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TMI Blog2024 (3) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature (i) or (ii) as mentioned in the definition of Undisclosed Income prescribed in clause (c) of the Explanation to Section 271AAB. Faced with this situation, we have no hesitation in accepting assessee s claim that the penalty u/s 271AAB(1A) was not imposable in the light of judicial decisions. We therefore allow the grounds raised by assessees and delete the penalties imposed by AO in all cases. The assessees succeed in these appeals. - Shri Vijay Pal Rao, Judicial Member And Shri B.M. Biyani, Accountant Member For the Assessees : Shri Sumit Nema, Sr. Advocate with Shri Gagan Tiwari and Shri Arun Dwivedi, ARs For the Revenue : Shri Harshit Bari, Sr. DR ORDER PER BENCH: This is a bunch of four appeals by two separate assessees, assailing four separate appeal-orders all dated 29.12.2023 and all passed by learned Commissioner of Income-tax (Appeals)-3, Bhopal which in turn arise out of respective penalty-orders dated 28.06.2021/18.09.2021 passed by ACIT, Central Circle, Ujjain, stationed at Indore [ AO ] u/s 271AAB of Income-tax Act, 1961 [ the Act ] for Assessment-Years [ AY ] 2017-18 2018-19. 2. Since these appeals emanate from a common search on parties, the grounds take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vying penalty u/s 271AAB(1A) of the Act at the rate of 60% despite the fact that the manner and sum of additional income was admitted during the course of search in the statement recorded u/s 132(4) and offered to tax in the return of income. 3. The background facts leading to these appeals are such that a search u/s 132 of the Act was conducted by revenue authorities upon one Shriji Polymers (India) Ltd. Group including assessees on 27.07.2017 pursuant to which assessments were framed u/s 153A/143(3) of the Act. During search, a lump sum surrender of Rs. 3,50,00,000/- was made by/on behalf of assessees. Thereafter, honouring such surrender, each of the both assessees declared additional income of Rs. 25,00,000/- in AY 2017-18 and Rs. 1,50,00,000/- in AY 2018-19 in their respective returns, thus aggregating to Rs. 3,50,00,000/-, and paid applicable taxes. The AO, while passing assessment-orders u/s 153A/143(3) taxed those additional incomes as such without any change. Thus, there was no dispute between assessee and AO for taxation of income. However, the AO initiated proceeding for imposition of penalties u/s 271AAB qua the additional incomes and issues show-cause notices. In respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required. 7. Then, the Ld. AR drew us to the penalty-order passed by AO which reads as under: 4.1 I have carefully considered the reply of the assessee. The claim of the assessee that it had voluntarily disclosed the aforesaid income just to buy peace of mind is not acceptable. Had the survey/search proceedings as narrated hereinabove not been carried out, the assessee would not have offered the aforesaid income for taxation. The disclosure made by the assessee is a direct consequence of the survey/search operation conducted by the department. If the assessee had wanted to buy peace of mind, he would have made disclosure before the survey/search operation. This is merely a tactic of the assessee for escaping the penal proceedings. 4.2 Further, the assessee has claimed that during the survey/search operation, no corroborating document was found, which can prove that there is any undisclosed income. This also is not acceptable. If that was the case, there was no need to the assessee to offer the income for taxation. No prudent person would offer any income to tax, which he has not earned either in disclosed or in undisclosed form. The disclosure made by the assessee is itself an evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on,- (a) specified date means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) Specified previous year means the previous year- (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished 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 Principal Chief Commissioner or Chi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idential premises of the Shriji Polymers (India) Ltd group on 27.07.2017. During the course of search operation, the appellant made a disclosure of income in the statement recorded u/s 132(4) and offered the same to tax. The Ld AO initiated penalty proceedings u/s 271AAB of the Act against the appellant and levied penalty of Rs. 15,00,000/- for the year under consideration. In the penalty order, the Ld AO stated that the appellant has made voluntary disclosure in his statement u/s 132(4) of the Act and since all the conditions for levying penalty u/s 271AAB were being satisfied, the same had been levied. 4.1.3 . In his turn, the counsel of the appellant has taken the following plea:- (i) The voluntary surrender was made by the appellant to secure peace of mind. Even though documents were impounded during the course of the search, none of these point to any undisclosed or suppressed income. The appellant stated that the income should be seen in terms of additional income offered for these years and not as undisclosed income. (ii) The explanation to section 271AAB of the Act defines undisclosed income and unless the income surrendered by the appellant falls within the ambit of this d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is seems to subserve. (c) To provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful. (d) An Explanation cannot in anyway interfere with or change the enactment or any part thereof, but, where some gap is left which is relevant for the purpose of the Explanation , in order to suppress the mischief and advance the object of the Act, it can help or assist the court in interpreting the true purport and intendment of the enactment. (e) The Explanation cannot take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. 