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TMI Blog2024 (12) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... books towards expenditure incurred also squarely meets the requirement of definition of undisclosed income appended in s. 271AAB - Assessee has, by his express conduct, has rather accepted the existence of undisclosed income. The plea of assessee towards non existence of any undisclosed income per se seeks to obfuscate reality and thus cannot be accepted. The existence of undisclosed income discovered in the course of search qua the specified previous year provides sound basis for applying s. 271AAB of the Act in the present case. The substantive and main ground of the assessee towards legality of imposition of penalty u/s 271AAB of the Act is thus liable to be dismissed. Legal requirement to specify the limb in the show cause notice which is claimed to be attracted in the instant case - Quantum of imposable penalty thus depends on appreciation of facts in perspective after taking the response of the assessee in account. It is, at times, difficult to pre-conceive and show cause the assessee qua the exact quantification of penalty at the initial stage of issue of show cause notice. Noticiably, for the purposes of s. 271AAB, there is no requirement in law to form any satisfaction [a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich remained unaddressed. It is trite that legislative casus omissus cannot be supplied by the judicial interpretive process. X X X X Extracts X X X X X X X X Extracts X X X X ..... r under Section 154 r.w. Section 153A r.w. Section 143(3) dated 14.06.2019 for the purposes of initiating and continuing proceedings under Section 271AAB of the Act instead of s. 271(1)(c) of the Act. 4. A show cause notice dated 14.06.2019 was issued to set the penalty proceedings under s. 271AAB(1) of the Act in motion. As a sequel to the show cause notice and response of the assessee thereon, the AO passed penalty order dated 19.06.2019 under clause (c) of erstwhile Section 271AAB(1) of the Act. The penalty was thus quantified at Rs. 15.60 cr. on undisclosed income being admitted amount of Rs. 52 Crore on account of unexplained credit liabilities towards fictitious purchase entries found and detected in the course of search. 5. The AO also similarly imposed penalty @ 30% amounting to Rs. 63,790/-on an addition of Rs. 2,12,640/- towards unexplained expenditure under s. 271AAB(1)(c) of the Act. Likewise, penalty of Rs. 2,71,350/- being 30% of the addition of Rs. 9,04,500/- towards unexplained money received, was imposed under s. 271AAB(1)(c) of the Act. 6. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) vide order dated 30.06.2021 endorsed the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under which limb of section 271AAB(1), the penalty was proposed to be levied." 10. To support the Additional Ground, the ld. counsel for the assessee contended that the above additional ground is purely a legal issue which strikes to the root of the matter. Hence, the legal ground, for which necessary facts are available on record, deserves to be entertained and adjudicated upon in the light of judgment rendered in the case of NTPC Ltd. vs. CIT, 29 ITR 383 (SC). 11. The assessee has also filed Cross Objection Memo [CO no. 59/Del/2023] wherein grounds akin to additional ground has been raked up. 12. The Grounds of Cross Objection of the assessee are also reproduced hereunder: "1. That the penalty of Rs.10,40,000 u/s.271AAB(1) of the IT Act as sustained by the Ld. CIT(A) out of Rs.15,63,35,140/- as imposed by the AO deserves to be deleted as the AO vide notice u/s.271AAB(1) dated 14.06.2019 did not specify as to under which limb of section 271AAB(1), the penalty was proposed to be levied." 13. The prayer for admission of additional Ground noted above which was not set forth in memorandum of appeal is being admitted for adjudication in terms of Rule 11 of the Income Tax [Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the details of creditor and thus prevented the revenue from making incisive investigations and connect the trail. A mere admission of unaccounted income in the course of search would by itself not exonerate the assessee from penal action. The penalty, if not imposed in such gross cases, would provide premium to such tax evader assessee who would get away by merely paying taxes which in any case, is bound to be paid. The penal consequence of such potential escape from lawful taxation is incumbent in such cases. The ld. CIT(DR) also pointed out that the notice issued to invoke s. 271AAB after completion of assessment is no impediment in law in the absence of requirement of holding satisfaction in the course of assessment unlike s. 271(1) (c) of the Act. Thus rectification of mistake to apply correct provision is not prohibited as long as the action of the AO is within permissible time limit. Rectification of basis of imposition of penalty with reference to s. 271AAB of the Act does not violate any provision of the Act. Furthermore, there is no requirement of specifying any limb to clause (1) of the s. 271AAB of the Act, in exclusion to other limb(s) or sub-clause(s) in the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g statement under s. 132(4) of the Act. In response, the assessee readily admitted under s. 132(4) that such amount has been entered in the books for the purposes of determination of profits as per profit & loss account and such amount denotes material purchase which goes to reduce the profts. On further enquiry seeking bifurcation and break up of such outstanding amount party wise and expense wise, the deponent of the statement categorically expressed his inability to provide any particulars of such amount to the extent of Rs. 52 crs. A query was further raised by the search team to caution that in the absence of any particulars on such amount made available, why such amount should not be taken as bogus purchase or bogus liability of the assessee wrongly entered in the books. As per the statement recorded, the assessee admitted the non existence of any liability and also volunteered to say that he is not liable to pay to the unidentified creditors against such liabilities found recorded in the books. The assessee readily agreed to offer a sum of Rs. 52 crore booked for the purposes of suppression of income as cessation of liabilities and further expressed his willingness to pay ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) thus granted partial relief. 