9911796707
TMI Blog2022 (7) TMI 1576X X X X Extracts X X X X X X X X Extracts X X X X ..... y, during post search proceedings, the assessee group has agreed to offer lump sum Rs.40 Crore collectively to tax which has been confirmed by another assessee i.e., Shri Sardarmal M. Kothari in statement recorded on 14.02.2013 which is placed on page nos. 63 to 65 of paper-book. However, in this statement also, no incriminating material or documents have been confronted to that assessee. Imposition of penalty is not automatic but it would apply on peculiar facts and circumstances of each case. Merely because the voluntary admission has been made by the assessee which is not represented by any incriminating material found during the course of search action, the same would not justify the imposition of penalty. The principle of natural justice would demand that the aggrieved party is given an opportunity of hearing to defend its case. It is only after the defense of the accused has been considered, the authorities could proceed with penal consequences. Had the imposition of penalty been automatic, such an opportunity would have no relevance and no opportunity would be required to be given to the assessee. It is only after the assessee has been heard and Ld. AO finds it a fit case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied penalty @30% on the undisclosed income of Rs.10,00,00,000/- admitted during the course of search action u/s 132 of the I.T. Act, 1961 and also in its return of income. 2.3 The Id. CIT(A) ought to have appreciated the fact that the assessee filed its return of income for the year under consideration without paying self assessment tax as computed by him on the income declared. In spite of issuing notice u/s 139(9), the assessee failed to rectify his mistake. In this background, the return was treated as invalid and as such the return was treated as if it was not filed. Accordingly, the assessment was completed u/s 144 r.w.s 153B(1)(b) of the I.T. Act, 1961. This clearly proves that the assessee is squarely covered under clause (c) of Explanation to Section 271AAB of the Act. 2.4 The Id. CIT(A) ought to have appreciated the fact that the undisclosed income was not recorded on or before the date of Search in the books of accounts and hence the AO has correctly levied penalty @ 30% on the undisclosed income of Rs.10,00,00,000/- as per the provisions of clause (c) of section 271AAB of the IT Act, based on the admission of the assessee relevant to the search records/seized mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified the quantum of penalty as levied by Ld. AO. The Ld. CIT-DR also assailed the arguments that no specific charge was framed against the assessee. It was the submissions that levy of penalty was mandatory and the quantum was justified. For the same, reference has been made to the statutory provisions and reliance has been placed on various judicial pronouncements. The Ld. CIT-DR also sought distinction of facts in case laws as cited by Ld. AR. The Ld. AR, on the other hand, submitted that the penalty was unsustainable in law since there was no undisclosed income. The Ld. AR made arguments to assail penalty on legal grounds for which reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. AR submitted that penalty notice was defective and therefore, penalty is unsustainable in law. Having heard rival submissions and after going through the orders of lower authorities as well as judicial pronouncements as cited before us, our adjudication would be as under. Assessment Proceedings 4.1 The assessee group was subjected to search action u/s 132 on 18.12.2012. The assessee offered returned income of Rs.1062.90 Lacs on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00.00 0.00 0.00 0.00 100.00 Investment in Development of Land at various places owned by the four Brothers 131.25 231.25 231.25 231.25 825.00 Advance paid through Brokers for purchase of lands to various agriculturist 750.00 750.00 750.00 750.00 3000.00 Total 1000.00 1000.00 1000.00 1000.00 4000.00 Accordingly, the income of Rs.10 Crores was admitted by each of the four brothers in their respective return of income. 4.3 Consequently, the assessment was framed by Ld. AO and penalty proceedings were initiated in the body of assessment order as under: - Assessed. Demand Notice is issued. Penalty proceedings u/s 271AAB and 271(1)(c) is initiated separately. Penalty u/s 271F is also initiated. It could be seen that Ld. AO initiated penalty under various provisions and subsequently, issued show-cause notice to the assessee to defend the proposed penalty u/s 271AAB. Penalty Proceedings 5.1 During penalty proceedings, a show-cause notice was issued by Ld. AO to the assessee on 31.03.2015 u/s 274 r.w.s. 271 which was followed by another letter dated 16.09.2015 wherein the assessee was show-caused as to why the penalty should not be imposed. The relevant conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held liable to pay penalty of 30% of the undisclosed income. In other words, the penalty of Rs.3 Crores was levied on alleged undisclosed income of Rs.10 Crores as reflected by the assessee in the return of income. Appellate proceedings 6.1 During appellate proceedings, the assessee, inter-alia, contended that in statement recorded u/s 132(4), the assessee was not confronted with any incriminating material found during the course of search. The assessee was not questioned about generation of undisclosed income by the investigating team. The mandate of Sec.271AAB was to levy penalty on the 'undisclosed income'. The term 'undisclosed income' should emanate from the search records / search material whereas in the instance case, the penalty was levied based on the admission of the assessee without any support from the search record / search materials. The assessee submitted that admission was not related to any seized material and therefore, the penalty was unjustified. No concrete material or document was confronted to the assessee in order to arrive at the 'undisclosed income' of the assessee. Rather the assessee, on its own, came forward and admit undisclosed income voluntarily. