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TMI Blog2024 (3) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... c disallowance without there being any observation/adverse comments with regard to expenses accounted by the assessee in the books of accounts of the specified previous year and also explanation offered by the assessee. The sole basis for the AO to levy penalty u/s. 271AAB of the Act, is voluntary surrender of income by the assessee in the return of income filed u/s. 153A of the Act, and such income has been quantified in the statement recorded u/s. 133(4) of the Act. Although, the AO took support from confirmation from one of the suppliers, where he has stated that at times cash has been returned to the assessee, but there is no specific admission in the confirmation letter of suppliers regarding supplies made to the assessee and refund of 1/3rd of cash for the impugned assessment year. We have gone through the reply received from supplier which has been extracted in the penalty order and we find that said reply is general in nature without any specific reference for the impugned assessment year and also amount of cash returned to the assessee. Thus, on the basis of admission of the assessee without there being any reference to incriminating material surrender of additional inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at penalty u/s 271AAB of the Act is being levied @10/20/ 30% since the appellants case falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. The AO in the impugned notice ought to have specifically mentioned as to why the appellant should not be visited by penalty @30% of the undisclosed income since the appellants case falls under clause-c of section 271AAB of the Act. In te absence of the same the said notice is vitiated and penalty is unsustainable in law. 5. The learned CIT(A) ought to have seen that in absence of the requisite contents of specific charge in notice under section 271 r.w.s. 271AAB the initiation of proceedings cannot be sustained and is bad in law. The learned CIT(A) ought to have seen that a bare reading of the notice under section 271 rws 271AAB suggests that the notice has been issued in a casual fashion. The officer has not applied his mind and no specific charge is mentioned for which the appellant is required to be show caused. 6. The learned CIT(A)-20 ought to have seen that the penalty proceedings is deemed to have been initiated only with the issue of notice under section 271AAB and that the said notice should specifically state the reasons f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminating material and would therefore not attract penalty under section 271AAB. 13. The learned CIT(A) failed to see that in the instant case addition is made by the assessing officer merely based on income surrendered by the appellant and not based on any incriminating material warranting levy of penalty. Neither the appellant nor the investigation team had any evidence as to the quantum of inflated expenditure year wise. 14. The learned CIT(A) ought to have seen that the sum of Rs. 32.46 Crores does not represent " any entry in respect of 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" so as to attract clause (ii) of Explanation (c) to section 271AAB. 15. The learned Commissioner ought to have seen that penalty cannot be levied merely because an amount taxed as income as held by Hon'ble Supreme Court in the case of M/s. Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26(SC) and decision of Hon'ble High Court of Delhi in Escorts Finance Ltd. (2009) 226 CTR (Del) 105. For these and other grounds that may be rendered at the time of hearing it is most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have not raised any bogus bills from our suppliers of gift articles to generate unaccounted cash. However, we received back one third of the invoice value on an average in the form of cash from our gift article suppliers. Since this amounts to inflation of the expenditure in our books of account, we undertake to withdraw of claim towards expenditure in the respective years. Q:18. Please furnish the quantity of cash generated invoice-wise and party -wise with details of suppliers? Ans. Sir I don't have the invoice-wise and party -wise details of cash generated. However, I am here by submitting year-wise details of cash generated on this account as under - S. No. Financial Year Amount in Crores 1 2014-15 16.39 2 2015-16 23.62 3 2016-17 15.79 4 2017-18 25.73 5 2013-19 32.46 113.99 However, no corroborative evidence to the sworn statement was unearthed during search. 4. Consequent to search proceedings, the case was taken up for scrutiny. In response to notice under section 153A of the Act, issued by the AO, the assessee has filed its return of income on 25-11-2020 admitting a total income of Rs. 125,92,51,312/-, which includes addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of the assessee. The arguments of the assessee that it has voluntarily surrendered additional income to buy peace and avoid litigation are devoid of merits. Therefore, opined that the additional income offered by the assessee represents any income of the specified previous year by any entry in respect of expenses recorded in the books of accounts of the assessee 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 has not been conducted. Therefore, rejected arguments of the assessee and levied penalty of 30% of total undisclosed income offered by the assessee. The relevant findings of the AO are as under: V. The submission of assessee and the material available on record is perused carefully and the following observations are made. a) Assessee company is engaged in business of manufacture and sale of IMFL products and is one of the prime suppliers to M/s. TASMAC. b) The modus operandi of the business is, assessee indulged in suppression of real income by means of inflation of expenses, particularly under the head purchase of gift articles and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practicing this evasive methodology forever and caused huge loss to revenue. d) Assessee has stated in its reply