4.1.6. Now, we will examine section 271AAB and more particularly the Explanation to section 271AAB which purports to give the meaning of Undisclosed Income for the levy of the penalty. Having looked at the penal provisions of the I.T. Act, it is clear that the income which is not shown by the assessee to the I.T. Authorities falls broadly into (a) underreported or misreported income (b) cases where particulars of income have been concealed or inaccurate particulars have been furnished (c) a residua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be established. The correct interpretation is that the explanation to section 271AAB does not seek to define undisclosed income exhaustively but only seeks to differentiate it from other species of suppressed income as enumerated in sections 270A and 271(1)(c). Undisclosed income as appearing in section 271AAB can be seen as a residual category which seeks to cover all the various manifestations of suppressed income which come to light as a result of a search operation u/s 132 and which do not fall within the ambit of suppressed income as defined in sections 270A and 271(1)(c). In the case of the appellant various loose documents and papers were impounded during the search and in light of the anomalies therein the appellant offered his undisclosed income for taxation in the statement recorded u/s 132(4). On being confronted with the various seized documents the appellant made a voluntary surrender because he was in possession of special and private knowledge of the undisclosed income represented by those documents. In order that the IT Department might not probe further, he offered the undisclosed income represented therein to tax and thereby brought further investigation to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2369; समर्पिक किया था जिसे मैं पुनः स्वीकार करता हूँ जैसा कि मैंने आयकर कार्यवाही के दौरान उक्त रु .9.24 करोड़ का bifurcation दिया था उसे एक बार पुनः दोहराता हूँ । (1) रु .44 लाख जिसे कार्यवाही के दौरान नकद बरामद किया गया था एवं विभाग ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;टल / प्रिमियम का proper justification नहीं होने से उक्त राशि को अपनी एवं अपने घरेलू मित्र श्री मुकेश का ( उनकी स्वीकृति ) से अघोषित आय के रुप में स्वीकार करता हूँ । (3) रु . 3.50 करोड़ को मेरे एव मेरे घरेलू मित्र श्री मुकेश रांका ( उनकी स्वì ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not acceptable for the detailed reasons given in the earlier part of this order. The appellant offered the Undisclosed income for taxation, duly paid the taxes thereon and furnished the return of income for the specified previous year declaring such undisclosed income therein. Since the appellant was unable to specify and substantiate the manner in which this undisclosed income had been derived, the Ld AO correctly imposed penalty u/s 271AAB (1A)(b) of the IT act 1961. The Ld AO s order is hereby upheld and the appellant s appeal is dismissed. 11. Referring to same, Ld. AR submitted that the CIT(A) has, although taken into account the assessee s submission qua the provision of section 271AAB(1A) read with Explanation thereto, but he has made a misinterpretation of those provisions. He submitted that in Para 4.1.4 to 4.1.6 of his order, the CIT(A) has made an unnecessary/wrong comparison of section 270A, section 271(1)(c) and section 271AAB so as to paint a picture that the Explanation to section 271AAB was not exhaustively defining the term Undisclosed income and thereafter, in next Para No. 4.1.7, went on observing that if the definition of undisclosed income is interpretated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 in I.T.A. No. 353/JP/2022 - Shri Paras Mal Jain v. The Dy. CIT, Central Circle I, Jaipur ITAT, Jaipur 3. Aeswarya Jain v. Dy. CIT, Central Circle Kota ITAT, Jaipur (2020) SCC online ITAT 2258 4. Vasudev Agrawal v. The Dy. CIT, Kota ITAT, Jaipur (2019) SCC online 5446 5. Order dated 30.08.2023 in I.T.A. No. 469/Mum/2023 - Shri Prafulla Shashikant Vaidya v. Dy. CIT, Central Circle-1, Thane ITAT, Mumbai 6. ACIT Central Circle-2, Vishakapatnam v. Marvel Associate ITAT, Vishakapatnam - (2018) 92 Taxmann.com 109 (Vishakhapatnam- Trib) 7. Smt. Aparna Agarwal v. Dy. CIT, Central Circle, Kota ITAT, Jaipur (2019) 105 Taxmann.com 233 (Jaipur Trib). 8. Lajwantiben M. Manglani v. Dy. CIT, Cir-I, Baroda 2020 SCC online ITAT 2690 9. Order dated 13.06.2018 - I.T.A. No. 971/JP/2017 - Anuj Mathur v. Dy. CIT, Central Circle 4, Jaipur - Jaipur ITAT 10. Shiv Bhagwan Gupta v. ACIT, Central Circle-I, Patna (2021) 125 Taxmann.com (Patna Trib) 11. Order dated 20.12.2021 - I.T.A. No. 125 126/Nag/2021 - Chandra Suresh Kothari v. Dy. CIT, Central Circle 2(2) - Nagpur ITAT 14. Ld. AR prayed that the case of assessee is squarely covered on facts and in law by the above decisions. Therefore, in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the assessee recorded under section 132(4) would not constitute incriminating material. Therefore, the said income disclosed by the assessee cannot be considered as undisclosed income in terms of section 271AAB of the Act. This Tribunal in the case of Ravi Mathur vs. DCIT (supra) while considering an issue of levy of penalty under section 271AAB has held 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 Rs. 