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TMI Blog2023 (3) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... of search, incriminating documents with respect to rental income received for FYs 2013-14 to 2019-20, were found and impounded. Further, the assessee was called upon to question the documents and in response to a specific question, the assessee admitted to have received rental income, but failed to disclose rental income in the return of income filed for relevant to assessment year. Therefore, we are of the considered view that had search not been conducted, the assessee would not have been disclosed income and thus, we are of the considered view that it is a case of misreporting of income as per provisions of Sec.270A(9) of the Act, and the AO has rightly levied penalty @200% of the amount of tax payable - no error in the reasons given by the Ld. CIT(A) to sustain penalty levied by the AO u/s.270A(9) - Decided against assessee. Penalty levied u/s.271AAB - rental income received from certain properties was not disclosed in the return of income filed for the impugned assessment years - assessee submitted that additions made towards rental income is on estimation basis without any reference to material found during the course of search in the possession of the assessee - HELD T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) erred in confirming the levy of penalty u/s 270A of the Act in consequence to the assessment completed in terms of Section 153C of the Act without assigning proper reasons and justification. 3. The CIT(A) failed to appreciate that the levy of penalty u/s 270A of the Act on the facts and in the circumstances of the case was wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law. 4. The CIT(A) failed to appreciate that having issued the show cause notice without incorporating the precise charge, the consequential levy of penalty should be reckoned as bad in law. 5. The CIT(A) failed to appreciate that in any event the presumption of under reporting in consequence of any misreporting of income was wholly unjustified and ought to have appreciated that the estimated rental income assessed would not attract the penal provisions under consideration automatically. 6. The CIT(A) failed to appreciate that the findings from para 4.2 of the impugned order were wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law. 7. The CIT(A) failed to appreciate that the reference to seized mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the assessee to explain as to why penalty for underreporting of income, cannot be levied. In response, the assessee submitted that mere admission of undisclosed income towards rental income, does not per-se leads to conclusion that there is an undisclosed income within the meaning of Section 270A Explanation-C which attracts penalty provisions. The assessee further contended that although, he had admitted undisclosed income towards rental receipts, but such rental income has been derived on the basis of estimation without there being any reference to incriminating material found during the course of search for those assessment years. Therefore, the question of levying penalty for underreporting of income does not arise. The AO after considering relevant submissions of the assessee and also taken note of statement recorded from the assessee during the course of search, opined that incriminating material found during the course of search, shows undisclosed income on account of rental income for the assessment year in question and further, in the statement recorded u/s.132(4) of the Act, the assessee has admitted undisclosed income. However, failed to disclose said income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C+EC on above Rs.1, 85,400 200% of the above Rs.3,70,800 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee challenged penalty levied u/s.270A(9) of the Act, on the ground that additions made towards undisclosed income on account of rental receipt is only an estimation, which does not warrant levy of penalty. The Ld.CIT(A) after considering relevant submissions of the assessee and also by relying upon the decision of the Hon ble Supreme Court in the case of MAK Data (P) Ltd. v. CIT reported in [2007] 161 Taxman 340 (SC), opined that additions made towards undisclosed income on account of rental receipts, is not on the basis of estimation, but quantification as per material found during the course of search. Further, had the search been not taken place, the income towards rental receipts would not have been disclosed. Therefore, he opined that there is no error in the reasons given by the AO to levy penalty u/s.270A(9) of the Act, for underreporting of income. The relevant findings of the Ld.CIT(A) are as under: 4.2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found that these are not relevant to the appellant case. In these decisions the penalty u/s 271(l)(c) for concealment of income was deleted by Hon'ble Courts and Tribunals where addition was made on estimation on total turnover or gross profit of the business. In the appellant's case the addition was made under the head income form, house property on the basis of extracts of the cash books which were seized during the search at Kolkata and Coimbatore containing details of unaccounted cash receipts and payments. In addition to this, section 23 of the act also gives a formula to determine the Annual Value of the property. In my considered view, this addition was not made on estimate basis. Thus, these case laws are not relevant to this case. The appellant failed on this ground. Therefore, I do not find any reason to interfere in penalty order of the AO, Hence, the penalty levied by the AO is confirmed. 