that, "there is no undisclosed income as defined in the Explanation c) to section 271AAC(1A) of the Act." Assessee merely tries to complicate a simple and apparent issue with sophisticated phrases. It has been very clearly discussed in the assessment order that, assessee disclosed Rs. 32,46,00,000/- for the relevant AY after the seizure of huge cash amount during the search proceedings. This is plain and visible from any legal perspective that; a huge sum remained undisclosed till the date of search, not just for the relevant AY, but for several assessment years prior to the relevant assessment year. e) Further, assessee has stated in its reply dated 29.07.2021 that, "Judicial opinion is also to the effect that initation and droping of penalties are the prerogative of the Assessing Officer. In other words, these sections are not mandatory but are subject to the discretion of the Assessing Officer to be decided on the merits of each case...." Assessee itself has clearly stated that, it is the prerogative of the Assessing officer based on Judicial Opinion. It is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing... The principle laid down by this court has correctly been followed by the Revenue and we find no illegality in the Department initiating penalty proceedings in the instant case..." g) It is also evident from the search proceedings and the sworn statements that, assessee, has deliberately and knowingly appropriated huge amount of cash from the business and stored in the residential premises of the employees and relatives. Therefore, concealment in this case has been clearly established. VI. Accordingly, penalty is levied u/s 271AAB of the Income Tax Act, 1961, in respect of undisclosed income. The penalty amount is worked out as under: 6. Being aggrieved by the penalty order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has challenged show cause notice issued u/s. 274 r.w.s.271AAB of the Act, dated 26-07-2021 in light of certain judicial precedents and argued that the AO has not specified the clauses under which penalty u/s. 271AAB of the Act, has been initiated. The assessee had also challenged penalty levied on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O failed to mention undisclosed income in the assessment order. 7.3.2 Arguments of appellant can be summarized as follows: 1. Undisclosed Income as per section 270AAB is "Income of the specified year' which has not been recorded in books. 2. Neither Appellant nor investigating Authority had evidences regarding quantum of inflated expenditure of the company year wise. 3. Income disclosed by the assessee for various years is based on 'Estimate** 4. Income disclosed for the year represents income apportioned for the year' by the assessee but not 'undisclosed income' of the year. The appellant has relied on various judicial precedents. 7.3.3 Explanation (c) of section 271AAB defines "undisclosed income" for the purpose of section which is reproduced as under: "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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32(4) of the Income Tax Act, 1961 dated 09.12.2018, while asking the modus operandi of generating unaccounted cash, you have stated that will raise bogus bills for which you pay them through banking channels and receive cash from them. Please go through your statement and clarify about your generation of unaccounted cash. Ans.: Sir, we have not raised any bogus bills from our suppliers of gift articles to generate unaccounted cash. However, we received back one third of the invoice value on an average in the form of cash from our gift articles suppliers. Since this amounts to inflation of the expenditure in our books of accounts, we undertake to withdraw our claim towards expenditure in the respective years. Q. No. 18 Please furnish the quantity of cash generated invoice- wise and party-wise with the details of suppliers? Ans.: Sir, I don't have the invoice-wise and party-wise details of cash generated. However, I am hereby submitting the year-wise details of cash generated on this account as under: S. No. Financial Year Amount (in crores) 1 2014-15 16.39 2 2015-16 23.62 3 2016-17 15.79 4 2017-18 25.73 5 2018-19 32.46 Total 113.99 I hereby offer thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted cash found not recorded in books and sworn statement of Managing Director of appellant company giving details of unaccounted cash generated for each year after acknowledging primary evidence found during search, it is incorrect to say except statement of appellant there is no other evidence available with the department. It is noticed from assessment order that the AO made enquiries during assessment proceedings with suppliers of gift articles to appellant company and some of the suppliers have agreed that the appellant company took back some cash from them. (para 2, page 8 of Assessment order). Copy of letter of one of suppliers of appellant company wherein supplier has agreed that he has withdrawn cash as required by appellant company. Hence it is incorrect to say no evidence is available with AO with regard to inflation of expenditure by the appellant company. Since the appellant company has admitted undisclosed income in the return of Income filed, the AO has not expanded scope of enquiries once sufficient evidence regarding modus operandi was found. Further the AO has mentioned in penalty order that appellant company explained that unaccounted cash generated is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made based on seized pocket dairy of assessee in which some notings were made with regard to house construction. Addition was made on account of House construction on which penalty u/s 271AAB was levied. Hon'ble tribunal deleted penalty holding that pocket dairy is not books of accounts, can't be considered as wrong entry made in books and house construction can't be completed in 2 months and AO has not even enquired actual period of construction of House. This decision is not applicable to facts of present case. In the present case unaccounted cash was found which admittedly generated basing on wrong entries in books. DCIT, Central Circle-1, Jaipur vs. Nirmal Kumar Agarwal [2016] 75 taxmann.com 266 (Jaipur Trib.): It relates penalty levied u/s 271AAA but not 271AAB.As per section 271AAA penalty on undisclosed income for the specified year was 10%.But penalty would not be leviable if certain conditions are satisfied. One of them is assessee has to substantiate the manner in which such 'un disclosed income' is earned. In this case, AO levied penalty for not substantiating manner in which undisclosed income is earned. Hon'ble court after observing that AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that in the penalty notice sent, the AO has not specified which of sub clauses of section 271 AAB are applicable. Written submissions filed by the appellant raise technical ground of defective penalty notice. 