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 of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (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 the undisclosed income; (c) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, 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. The section begins with the stipulation that the AO may direct the assessee shall pay by way of penalty if the conditions as prescribed under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ble High Court after considering the fact that the show cause notice issued by the AO though mentions section 271(1) in the caption of the said notice, however, the body of the show cause notice clearly mentions section 271AAB, which was fully comprehended by the assessee as reveals in the reply filed by the assessee against the said show cause notice. Hence the Hon ble High Court has held as under :- The ld. A.Rs have also challenged that the caption of the notice men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 pari materia 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. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under: XXX Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, because the opportunity of being heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory . In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case. Thus the Tribunal has held that the levy of penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and shall be based on judicious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s. 274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside. 6. Since we have set aside the penalty order for the impugned assessment year, the appeal filed by the Revenue has become infructuous. In view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable. 8. Even otherwise, without restricting ourselves to the validity of show cause notice, we note that section 271AAB of the Act contemplates imposition of penalty pursuant to the disclosure of undisclosed income in the statement recorded under section 132(4) and, therefore, the levy of penalty under this section does not depend on the addition made during the assessment proceedings. Hence the penalty 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any business income nor it was assessed by the AO. Therefore, it is clear that the assessee was not required by any mandate of law to maintain regular books of accounts. In the computation of income, the assessee has shown income from Salary, income from house property and income from other sources. The returned income was accepted by the AO while framing the assessment under section 143(3) and hence assessee s case does not fall in the category where the regular books of accounts are mandatory. The entries of investment in real estate were found recorded in the diary and in the absence of any other document maintained in the normal course relating to the year under consideration, the entries in the diary are to be considered as recorded in the documents maintained in the normal course. It is not the case of the revenue that the assessee has recorded the other transactions in the other documents maintained in the regular course relating to the year under consideration 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the definition of undisclosed income in para 3 and 4 as under :- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We find that the issue involved herein is squarely covered in favour of the assessee in the case of DCIT vs Manish Agarwala (another member in the same Nezone Group) in ITA No. 1479/Kol/2015 for AY 2013-14 dated 9.2.2018 by the order of this tribunal, wherein it was held as under:- 3. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has levied the penalty u/s. 271AAB on the ground that the income from commodity profit has been found during search u/s. 132 of the Act which is not reflected in the regular books of account. The AO has accepted that during search the assessee has admitted u/s. 132(4) of the Act the income from speculative trading. The undisputed facts the AO has given finding pertaining to this case is as follows: i) The 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 condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly in penalty proceeding. Using the word may in our opinion, gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision. Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s. 271AAB of the Act is not mandatory and is discretionary. Before proceeding further, we note that the ex parte order passed by the Coordinate Bench relied upon by Ld. DR, Manoj Beswal, supra, have been recalled in MA Nos. 218 to 220/Kol/2017 dated 12.01.2018 by observing as under: By virtue of these miscellaneous applications, the assessee seeks to recall the order passed by this Tribunal in I.T.A. Nos. 1471, 1475 1476/Kol/2015 in the hands of Amit Agarwal, Madan Lal Beswal and Manoj Beswal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error 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 appearanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, he need not maintain any books of account as per the Act. According to Ld. AR, undisputedly the assessee was engaged for the first time this AY only in trading of commodities, that too which was conducted in a non-systematic manner and the income from it was duly offered to tax by the assessee in his return of income under the head Income from Other Sources , which, according to Ld. AR was accepted as such by the AO and drew our attention to page one of assessment order, (not the penalty order) wherein we note that the AO has acknowledged that the assessee owned up Rs. 3 cr. as his income from commodity profit and it has been disclosed in his income and expenditure for AY 2013-14 under the head income out of speculative business from sale of commodities , and thereafter the AO confirmed the assessee s claim and thereafter total income was assessed