circumstances of the case, we note that an identical issue has been considered by this Tribunal in the case of Ravi Mathur vs. DCIT in ITA No. 969/JP/2017 dated 13.06.2018 in para 4 to 9 as under :- 4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of ₹ 10,02,00,000/- in pursuant to the entries of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 54 [Principal Chief Commissioner or] Chief Commissioner or 54 [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.] The section begins with the stipulation that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assessee is fit for levy of penalty under section 271AAB and then only the quantum of penalty being 10% or 20% or 30% has to be determined subject to the explanation of the assessee for the defaults. 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. Sandeep Chandak 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the penalty 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 is parimateria 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. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed income not recorded in the books of accounts does not exists, then the same has to be specified by the AO in the show cause notice and further the AO is required to give a finding while imposing the penalty under section 271AAB. Even if the AO is satisfied and come to the conclusion that the assessee has not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed . In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:- Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under section 271AAB are completely independent of the enquiry and finding of the AO in the assessment order except for the limitation provided as per section 275 of the Act. We have already held that the penalty is not automatic but the AO has to take a decision to impose the penalty after giving an opportunity of hearing to the assessee in terms of section 274 of the Act. Thus the AO in the proceedings under section 271AAB of the Act has to first decide that the conditions prescribed under the said section are satisfied for levy of penalty and then to further take a decision after considering the explanation of the assessee for non compliance of any of the conditions under clauses (a) to (c) of sub-section (1) regarding the quantum of penalty. The primary condition for levy of penalty is the existence of undisclosed income as per the disclosure made by the assessee under section 132(4). The term undisclosed income has been defined in Explanations to section 271AAB. Therefore, as per the definition provided in the Explanation, the undisclosed income may have various forms and the same is not recorded in the books of accounts or other documents maintained in normal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and only these entries are recorded in the diary. Since the levy of penalty under section 271AAB is not based on the addition and enquiry conducted by the AO in the assessment proceedings, therefore, it is incumbent on the AO to conduct a proper examination of facts, circumstances and explanation furnished by the assessee before arriving to the conclusion that penalty under section 271AAB is leviable and further whether it is 10% or 20% or 30% of such undisclosed income. Therefore, the AO is under statutory obligation to examine all the issues during the proceedings under section 271AAB after giving the assessee an opportunity to explain the charges/grounds on which the penalty is proposed to be levied. Hence it is a pre-requisite condition that the AO first specify the charges against the assessee and to make known the assessee of his default so as to afford an opportunity to explain the default/charges so brought against the assessee. Without considering the explanation of the assessee on the specific default, the order passed by the AO under section 271AAB suffers from serious illegality and therefore not sustainable in law. When a stringent action is provided in the Statute ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has substantiated the manner in which the income was derived. ii) Furnished the return of income therein and iii) Paid the tax along with interest. Based on the said finding, according to AO, the assessee satisfies the conditions enumerated in sec. 271AAB(i)(a) of the Act and thereafter levied ten percent of ₹ 3 cr., which have been deleted by the impugned order of Ld. CIT(A). 4. The Ld. DR brought to our notice that in the very same group case of Manoj Beswal Ors. the Tribunal had confirmed the levy of penalty and contended before us that penalty u/s. 271AAB of the Act is mandatory and therefore, according to Ld. DR, the Ld. CIT(A) erred in deleting the penalty by stating that the assessee did not had any mens rea not to disclose the amount in question. According to him, penalty has to be mandatorily levied u/s. 271AAB of the Act on the undisclosed income found during search. On the other hand, Ld. AR Shri Miraz D. Shah, supporting the decision of Ld. CIT(A) made contentions though taken up before the Ld. CIT(A) but has not been adjudicated on those averments, which the Ld. AR urges before us to consider while adjudicating the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rror that had crept in the order of the Tribunal. The first preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on 06.11.2017 and hence, the assessee could not be present on the said date by way of personal appearance. The second objection raised by the Ld. AR was that the Tribunal had stated in para 9 of its order that the assessee himself had accepted that he is engaged in commodities trading business and therefore mandated to maintain books of accounts in terms of section 44AA of the Act and thereby inferring that the assessee had reported the profit from commodities trading business under the head income from business or profession . Based on this crucial finding, the Tribunal had concluded that since the transaction of commodities trading had not been entered by the assessee in his books of accounts as on the date of search on 01.08.2012 and thereby it takes the character of undisclosed income for which penalty u/s 271AAB of the Act is exigible. In this regard, we