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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 ..... een made in the assessment proceedings. 3. The learned CIT(A) ought to have seen that section 271AAB of Act has three limbs as specified in Section i.e. 271AAB (1) (a), (b) & (c) and the notice issued to the does not specify in which limb the penalty sought to be levied and merely mentioning Section 271AAB in notice do not satisfy the requirement of law. 4. The learned CIT(A) ought to have seen the assessing officer while issuing notice for levy of penalty, the notice issued u/s 274 r.w.s 271AAB of the Act should specifically mention that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sum of Rs. 32.46 Crores does not qualify as "income of specified previous year not recorded in the books of account before the date of search" so as to attract clause (i) of Explanation (c) to section 271AAB. 12. The learned CIT(A) ought to have seen that the discretion to impose penalty must be exercised judicially. The learned CIT(A) failed to see that addition made in the assessment order is on ad hoc basis, based on estimated disallowances of portion of marketing expense and based on surrender of income not backed by any incriminating 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash from the suppliers. The relevant question and answer in the statement recorded u/s. 132(4) of the Act, from Shri S.D.Rami Reddy, was reproduced as under: "Q. 17. While answering to Q.6, in your sworn statement recorded under section 132(4) dated 9.12.2018, while asking the modus operandi of generating unaccounted cash, you have stated that you 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and thus, question of levying penalty u/s. 271AAB of the Act, does not arise. The AO after considering relevant submissions of the assessee and also taken note of relevant provisions of Sec. 271AAB of the Act, observed that it is evident from the search proceedings and sworn statement recorded from the assessee, there is undisclosed income of the specified previous year in the form of additional income offered towards estimated disallowance of marketing expenses and said additional income was gone unnoticed had search been not conducted in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23,64,515 15,79,00,000 2,55,35,485 15.79 2018-19 8,82,46,473 25,73,00,000 34,55,46,473 25.73 2019-20 (Original )103,10,81,312 (Revised) 125,92,51,312 32,46,00,000 103,10,81,312 32.46 It is evident from the above discussion that, the huge amount appropriated for making certain expenditures were unearthed only because of the Search Action conducted on 06.12.2018. Hence, there is no merit in the claim of assessee that it has disclosed the expenses voluntarily. Unless, the evasion had been detected, assessee would have continued 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, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive work and to amicable settlement with the Income Tax Department. The statute does not recognize those types of defences under Explanation 1 to section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the appellant assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty... The AO has to satisfy itself whether the penalty proceedings be initiated or not during the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order u/s 153A r.w.s. 143(3), order u/s 271AAB, Grounds of appeal and written submissions of the appellant, judicial precedents relied on by it. 7.2 Ground of appeal No 1,2 & 8 These are general Grounds which do not require separate Adjudication.: 7.3 Ground of appeal No 3, 6 & 7: 7.3.1 Vide Ground appellant challenged quantification of Undisclosed income at Rs. 32,46,00,000/- holding that the amount merely represents estimated income which is allocated by appellant company for the year. It is also contended that the AO 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 judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'undisclosed income' for the year on 'estimate basis', it can't be said that it pertains to the year under consideration. 7.3.6 So the question that needs examination is whether income disclosed by the appellant is on estimate basis or not. I have carefully examined the claim of appellant that the amount disclosed was estimated income in the light of sworn statement of Managing Director of company Sri D. Rami Reddy recorded on 04-02-2019. "Q. No. 17 While answering to Q. No. 6, in your sworn statement recorded u/s 132(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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flation of expenditure. Huge unaccounted cash was found during search to the tune of Rs. 55.28 Crores from various persons. All those persons stated that it was received from Managing Director of appellant company for safe keeping. Unaccounted cash Rs. 55.28 Crores found during search is admittedly not recorded in books. The appellant explained source of unaccounted cash as inflation of marketing expenditure in books and cash received back from suppliers which is not again recorded in books. When there is primary evidence in the form of unaccounted 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of Income filed for the year for which penalty u/s 271AAB is levied. Hon'ble court held that income disclosed in return of income is not unearthed during search, hence penalty u/s 271AAB is not attracted. This decision is not applicable. In the present case, the appellant has admitted u/s 132(4)' Undisclosed income' for the current year basing on modus operandi unearthed consequent to seizure of cash. Padam Chand Pungliya vs. ACIT, Central Circle-1, Jaipur (2020) 113 taxmann.com 446 (Jaipur Trib.): In this case additions were 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, Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71AAB(a) are satisfied. The AO has rightly levied penalty u/s 271AAB (a). Consequently, Grounds of Appeal Nos 3, 6 & 7 are dismissed. 