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 'undisclosed income' should emanate from the search records / search material. The undisclosed income, as defined in Sec.271AAB, would mean (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 the other documents or transactions found in the course of a search under section 132, which has not been recorded on or before the date of search in the books of account or other documents maintained in the normal courses relating to such previous year, or otherwise not been disclosed to the appropriate authority 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. 6.4 The Ld. CIT(A) further noted that stringent proof would be required to impose the penalty in respect of the items of additions taken into consideration for levy of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seized, all the sub-clauses from (i) to (ii) h'ave been struck off. Therefore, it is clear from the Panchanama that no materials were found and seized at the time of search. A copy of the Panchanama was also submitted before me for perusal. 9.11. Further, it was submitted that, even though no incriminating materials were found or seized by the department during the course of search operations u/s.132 c Act, with regard to Undisclosed Investments in the property, the appellant's group came forward to admit a total additional income of Rs.40 crores originally for the entire group considering the possibility of some commissions or omissions committed by the appellant and other members of the group. The specific amounts could not be arrived at as there were no undisclosed investments or income detected by the Investigation wing of the department. 9.12. It was also submitted that, only in order to buy peace with the department and in considering the probable omission and commission that the appellant could have committed, the appellant came forward to admit additional income over and above the cash and investments in excess gold, diamond and silver found at the time of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income was earned by the appellant and that the tax due were not paid and concluded the appellant's case is not covered by the provisions of Section 271AAB(1)(a) or (b) of the Act and levied penalty invoking the provisions under section 271AAB(1)(c) of the Act and a penalty at 30% was levied on the entire additional income admitted by the appellant. 9.15. Further, during the course of appellate proceedings, the AR explained regarding the inventory of jewellery made in the course of search and submitted before me the details of Valuation Report made by the Registered valuer by the department. The AR also explained with regard to inventory of cash found and seized and submitted the Panchanama for verification. The scanned copy of the same is affixed here as under:- ......... On perusal of the above details, a reconciliation chart was drawn as under in respect of weight and description of items with regard to jewellery actually found and also for the cash actually seized in respect of each appellant: DETAILS OF CASH/GOLD/DIAMOND AND SILVER FOUND AND SEIZED DURING THE COURSE OF SEARCH ACTION U/S. 132 OF THE ACT AS PER PANCHANAMA AND STATEMENTS RECORDED Actual as per W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the 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 courses relating to such previous year, or (B) otherwise not been disclosed to the 58[Principal Chief Commissioner or JCommissioner 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.] 9.24. The mere fact of addition on voluntary admission, particularly when the assessment is made on the inference flowing from the inability of the assessee to establish the case pleaded by him, will not be sufficient for the purpose of imposition of penalty. Stringent proof is required to impose penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned order and the same form the very basis of adjudication of Ld. CIT(A). 8. Upon perusal of documents on record, we find that during the course of search proceedings, a statement was recorded from the assessee u/s 132(4) which is placed on page nos.20 to 35 of the paperbook. The copy of the Panchnama in assessee's case is also placed on record which shows seizure of cash from the assessee. Upon perusal of statement dated 18.12.2012, it could be gathered that it is a general statement wherein no incriminating material has been confronted to the assessee and no question with respect to undisclosed income has been put to the assessee. Another statement has been recorded on next day i.e., 19.12.2012. Upon perusal of question no.6, it could be seen that the assessee was required to explain the variance in the amount of cash found. The assessee, in the reply, has sought time to furnish the requisite details to reconcile the discrepancies. However, there is no admission in the statement of the assessee regarding any 'undisclosed income'. No question with respect to any other incriminating material is shown to have been put to the assessee in this statement also. 9. Subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill furnish the confirmation shortly. Despite all these things, I do admit there is an excess of diamonds about 100 carats. Q.5. During the course of post search proceedings Rs.40 crores was offered as Kindly tell me the breakup of the unaccounted income assessee wise year wise. Ans. Sir, permit me a day's time to file detailed letter/affidavit in respect of the above. 