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TMI Blog2020 (8) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of valuation of such stock at the market value instead of cost and the same cannot be a basis to hold that it represent undisclosed income so defined in explanation to section 271AAB - In the entirety of facts and circumstances of the case and following the decision referred supra, the penalty levied u/s 271AAB is not sustainable as it doesn t satisfy the requirements as so prescribed under section 271AAB and the orders of the lower authorities are set-aside and the appeal of the assessee is allowed. - ITA No. 851/JP/2018 - - - Dated:- 7-8-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Sh. S. R. Sharma (CA), Sh. Rajnikant Bhatra For the Revenue : Smt. Rooni Pal (DCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-4, Jaipur dated 02.04.2018 wherein the assessee has taken the following grounds of appeal:- 1. That the Ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of ₹ 5,78,750/-imposed by the assessing officer u/s 271AAB of the Act. 2. That the CIT(A) is wrong and has erred in law in confirming the said penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the provisions provides for the quantum for levy of penalty depending upon facts and circumstances of the each case and the assessee contentions that he had made bonafide disclosure were not found acceptable. 4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who noted that the assessee has made disclosure of additional income and same was also offered in the return filed u/s 153A of the Act. It was further stated that intention of legislature was very clear that section 271AAB provides for mandatory levy of penalty on surrender of undisclosed income though quantum thereof may vary subject to fulfillment of certain conditions and thus, unlike section 271AAA, wherein immunity from imposition of penalty is possible subject to fulfillment of conditions, there is no immunity clause provided from penalty u/s 271AAB. It was accordingly held that the penalty u/s 271AAB is mandatory in nature and there is no discretion with the AO and the penalty so levied by the Assessing Officer was confirmed. Against the said findings, the assessee is now in appeal before us. 5. During the course of hearing, the ld. AR submitted that the penalty notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of search, in the statement recorded u/s 132(4) of the I.T. Act, 1961, the partner of assessee firm surrendered a sum of ₹ 57,87,509/- on account of alleged excess stock which was nothing but the difference in valuation of stock. No excess stock was found during the course of search survey. It is only difference in valuation of stock valued by registered valuer. It was submitted that it is an admitted fact that there is no identifiable/separable stock found which can be said as undisclosed. More particularly, assessee firm has no unexplained purchases or sales. There is no real income and no real excess stock. Without establishing real income, no penalty can be imposed presuming the hypothetical income. In the instant case, the surrender has been made on account of excess value of stock, it is not a case where during search, unaccounted sales or unexplained purchases have been found. Therefore, whenever the assessee will sell these stocks, the resulted profit will automatically get incorporated in its taxable profits. Under the facts and circumstances, in no case there would be any undisclosed income of the assessee, therefore, provision of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of search initiated under section 132 on or after the 1st day of July, 2012 or it provides for multiples charges as so contended by the ld AR in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB of the Act. On close reading of provisions of Section 271AAB, we find that the primary condition or charge for levy of penalty is the existence of undisclosed income for the specified previous year found during the course of search in the case of assessee. Once the said primary condition or charge is satisfied, for the purposes of quantifying the penalty, the Assessing officer has to examine the satisfaction of ancillary conditions as specified under clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB. Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the ancilliary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer. Further, the levy of penalty under Section 271AAB is not based on addition made and investigation/enquiry condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer has given a specific finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% on the undisclosed income found during the course of search and admitted in statement recorded u/s 132(4) of the Act. Therefore, we donot see any infirmity in the initiation of penalty proceedings and consequent penalty order so passed by the Assessing officer on this account and the contentions so raised by the ld AR in this regard cannot be accepted. 10. Now coming to another contention of the ld AR where he has challenged the findings of the lower authorities that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. In this regard, we again refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per sub-section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be applied in relation to penalty under this section which me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 12. In the instant case, therefore, what has to be determined is the income of such previous year which is represented by such stock of goods which is not found recorded in the books of accounts maintained by the assessee in the normal course relating to such previous year. Where the stock which is recorded in the books of accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and has rightly been brought to tax in the quantum proceedings which has since attained finality. However, as far as present penalty proceedings u/s 271AAB are concerned which is solely based on the search proceedings and anyways independent of the assessment proceedings, the Assessing officer is required to give a specific finding that there is an undisclosed income found during the course of search in terms of undisclosed stock and which has not been recorded in the books of account. The undisclosed stock could be in terms of physically identifiable stock not found recorded in the books of accounts or the stock not found recorded at the appropriate value so determined by the Assessing officer. In the instant case, we find that the Assessing officer has merely gone by the surrender statement where the stock has been valued at market price prevailing as on the date of search and has not examined the matter from the perspective of determining any excess stock and the cost of such stock which is not recorded in the books of accounts. There is no finding that there is any excess stock which has been physically found and which has not been recorded in the books of accounts as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er :- (a) Xxxx xxxxx xxxxx (b) Xxxxx xxxxx xxxxxx (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. Therefore, the stock which was found at the time of search and seizure was not disputed by the department t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sically weighing the jewellery. It was submitted by the ld AR that the said fact was duly brought to the notice of Assessing officer vide written submission dated 15.12.2015, however, the same has not been considered by the Assessing officer. In our view, given that the assessee has disclosed the whole of the amount surrendered during the course of search in its return of income, the amount so surrendered and disclosed in the return of income has rightly been brought to tax in the quantum proceedings. However, as far as penalty proceedings are concerned, the Assessing officer is required to give a specific finding that there is an undisclosed income found during the course of search and which has not been recorded in the books of account. In the instant case, we find that the Assessing officer has merely gone by the surrender statement and has not examined the matter from the perspective of determining the cost of such stock and the quantification thereof after allowing deduction for Chapadi, wax, etc. which is a well established step as part of valuation methodology of such kind of jewellery and which has been followed at other locations except at Jaipur. There is no finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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