7.4 Ground of appeal No 4: It is the contention of appellant that the AO failed in rebutting all objections raised by appellant vide letter dated 29-07-2021. I have gone through penalty order. The AO has answered main contention of appellant vide para c & d of penalty order. Hence Ground of appeal 4 is Dismissed. 7.5 Ground of appeal No 5: 7.5.1 The appellant has contested this appeal on technical ground 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on part of the Assessing officer. Further, the levy of penalty under Section 271AAB is not based on addition made and investigation/enquiry conducted during the course of assessment proceedings, rather it is based on search conducted on the assessee on or after the 1st day of July, 2012, in such a situation, where the penalty show-cause notice is issued u/s 271AAB, the Assessing officer is making the assessee aware of the charge against him in terms of undisclosed income found during the course of search and thus, the assessee is granted an 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts levy of penalty u/s. 271AAB of the Act, and thus, the order passed by the CIT(A) confirming penalty levied by the AO, should be quashed. 10. The Ld.DR, Shri R. Clement Ramesh Kumar, CIT, submitted that the arguments of the assessee on the issue of show cause notice has been negated by the Ld.CIT(A) with a specific finding in light of provisions of Sec. 271AAB of the Act. Further, non-specification of sub-clause in the notice does not vitiate entire penalty proceedings as contended by the Ld.Counsel for the assessee. Further, the AO has 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was derived and pays tax on or before due date of furnishing return of income. Sub-clause (b) specifies penalty at 60% of the undisclosed income of the specified previous year, if it is not covered under the provisions of Clause-(a). From the above, it is manifestly clear that there are two scenarios for levy of penalty depend upon facts of each case and accordingly, in the show cause notice, the AO should specify under which clause, the assessee is directed to pay penalty u/s. 271AAB of the Act. In the present case, on perusal of notice 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, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd we find that the notice is absolutely vague and none of the irrelevant portions had been struck off nor the relevant portions had been marked or indicated. Hence, the Tribunal is right in observing that the penalty could not have been levied based on such defective notice and more particularly, when the assessee has been strenuously canvassing the jurisdictional issue from the inception. 16. In so far as the decision of the Allahabad High Court in the case of Sandeep Chandak is concerned, the factual position is slightly different. This 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 noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Explanation-c of Section u/s. 271AAB of the Act, is not applicable. In fact, the AO and the Ld.CIT(A) invoked Clause-(ii) of Explanation-C to Section u/s. 271AAB of the Act. As per Clause-(ii), undisclosed income of a specified previous year means any income of the specified previous year represented either wholly or partly by any entry in respect of expenses recorded in the books of accounts 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 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 satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income as defined in Explanation-(c) to Sec. 271AAB(1)(a) of the Act and such undisclosed income is for specified previous year. Thus, we are of the considered view that Clause-(ii) of Explanation-(c) to Sec. 271AAB(1)(a) of the Act, is not attracted in the given facts and circumstances of the case in respect of additional income offered by the assessee amounting to Rs. 32.46 Crs. and thus, in our considered view, said additional income surrendered by the assessee does not come under the definition of undisclosed income and consequently, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (i) above which envisages that the income in the form of jewellery or cash which has not been recorded in the books of accounts or other documents maintained in the normal course relating to such previous year. Now in the case of assessee entire jewellery and cash was duly recorded in the documents maintained in the normal course and was also explained to the lower authorities. But the same has only been accepted partially. In the penalty order none of the authorities have given any finding that, how the income confirmed in the quantum 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per subsection (3) of Section 271AAB, the provisions of section 274 and section 275 as far as maybe applied in relation to penalty under this section which means that before levying the penalty, the Assessing officer has to issue a show cause granting an opportunity to the assessee. Thus, the levy of penalty is not automatic but the Assessing officer has to decide based on facts and circumstances of the case. Similar view has been taken by the various 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f clauses (a) and (b). No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). Section 158BFA(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 exceed three times the amount of tax so leviable in respect of the undisclosed 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised in a reasonable and rational manner depending upon the facts and circumstances of 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 each case." 12. Thus, we agree with the contentions of the ld Counsel for the assessee that the levy of penalty under section 271AAB is not mandatory or automatic, same needs to be examined, whether there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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