9911796707
TMI Blog2025 (2) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... result of search conducted u/s 132 and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB. Every offer of the assessee to pay tax on his income in the course of recording of statement u/s 132 does not amount to finding of 'undisclosed income'. A mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid litigation cannot amount to discovery of undisclosed income for the purposes of levy of penalty under section 271AAB of the Act. The stated penalty could be levied only in respect of the 'undisclosed income' as defined in Explanation (c) to the said Section 271AAB. In the present case, we arrive at a conclusion that there aforesaid notings were nothing but 'market adjustments' as pleaded by the assessee and the same would not fall within the expression 'undisclosed income' as defined in Explanation (c) to the said Section 271AAB since the same is not represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in their office in passing or not passing the impugned order, the mechanical approach in passing the impugned order by the original authority should be reckoned as bad in law. 5. The CIT (Appeals)-20 failed to appreciate that the additional sum assessed at Rs. 5,70,00,000/- was based on loose sheets recovered during search without any substantiating evidence and further failed to appreciate that the penalty initiated u/s 271AAB in consequence to the erroneous order passed u/s 153A was wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 6. The CIT (Appeals)- 20, Chennai failed to appreciate that the rejection of explanation of the Appellant would not lead to the automatic application of the penalty provisions under consideration, there by vitiating the impugned order imposing penalty and in this regard ought to have appreciated that the rejection of the bonafide explanation offered for the cash received from BS Enterprises would constitute reasonable cause in substantiating the plea of the appellant for use of discretion vested in their office to drop the proposal to levy of penalty despite the jurisdictional error committed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that though the quantum additions were accepted by the assessee, however, the same would not constitute undisclosed income and the same does not justify imposition of penalty. The Ld. CIT-DR also advanced arguments and controverted the arguments made by Ld. AR. The case was put up for clarification which was duly been responded to by both the sides. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee was subjected to search u/s 132 on 30-04-2019 based on which an assessment was framed u/s 153A on 17-07-2021. Proceedings before lower authorities 2.1 In response to notice u/s 153A, the assessee filed return of income admitting income of Rs. 120.68 Crores which was the same as income admitted in return of income filed u/s 139(1). However, during the course of assessment proceedings, the assessee admitted additional income of Rs. 570 Lacs to cover up details of cash receipt as mentioned on loose sheets as found during search in the premises of Shri Vijay Antonysamy. These sheets contained detailed of cash receipts from Shri Mahendra Bhai of B.S. Enterprises, Mumbai. As per l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Stockists 'B' and Adjustment paid to Stockist "A" Rs. 5,00,000 2.3 In support of the same, the assessee furnished a letter dated 30- 06-2021 from Shri Vijay Antony Samy clarifying the nature of transaction. It was submitted that the stockists who disbursed excess prize-winning money compared to their sale will face cash liquidity problem. On the other hand, the stockists who have disbursed less price-winning money compared to their sale will have excess cash. In such a situation, the distributor would act as an intermediary between the stockists who have excess cash and give it to stockists who are short in cash. Therefore, such payments are neither income or expense for the assessee rather it is a temporary adjustment done by the assessee to offset the liquidity problems faces by its stockists. Nevertheless, to avoid protracted litigation, the assessee admitted income of Rs. 570 Lacs and paid due taxes on the same. The assessee requested not to initiate penalty proceedings since the admitted income would not fall within the definition of "undisclosed income" as per explanation (c) to Section 271AAB. It was only market adjustment between stockists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 271AAB which read as under: (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} 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). 2.7 It was thus stated by the assessee that the income so surrendered has to qualify as undisclosed income as defined above which means that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 342 Lacs. 2.9 The assessee reiterated its submissions during appellate proceedings. However, Ld. CIT(A) observed that the assessee failed to file evidences that the amount received from M/s B.S. Enterprises was collected towards 'market adjustment'. The other distributor to whom the funds have been transferred had not been identified. The cash receipts were found recorded in the loose sheets which were not recorded in the books which lead to a conclusion that there was unaccounted income in hands of assessee as per Explanation (C) (i) (A). Accordingly, the penalty was confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 3. From the facts, it emerges that a loose sheet has been found during search proceedings u/s 132. The same contained details of cash receipt by the assessee for Rs. 570 Lacs from M/s B.S. Enterprises who acted as lottery tickets stockists for the assessee. It was explained by the assessee that the receipts were on account of 'market adjustments' and the same do not partake the character of income for the assessee. The 'market adjustment' was stated to be a methodology to square-off the accounts of various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, the adverse adjudication confirming the penalty stem from the fact that the assessee has offered this income and paid due taxes on the same during the course of assessment proceedings The same has been done to avoid protracted litigation on the issue. 