7.5.2 As per provisions of section 271AAB, penalty is levied on 'undisclosed income of the specified year' unlike u/s. 271(1)(c) where penalty can be levied for two different charges. Though penalty u/s. 271AAB is levied for singular charge, it proposes levy of penalty at different slabs subjected to conditions prescribed therein. Penalty u/s. 271AAB S. No. Conditions for levy of penalty @ 30% u/s 271AAB(1A)(a) Conditions for levy of penalty @ 60% u/s 271AAB(1)(b) 1. Income disclosed u/s. 132(4) basing on cash found or basing on no entries/false entries in books of accounts Cases that do not fall under 271AAB(1A)(a) 2. Assessee substantiates the manner in which undisclosed income is earned 3. Files the return of income before the specified date disclosing the undisclosed income admitted u/s. 132(4) and pays tax on undisclosed income. 7.5.3 The fact that whether 'Undisclosed income of specified year has been admitted u/s 132(4) and whether 'a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to refute such charge and file his explanations/submissions. Unlike provisions of section 271(1)(c) which provides for separate charge of "concealment of particulars of income" or "furnishing of inaccurate particulars of income", there is a singular charge under section 271AAB ie, of the existence of undisclosed income for the specified previous year found during the course of search. Therefore, in the instant case, where the notice dated 16.3.2016 is issued to the assessee to show-cause why penalty should not be levied u/s 271AAB of the Act, the assessee is made aware of the specific charge against him and an opportunity has thus been given to him to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO. A similar view has been taken by the Co-ordinate Bench in case of Mahesh Kumar Jain & others (ITA No. 630/JP/17 & others dated 27.11.2017)". 7.5.5 Therefore, I am not inclined to allow ground of appeal raised by appellant on this issue. Ground of appeal no 5 is dismissed. Accordingly, all grounds of appeal of appellant are dismissed. 8. The Ld.Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made out a case of undisclosed income of a specified previous year in respect of undisclosed income offered by the assessee towards estimated disallowance of marketing expenses and such addition is purely based on material found during the course of search. During the course of search, the Department has gathered incriminating materials, including unaccounted cash which is generated out of inflated expenditure under the head 'marketing expenses'. The Director of the assessee company admitted to have generated cash by inflating expenditure, which is further strengthened by the confirmation submitted by suppliers of gift articles. Therefore, the arguments of the assessee that estimated disallowance of marketing expenses, does not come under undisclosed income of specified years is incorrect, and thus, the AO and the Ld.CIT(A) has rightly levied penalty and their orders should be upheld. 11. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. Levy of penalty u/s. 271AAB of the Act, is not mandatory, which is evident from the fact that order passed by the AO imposing penalty u/s 271AAB is appealable order u/s. 246 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice issued u/s. 274 r.w.s.271AAB of the Act, it is undisputedly clear that the AO has issued notice in a routine manner without mentioning under which clause of section 271AAB of the Act, the assessee is liable for penalty. Though, the AO while passing the impugned order, has imposed the penalty as per clause-(a) of Sec. 271AAB(1) of the Act, but, no such ground was specified in the show cause notice issued on 26.07.2021. Therefore, we are of the considered view that there is no application of mind at the time of issuing show cause notice and also no satisfaction from the AO regarding undisclosed income of specified previous year and further, under which clause such undisclosed income falls. Further, issuing a notice without specifying clause under which, the assessee is directed to pay penalty is definitely vague, incorrect in nature, and consequent order passed by the AO imposing penalty u/s. 271AAB of the Act, becomes illegal, void ab initio. This legal position is fortified by the decision the Hon'ble Madras High Court in the case of PCIT v. R. Elangovan in TCA Nos.770 & 771 of 2018, wherein, the Hon'ble Madras High Court held that Sec. 271AAB of the Act, which deals with pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decision is for the principle that where the assessee, in the course of search, makes a statement, in which, he admits the undisclosed income and specifies the manner, in which, such income has been derived, then the provisions of Section 271AAB of the Act would automatically get attracted. There can be no quarrel over this proposition. But, once the provisions get attracted, it is incumbent on the part of the Assessing Officer to specify as to under which clause in Section 271AAB(1) of the Act, he intends to proceed against the assessee. In the instant case, in the absence of such material in the penalty notice, it has to be held that the notice is defective. 