10. At this juncture, it would be useful to take note of statutory provisions of Sec.271AAB. As per the provisions, the assesseing officer may direct the assessee to pay, by way of penalty, a sum computed at specified rates of 10%, 20% or 30% of undisclosed income. The undisclosed income has been defined in explanation (c) 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 the 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 courses relating to such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .274, no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The logic is simple. The principle of natural justice would demand that the aggrieved party is given an opportunity of hearing to defend its case. It is only after the defense of the accused has been considered, the authorities could proceed with penal consequences. Had the imposition of penalty been automatic, such an opportunity would have no relevance and no opportunity would be required to be given to the assessee. It is only after the assessee has been heard and Ld. AO finds it a fit case for imposition of penalty, the penalty could be levied on the assessee. 12. Our aforesaid views find support from the decision of co-ordinate bench of Nagpur Tribunal in Chandra Suresh Kothari V/s DCIT (135 Taxmann.com 275; 20.12.2021) which held as under: - 16. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been dealt with by the Co-ordinate Chandigarh Bench of the Tribunal in the case of SEL Textiles Ltd. v. Dy. CIT [IT Appeal No. 695 (Chd.) of 2018, dated 18-4-2019]. The Tribunal in the above case has relied upon the decisions of the Coordinate Benches of the Tribunal in the cases of Asstt. CIT v. Marvel Associates [2018] 92 taxmann.com 109/170 ITD 353 (Visakhapatnam); Dy. CIT v. Rashmi Metaliks Ltd. [IT Appeal No. 1608 (Kol.) of 2017, dated 1-2-2019]; Dy. CIT v. Rashmi Cement Ltd. [IT Appeal No. 1606 (Kol.) of 2017, dated 28-2-2019]. The co-ordinate Chandigarh bench of the Tribunal (supra) after analyzing the aforesaid decisions, wherein, reliance has also been placed on the decisions of the Hon'ble High Courts has held that levy of penalty u/s 271AAB of the Act is not mandatory. It has also been noted that the Legislature has consciously used the word 'may' in contradistinction to the word 'shall' in the opening words of section 271AAB of the Act. That the choice of the expression 'may' and not 'shall' in the opening section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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' may be 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 section 271AAB of the Act in each every case of levy of penalty pursuant to search action. There is no bar to the assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act even in cases involving search actions if in the facts and circumstances of the case, it is so warranted. The only bar is that no penalty under the provisions of section 270A or section 271(1)(c) of the Act shall be imposed in respect of the undisclosed income, as defined u/s 271AAB of the Act, unearthed during the search action carried out u/s 132 of the Act. It is to be noted that the provisions of section 271AAB and section 271(1)(c) of the Act simultaneously existed and were operational till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed. 14. The coordinate bench of Chennai Tribunal in ACIT V/s Shri S.Martin (ITA No.2382/Chny/2016 & ors; 05.10.2018) similarly held as under: - 20. This is the only definition available for "undisclosed income" in the Income-tax Act, 1961. Therefore, on the basis of material found during the course of search operation, if the Assessing Officer comes to a conclusion that the material found represents wholly or partly of the assessee's income, which would not have been disclosed but for the purpose of search, may be construed as undisclosed income. In this case, it is not the case of the Revenue that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount to more than the penalty sustained by Ld. CIT(A) in the impugned order, which we have substantially confirmed. Therefore, we confirm the stand of Ld. CIT(A), in this regard. 17. In the result, the appeal of the revenue stands partly allowed. Assessee's Petition u/r 27 18. The Ld. AR has assailed the penalty on legal grounds. The Ld. AR relied on various judicial pronouncements and submitted that the notice was defective and bad-in-law. The notice did not specify the specific clause of Sec.271AAB which was applicable to the case of the assessee. The Ld. AR submitted that each of the clauses of Sec.271AAB carries a specific charge and rates of penalty vary. The Ld. CIT-DR, on the other hand, vehemently contested the legal grounds, and likewise relied on various judicial pronouncements to support the case of the assessee. 19. We find that while framing the assessment order, Ld. AO initiated penalty proceedings in the body of assessment order as under: - Assessed. Demand Notice is issued. Penalty proceedings u/s 271AAB and 271(1)(c) is initiated separately. Penalty u/s 271F is also initiated. It could be seen that Ld. AO initiated penalty under various provisions and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to the disclosure made by the assessee. This being the case, the arguments of Ld. AR could not be accepted.
20. The case law of Hon'ble High Court of Madras in Gangotri Textiles Ltd. V/s DCIT (121 Taxmann.com 171; 25.08.2020) supports our view. In this case, Hon'ble Court refused to entertain similar plea raised by the assessee at appellate stage. This decision considers earlier decision rendered in Sundaram Finance Ltd. V/s ACIT (93 Taxmann.com 250; 23.04.2018). The subsequent decision of Hon'ble High Court of Madras in Pr. CIT V/s R. Elangovan (TCA Nos.770 & ors; 30.03.2021), as referred to by Ld. AR, has not considered any of the aforesaid decisions. Moreover, in this case, the quantum of addition for which penalty was proposed, was not specified in the show-cause notice issued by Ld. AO. Therefore, this case law is factually distinguishable.
21. Finally considering the facts and circumstances of the case, we are not inclined to accept the legal grounds as urged by the assessee. The petition stand dismissed.
Conclusion
22. The revenue's appeal stands partly allowed in terms of our above order.
Order pronounced on 13th July, 2022. X X X X Extracts X X X X X X X X Extracts X X X X
|