5. Pertinently, no incriminating material has been unearthed during search which substantiate the fact that the assessee do not have undisclosed income which is represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search in the books of account or not disclosed to the Principal Chief Commissioner of Income Tax before the date of search. We concur with the submissions that penalty u/s 271AAB was discretionary and would depend on the merits of each case. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB of the Act. Every offer of the assessee to pay tax on his income in the course of recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have been found to be so had the search not been conducted. Upon perusal, it could be seen that 'undisclosed income' in the explanation would mean any income which is represented wholly or partly by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or the other documents or transactions found in the course of a search under section 132 which has remained unrecorded or otherwise not disclosed to the specified revenue authorities. Thus, there is a clear and direct association between the income on one hand and assets / documents on the other hand found during the course of search. A logical deduction could be made that the 'undisclosed income' has to be necessarily represented by any money, bullion, jewellery or other valuable article or thing or any book entry or transactions found in the course of a search u/s 132 which has remained unrecorded or otherwise not disclosed to the specified revenue authorities. If the 'undisclosed income' is not repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of "undisclosed income" as defined u/s. 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged 'undisclosed income' maybe relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self-contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty referred to section 271AAB of the Act. It has been further observed that 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 a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the competent authority. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of 'undisclosed income' as defined under explanation to section 271AAB of the Act. 9. On a perusal of the provisions of section 271AAB, it is evident that the Section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income during the search action. The assessing officer has not initiated the penalty proceedings u/s 271AAB of the Act on the basis of or in consequence of the said search action, rather the assessing officer, has initiated the penalty proceedings during the assessment proceedings solely on the ground that the assessee has disclosed certain income from undisclosed sources in the return of income and paid due taxes thereupon. The relevant part of the assessment order in this respect is reproduced as under: "The assessee has filed return u/s 139 showing income of Rs. 2808270/-The assessee has disclosed income of Rs. 2179221/-during the year on account of undisclosed jewellery. Penalty u/s 271AAB is initiated." A perusal of the above reproduced relevant part of the assessment order reveals that the assessing officer has not mentioned about unearthing of any undisclosed income as defined u/s 271AAB of the Act during search action carried out at the premises of the assessee. In my view, the income declared by the assessee in the return of income or found or assessed by the Assessing officer in the assessment proceedings may be relevant for assessment of the income u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹50 Crores. Therefore, offer made by the assessee is not admitted on the basis of any material or document, bullion, etc. Therefore, as rightly found by the CIT(Appeals), this cannot be construed as undisclosed income for the purpose of levy of penalty under Section 271AAB of the Act. Hence, the CIT(Appeals) has rightly deleted the penalty levied by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. The facts of the present case match with the facts of the above case law of Chennai Tribunal. Similar is the decision of Ahmedabad Tribunal in Bharatkumar N.Parikh V/s DCIT (ITA No.2493/Ahd/2018; 23.09.2019). 15. Considering the ratio of all the decisions as aforesaid, we are of the considered opinion that Ld. CIT(A) has clinched the issue in the right perspective. Therefore, we confirm the impugned order, however, with enhancement. It could be observed that excess cash was found for Rs. 68.55 Lacs from the premises of M/s Kamachi Steel Ltd. which was owned up by the assessee and disclosure was made. Therefore, besides own cash, the assessee would be liable for penalty on this ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