6. The Ld. Counsel for the assessee submitted that the Ld.CIT(A) erred in confirming penalty levied u/s.270A(9) of the Act, without appreciating the fact that undisclosed income towards rental receipts does not have any nexus with incriminating material found dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of accounts, which is having a bearing on total income computed for the impugned assessment years. Therefore, in our considered view, it is a clear case of misreporting of income, which attracts penalty u/s.270A of the Act. In so far as arguments of the Ld. Counsel for the assessee that additions made towards undisclosed income is only estimation of rental receipts without any reference to incriminating material found during the course of search, we find that during the course of search, incriminating documents with respect to rental income received for FYs 2013-14 to 2019-20, were found and impounded. Further, the assessee was called upon to question the documents and in response to a specific question, the assessee admitted to have received rental income, but failed to disclose rental income in the return of income filed for relevant to assessment year. Therefore, we are of the considered view that had search not been conducted, the assessee would not have been disclosed income and thus, we are of the considered view that it is a case of misreporting of income as per provisions of Sec.270A(9) of the Act, and the AO has rightly levied penalty @200% of the amount of tax pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case was wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law. 4. The CIT(A) failed to appreciate that having issued the show cause notice without incorporating the precise charge, the consequential levy of penalty should be reckoned as bad in law. 5. The CIT(A) failed to appreciate that in any event the presumption of undisclosed income as a consequence to the search was wholly unjustified and ought to have appreciated that the estimated rental income assessed would not attract the penal provisions under consideration automatically. 6. The CIT(A) failed to appreciate that the findings from para 4.2 of the impugned order were wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law. 7. The CIT(A) failed to appreciate that the reference to seized materials was completely tangential as well as not relevant and hence ought to have appreciated that the assessment of rental income on the facts of the case was wrong, incorrect, erroneous, invalid, unjustified and not sustainable both on facts and in law. 8. The CIT(A) failed to appreciate that the search assessment completed in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts levy of penalty. The AO, however, was not convinced with the explanation of the assessee and according to the AO, during the course of search, the assessee had admitted undisclosed income in the statement recorded u/s.132(4) of the Act, towards rental receipts. However, does not reported said income in the return of income filed for relevant to assessment year and also paid tax together with interest, if any, in respect of undisclosed income. Therefore, the AO opined that it is a fit case for levy of penalty u/s. 271AAB (1A)(b) of the Act, @60% and thus, levied penalty of Rs.5,69,820/-. The relevant findings of the AO are as under: 6.0. I have perused the submission made by the assessee. However, the contention of the assessee is not acceptable. The case laws referred by the assessee are different and not applicable in assessee's case. It is pertinent to mention here that the undisclosed income of Rs.9,49,700/- was disclosed during the course of search proceedings and admitted in the statements recorded u/s 132(4). Had the search not been taken place, the assessee would not have been admitted Rs.9,49,700/- in the name of the assessee. There was undisclosed income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome based on the loose sheets recovered during the search and the appellant did not contest against this addition in appeal only with a view to purchase peace with the department. The appellant further submitted that, since the quantum addition itself was made on estimated basis therefore the penalty cannot be levied for misreporting of income derived on estimation. 4.2.2 The submission in support of the ground cannot be accepted as the appellant did not disclose the said rental income for taxation neither at the time of filing return of income u/s 139(1) nor in response to the notice u/s 153C of the act. Only during the course of search proceedings, the appellant accepted the rental income. Further, appellant's claim to purchase peace with department is an afterthought made by the appellant. Thus, it is very clear that the appellant's intention was not to disclose the income. Being not contesting the quantum addition in appeal forum does not show the co-operation view of the appellant and this cannot prevent the AO in levying the penalty u/s.270AAB for having undisclosed income found during the search. The AO also relied upon the judgement of the Supreme Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as undisclosed income is not based on any incriminating material found during the course of search in the possession of the AO. Further, estimated income towards rental receipt cannot be treated as undisclosed income. Thus, for the purpose of sec.271AAB of the Act, there must be two conditions for levy of penalty, as per which, there should be an undisclosed income and further, such income has not been recorded in the books of accounts of the assessee prior to the date of search. In this case, for assessment year in question, the date of filing of return has not been expired as on the date of search and thus, it cannot be said that rental income received by the assessee has not been recorded in the books of accounts. 16. The Ld. DR, on the other hand, supporting the order of the Ld. CIT(A), submitted that addition towards undisclosed income is not on estimation basis which is evident from the fact that although, the assessee purchased property in FY 2009-10, but rental income was not offered to tax in the return of income filed for the relevant to assessment year. Further, even for these two assessment years, the assessee would not have been declared rental income, had searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has admitted undisclosed income in a statement recorded u/s.132(4) of the Act, towards rental receipts received from two properties. No doubt, rental receipts from said properties has not been declared to Income Tax even for earlier assessment years, but facts remain that due date for filing return of income for the AYs 2019-20 2020-21 has not been expired on the date of search i.e. 30.04.2019, because, the due date for filing return of income u/s. 139(1) of the Act, for the AY 2019-20 expires on 31.07.2019 and for the AY 2020-21 expires on 31.07.2020. Therefore, when the due date for furnishing return of income was not expired as on the date of search, it cannot be said that rental income received from properties has not been disclosed for the purpose of tax before the date of search, more particularly, in respect of rental receipts. Because, had it been a case of the AO, undisclosed income offered pertains to any income or expenditure with respect to business and the assessee has maintained books of accounts for such business, but not disclosed such undisclosed income in the books of accounts maintained for that assessment year before date of search, then definitely it can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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