by the 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, accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p and maintain such books of account and other documents as may enable the [Assessing] Officer to compute his total income in accordance with the provisions of this Act. (3) The Board may, having regard to the nature of the business or profession carried on by any class of persons, prescribe, by rules, the books of account and other documents (including inventories, wherever necessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the form and the manner in which and the place at which they shall be kept and maintained. (4) Without prejudice to the provisions of sub-section (3), the Board may prescribe, by rules, the period for which the books of account and other documents to be kept and maintained under sub-section (1) or sub-section (2) shall 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) sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from commodity transactions as part of business income. It should be remembered that under the Income Tax Act 1961, the total income of an assessee individual /company is chargeable to tax u/s. 4 of the Act. The total income has to be computed in accordance with the provisions of the Act. Section 14 of the Act lays down that for the purpose of computation, income of an assessee has to be classified under five heads. It is possible for an assessee/individual/company to have five different sources of income, each one of it will be chargeable to Income Tax Act. Profits and gains of business or profession is only one of the heads 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of income in a derivative proceeding which is an off-shoot of assessment proceedings i.e. the penalty proceedings without contesting and making a finding against the claim of the assessee in the assessment order as discussed above. 7. Finally, the Ld. AR submitted that during the search, the search party found the records of the assessee s transactions in speculative commodity from the drawer of assessee s accountant from which the AO could compute the income of the assessee from the said transaction which amount assessee declared during search and which was duly returned 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: XXX According to the Ld. AR, from the facts and circumstances described above, since the assessee is not engaged in business or profession, he does not require to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the normal course, then it cannot be presumed that the assessee would not have disclosed the same in the return of income to be filed after about one year from the date of search. Hence, in view of the above facts and circumstances of the case as well as the various decisions on this point, we hold that the penalty levied under section 271AAB is not sustainable and the same is deleted. Thus the Tribunal has taken a consistent view that the penalty under section 271AAB is not automatic but the AO has to take a decision as per the provisions of section 271AAB and particularly in the light of the definition of the undisclosed income as prescribed in the Explanation to section 271AAB of the Act. We further note that this Tribunal has considered this issue in case of Shri Raja Ram Maheshwari vs. DCIT vide order dated 10th January, 2019 in ITA No. 992/JP/2017 in para 12 to 14 as under :- 12. Now, coming to another contention of the ld AR where he has challenged the findings of the ld. CIT(A) that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word may is used instead o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under: XXX 6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. 7. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is again a decision authored by same Judicial Member as forming part of this Bench, the ITAT observed and held thus: So far as the penalty u/s 271AAB is concerned, the AO has to take the decision after considering the explanation of the assessee and based on the facts and circumstances of the case as well as by considering the satisfaction of the conditions as provided u/s 271AAB of the Act. The Tribunal has held that levy of penalty u/s 271AAB of the Act is not mandatory but the AO has discretion to take the decision and the same shall be based on judicious decision of the AO. Therefore, the AO is required to first examine the facts and circumstances under which the assessee surrendered the income as well as the seized material to arrive at a conclusion that the income so disclosed by the assessee during the course of search and seizure proceedings falls in the definition of undisclosed income as provided in the Explanation to Section 271AAB of the Act. The definition of undisclosed income provided in clause (c) of Explanation to Section 271AAB Act contemplates any income represented by any money, bullion, or other valuable article or thing or any entry in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 of the Act. 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 Rs. 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 of the Act. Hence, in the facts and circumstances of the case when income surrendered by the assessee does not fall in the ambit of undisclosed income as defined in Section 271AAB of the Act, the same would not attract the levy of penalty u/s 271AAB of the Act. Accordingly, the penalty levied by the AO is deleted. [Emphasis supplied] 19. Thus, the above decisions clearly hold that mere surrender by assessee during search does not constitute an incriminating material. It is further held that penalty u/s 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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