find that the Ld. AR drew our attention to the computation of the total income wherein the assessee had offered income from commodity tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO as per the return submitted by the assessee. In the light of the aforesaid facts discerned from assessment order, the assessee s case is that for the first time in this AY he was doing unsystematic speculative activity which earned income and, it was brought under the head Income from Other Sources , and so, accordingly, he is not required to maintain books of account as stipulated in Sec. 44AA or Sec. 44AA(2)(ii) of the Act because, these provisions are only for assesses who are earning income under the head Business or profession . We note that Sec. 44AA or Sec. 44AA(2)(ii) of the Act casts a duty upon the assessee who are into Business or Profession and such assessee s are bound to maintain books of account as stipulated therein. For appreciating this submission let us go through the provisions of law. 44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be retained.] So from a reading of the above provisions which clearly stipulates that assessee who are carrying on business or profession shall keep and maintain such books of account and other documents which may enable the AO to compute the total income. We note that assessee in the statement of total income filed before the AO has shown income only under two heads (i) salary income (ii) income from other sources. We would like to reproduce the summary of total income of the assessee filed along with the return: Income from Salary ₹ 45,57,600 Income from Other sources ₹ 3,00,24,047 ₹ 3,45,81,647 6. We note that the AO has accepted the aforesaid statement of total income filed before him without contesting the claim of the assessee as to whether the assessee s claim of income other than from salary should be from Income from Business . The confusion that has arisen in this case, we note is on the misdirection of AO in the assessment proceedings wherein the assessment order of the assessee, the AO has observed duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under which an assessee s income is liable to be assessed to tax. If an assessee has not commenced business there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the assessee commences its business, its income from any other source will not be taxed as held by the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Ltd. Vs. CIT (1997) 227 ITR 172 (SC). It has been further held that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipt is principles of law and not in accordance with accountancy practice. Further, the Hon ble Apex Court held that the question as to whether a principal receipt is of the nature of income and falls within the charge of sec. 4 of the Act is a question of law which has to be decided by the Court on the basis of the provisions of the Act and interpretation of the term income given in a large number of decisions of the Hon ble Supreme Court, High Court and Privy Council. After taking note of the Apex Court order as above, we note that the AO in the assessment order after having accepted the statement of total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and which figure was accepted by the AO. According to Ld. AR, the fact that search happened on 01.08.2012 need to be taken note of since undisputedly there was enough and more time for the assessee to submit the accounts during assessment proceedings which fact has been taken note of and concurred by the Ld. CIT(A). Thereafter, the Ld. AR drew our attention to the definition of undisclosed income given under section 271AAB which reads 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 1st day 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- ******** Explanation For the purposes of this section, - (a) . (b) . (c) undisclosed income means- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since ₹ 3 cr. cannot be termed as Undisclosed Income as per sec. 271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the Ld. CIT(A) on the aforesaid reasoning rendered by us. 8. In the result, the appeal of the revenue is dismissed. 4. We find that the facts in the aforesaid case and the decision rendered thereon are squarely applicable to the facts of the instant cases before us and respectfully following the same, we dismiss the appeals of the revenue. Therefore, when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required to be examined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the diary which is nothing but the other record maintained in the normal course, thus the same would not fall in the definition of undisclosed income. Once the said income is found as recorded in the other documents maintained in the normal course, then it cannot be presumed that the assessee would not have disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out or not, was not the subject matter of the search and seizure action. The said seized documents also do not reveal the actual expenditure or tentative expenditure for carrying out the electric work as per plan. Thus the said seized documents in the absence of any other materials revealing the unexplained expenditure cannot be said to be an incriminating materials. The searched party has not made any allegation about the actual expenditure incurred by the assessee in the construction of residential house, if any. There is nothing either in the proceedings u/s 132 or in the statement recorded u/s 132(4) of the Act regarding unaccounted expenditure incurred by the assessee on construction of house. Further, there is no mention of the actual construction of the house by the assessee or the timing the construction period or completion of construction work. Even the alleged expenditure not recorded in the books of account is not based on any documentary evidence or even on physical verification of the Electrical items as well as furniture and fixture installed in the house of the assessee. When the said income is not represented by any money, bullion, jewellery or other valuabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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