16.3 Several pertinent questions have been raised by the assessee to assail the imposition of impugned penalty namely (a) whether penalty can be imposed under the shelter of s. 271AAB(1) in the backdrop of factual matrix narrated in the preceeding paragraph (ii) whether the AO is under statutory obligation to identify the specific limb of sub-section 1 to s. 271AAB at the threshold by way of show cause notice for the purposes of initiation of penalty under erstwhile section 271AAB? 16.4 On appraisal of facts noted above, it is ostensible that incriminating documents were admittedly found in the course of search which revealed that the assessee has indulged in recording unsupportable entries by way of material purchase and corresponding unidentifiable creditors to suppress true profits of the assessee concern. Likewise, entries for expenses incurred were not found recorded on or before the date of search in the books. Confronted with such tell-tale facts, the assessee admitted non existence of sundry creditors liability. The income arising from the incrementing documents found and admitted were included in the Return of Income filed after search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances with varied rate depending on gravity of conduct of the assessee. Different limbs/clauses of sub-section 271AAB provides for quantification of penalty having regard to the factual matrix. The incidence of penalty is lower where the assessee provides due cooperation in the matter of admission of undisclosed income and payment of taxes coupled with revealing manner of earning such income with substantiation thereof etc. This un- hindered co-operation from the searched assessee helps the deptt. to understand modus operandi of the assessee in earning impugned undisclosed income coming to surface owing to search as also indulgence of other parties in tax evasions. Where however, the assessee takes an ambivalent position to stonewall the incisive understanding on the matter, the quantum of penalty goes higher. The quantum of imposable penalty thus depends on appreciation of facts in perspective after taking the response of the assessee in account. It is, at times, difficult to pre-conceive and show cause the assessee qua the exact quantification of penalty at the initial stage of issue of show cause notice. Noticiably, for the purposes of s. 271AAB, there is no requirement in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... names provided in the list. The burden cast under clause (a) towards manner and substantiation is apparently not discharged. A muted list showing names of creditors cannot be regarded as compliance of providing 'manner' of generating undisclosed income as contemplated under clause (a). Be that as it may, it is a matter of record that the assessee has not provided any explanation towards 'substantiation' of the manner of deriving impugned undisclosed income. The AO, thus guided by the mandate of the Act, rightly invoked clause (c) of sub-section 1 to s. 271AAB of the Act. The CIT(A), on the other hand, acted contrary to statutory mandate and mere furnishing of a non descript list of creditors was regarded as sufficient compliance of clause (a) to justify imposition of penalty at concessional rate of 10% under that clause rather than 30% under clause(c). The revenue thus contends that the action of the CIT(A) seeking to reduce the incidence of penalty is devoid of legal and factual basis and hence calls for restoration of action of the AO. 18.3 Per contra, the assessee contends that imposition of penalty under s. 271AAB itself is bad in law owing to non compliance of pre-requisites ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause(a) to sub-section (1) of S. 271AAB of the Act is @10% of the undisclosed income provided, among others, the assessee admits presence of undisclosed income and specifies the manner in which such income is derived and substantiates the manner. Under clause (b) however, the assessee is made liable to pay penalty @20% of undisclosed income, where he does not admit the liability but ultimately declares such income in the ROI and pays taxes thereon. Significant here to observe, as per the phraseology of clause (b), there is no obligation fastened on the assessee to specify the manner and substantiation thereof unlike clause (a). There is third category in erstwhile clause (c) of subsection 1 to s. 271AAB which specifies penalty @30% of undisclosed income where situation is not covered by either clause (a) or clause (b). As a corollary, a person, who for any reason, fails to specify the manner of deriving undisclosed income, despite admission at the time of search itself gets trapped by higher penalty @ 30% under clause (c) owing to admission at the time of search, which is the case in the instant appeal. To put it differently, a person who does not admit undisclosed income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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