17. The decisions of the Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory and SSA's Emerald Meadows and the decision of this Court in the case of Babuji Jacob clearly support our above conclusion. For all the above reasons, we find no grounds to interfere with the common order passed by the Tribunal. 18. Accordingly, the above tax case appeals are dismissed confirming the common impugned order passed by the Tribunal. No costs. Consequently, the connected CMP is also dismissed. 12. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be so, had the search has not been included. From the reading of Explanation-(c) and definition of undisclosed income, it is very clear that it should represent wholly or partly any entry in respect of expenses recorded in the books in the normal course relating to the specified previous year, which is found to be false and also has not been found to be so had the search has not been concluded. First of all, there should be falsification of entry in the books of accounts in respect of any expenditure. Secondly, such falsification should come to know as a consequence of search conducted. In the present case, the AO has arrived at a satisfaction to the effect that there is undisclosed income of previous year, which warrants penalty u/s. 271AAB of the Act, on additional income offered by the assessee in the return of income filed u/s. 153A of the Act, towards estimated disallowance of 1/3rd of marketing expenses. No doubt, the assessee has admitted additional income of Rs. 113.99 Crs. towards estimated disallowance of 1/3rd of marketing expenses when the Department has found and seized unaccounted cash Rs. 55.27 Crs. in the residential premise of the assessee Company Director an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, the AO cannot levy penalty u/s. 271AAB of the Act. 15. The assessee has relied upon certain judicial precedents in support of its arguments. The assessee has relied upon the decision of ITAT Mumbai Benches, in the case of Shri. Prafulla Shashikant Vaidya v. DCIT in ITA No. 469/Mum/2023 order dated 30.08.2023. The Tribunal under identical set of facts has considered the issue of penalty levied u/s. 271AAB of the Act, in respect of income surrendered by the assessee and held that surrender of income would not if so facto lead to the conclusion that the amount surrendered by the assessee is undisclosed income in terms of Sec. 271AAB of the Act. The relevant findings of the Tribunal are as under: 7. We have considered the rival submissions as well as the relevant material placed on record. The AO has levied the penalty under section 271AAB of the Act in respect of the income surrendered by the assessee. The question arises whether the surrender made by the assessee in the statement recorded under section 132(4) will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) of Explanation to section 271AAB of the Act. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um proceedings falls in the category of 'undisclosed income'. The documents submitted in the form of sales tax return etc. are independently verifiable evidence without having any control or influence of the assessee except the books of account of the assessee which were not disputed by the AO. Further, the revenue has not disputed the correctness of the documentary evidence filed by the assessee, albeit the AO has proceeded on the assumption that the income disclosed by the assessee under section 132(4) is undisclosed income for the purpose of section 271AAB of the Act. Once the assessee has explained the fact that all the assets found during the course of search have been duly recorded in the documents in the normal course relating to such previous year, then the mere disclosure and surrender of income would not ipso facto lead to the conclusion that the amount surrendered by the assessee is 'undisclosed income' in terms of section 271AAB of the Act. 9. In this case one more anomaly is noted, as during the search jewellery of Rs. 1.55 crore and cash of Rs. 27 lakhs were seized but disclosure was taken only for Rs. 66.48 lakhs, which also indicates that the said disclosure don't ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious Co-ordinate Benches and useful reference can be drawn to the decision of the Co-ordinate Bench in case of ACIT v. Marvel Associates 92 Taxmann.com 109 wherein it was held as under: "5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of 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. has 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 pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed income determined by the Assessing Officer under clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and (iv) An appeal is not filed against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. 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 under section 158BFA(2) of the Act. The word may direct indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is any basis for levy of penalty or non-levy thereof and the same will depend upon the facts and circumstances of the case. 13. Hence in view of the facts and circumstances as discussed in detail in foregoing paras as well as following the decision of this Tribunal cited supra, we hold that the addition confirmed does not fall in the ambit of definition of undisclosed income as contemplated in Explanation to section 271AAB of the Act. Accordingly, the penalty of Rs. 6,09,244/-.levied by the AO and sustained by the ld. CIT (A) is deleted. 16. In this view of the matter and by following the decision of coordinate Benches of ITAT Mumbai in the case of Prafulla Shashikant Vaidya v. DCIT in ITA No. 469/Mum/2023 order dated 30.08.2023, we are of the considered view that additional income offered by the assessee in the return of income filed in response to notice issued u/s 153A of the Act, towards surrender of estimated disallowance of i/3rd marketing expenses does not come under the definition of undisclosed income as defined in Explanation-c to Sec. 271AAB of the Act. The sum of Rs. 32.46 Crs. does not qualify as undisclosed income of the specified previous year not recorded in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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