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TMI Blog2023 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... o part of any other income of the assessee. It has been held that the AO has not recorded any satisfaction from the accounts of the assessee that the contention of the assessee that it has not incurred any expenditure for making investment is not correct. We find that the disallowance of expenditure u/s 14A doesn t represent any income of the specified previous year 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 which would not have been found to be so had the search not been conducted - there is no legal basis for sustaining the charge of undisclosed income found during the course of search and accordingly, there is no justifiable and legal basis for levy of penalty u/s 271AAB - Decided against revenue. - ITA NO. 165/Chd/2021 - - - Dated:- 6-1-2023 - Shri. Sudhanshu Srivastava, JM And Shri. Vikram Singh Yadav, AM For the Assessee : Shri Ashwani Kumar, C.A and Shri Bhavesh Jindal, CA For the Revenue : Shri Sarabjeet Singh, CIT, DR ORDER PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed as the same was not called for and that appropriate adjustment be made in this regard. However the AO did not take cognizance of the said submission and framed the assessment as per disallowance offered under Section 14A in the return of income so filed by the assessee. 4. Thereafter, in the appellate proceedings before the Ld. CIT(A), the assessee contended that the AO has failed to take cognizance of the said letter/submissions and further submissions were also made on the merits of the matter. The Ld. CIT(A) rejected the said contention and the submission so filed by the assessee holding that the issue of disallowance agitated by the assessee does not arise out of the order passed by the AO. Further, it was held that no discussion pertaining to this fact is emerging from the assessment order. 5. The assessee thereafter went in further appeal before the Tribunal and contended that the Ld. CIT(A) has wrongly and illegally rejected the additional claim put by the assessee. It was submitted that there was no bar on the assessee to claim refund or to put additional claim before the appellate authorities where the assessee under wrong notion or mistaken belief had off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the Ld. CIT(A) who, taking into consideration the decision of the Coordinate Benches and the appeal effect order passed by the AO, found the levy of penalty as unsustainable and has deleted the penalty vide the impugned order dt. 13/04/2021. Against the said findings and the order of the Ld. CIT(A), the Revenue is in appeal before us. 9. During the course of hearing, the Ld. CIT DR relied on the findings of the AO and referring to the surrender letter dt. 04/10/2013, which also found mention in the penalty order, submitted that the assessee itself has admitted and surrendered a sum of Rs. 80,00,00,000/- as additional income out of which Rs. 23,28,88,868/- was surrendered for A.Y 2013-14 to cover any discrepancy found in the seized documents during the course of search and also to cover any kind of discrepancy in the regular books of accounts and therefore the said sum of Rs. 23,28,88,868/- clearly falls within the meaning of undisclosed income as per the provision of Section 271AAB(3)(c)(ii) of the Act. 10. It was further submitted that the assessee had not specified in the surrender letter that the surrender was made under Section 14A for A.Y 2013-14 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en attributable to the activity of making investment from which the assessee has earned tax exempt income. 14. It was further submitted that the Coordinate Benches have rightly held that it is not the case of the AO that the aforesaid disallowance is attributable and relatable to any incriminating documents found during the search action or that the aforesaid surrender can be related to part of any other income of the assessee. It was accordingly submitted that the disallowance under Section 14A is not covered within the definition of undisclosed income for the purpose of levy of penalty under section 271AAB of the Act. 15. It was further submitted that where there is no disallowance of any expenditure under Section 14A as held by the Coordinate Benches and even the AO has given necessary appeal effect to the order so passed by the Coordinate Bench, the question of any undisclosed income surrendered by the assessee doesn t exist anymore and in absence of any undisclosed income, the question of levy of penalty under section 271AAB does not arise for consideration. Further reliance was placed on the Coordinate Benches decision in case of M/s SEL Textiles Limited Vs. DCIT (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing officer has stated in the penalty order is that the assessee has itself admitted in its statement u/s 132(4) and surrendered the same as additional business income to cover any discrepancies found in the seized documents during the course of search and also to cover any discrepancies in the regular books of accounts. In our view, where the admittance u/s 132(4) was the sole criteria for levy of penalty, what was the necessity for the legislature to provide a discretion to the AO in the matter of levy of penalty, provide for a specific definition as to what constitute undisclosed income and for the purposes of levy of penalty, provide for the satisfaction of charge of undisclosed income found during the course of search . The penalty provisions have to be strictly construed and the AO has to exercise his discretion judiciously and while doing so, the AO has to justify the charge of undisclosed income found during the course of search by leading demonstrable evidence found during the course of search, and in cases where such evidence is confronted to the assessee during the course of search and his statement is recorded, the AO is well within his rights to draw suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the footing that out of the total expenditure, some of the expenditure might have been attributable to the activity of making investment from which the assessee has earned tax exempt income. This is not the case of the Assessing officer that the aforesaid disallowance made by the Assessing officer u/s 14A of the Act is otherwise attributable / relating to the incriminating documents found during the search action or that the aforesaid surrender can be related to part of any other income of the assessee. Even otherwise it has been held time and again by various Courts of law that a retracted surrender of income without any corroborative or any relatable evidence of any undisclosed income of the assessee cannot be made sole basis for addition to the income of the assessee. Moreover, the amount offered as disallowance relating to this issue is on account of notional disallowance of expenditure which may be attributable to earning of tax exempt income of the assessee. Under the circumstances, even if an assessee surrenders some amount as disallowance u/s 14A of the Act or otherwise has offered certain amount under the provisions of section 14A of the Act, however later on, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has not earned any income not forming part of the total income and that the disallowance u/s 14A can not exceed the total tax exempt income earned by the assesse during the year. Reliance in this respect can be placed on various decisions of the Hon'ble High Courts including that of the Hon'ble Jurisdictional High Court of Punjab and Haryana in the case of CIT Vs. Winsome Textiles (2009) 319 ITR 204 (P H) and in the case of CIT Faridabad v. Lakhani Marketing INC 226 Taxmann 45 (P H); Hon'ble Delhi High Court in the case of Cheminvest Ltd Vs. ITO (2015) 378 ITR 33 (Delhi) and of the Hon'ble Gujarat High Court in the case of Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 and further of the Hon'ble Allahabad High Court in the case of CIT Vs. M/s Shivam Motors (P) Ltd (2014) 272 CTR (All) 277. 42. In view of the proposition of law laid down in the above referred to decisions and also considering the overall facts and circumstances of the case, in our view, it will be proper to restrict the disallowance u/s 14A of the Act, , for the respective assessment years upto the total tax exempt income earned by the assesse irrespective of the amount of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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