Income Tax Appellate Tribunal - Jaipur
Shri Vijay Jain, Jaipur vs Deputy Commmissioner Of Income Tax, ... on 23 September, 2019
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"B" JAIPUR
Jh jes'k lh0 'kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k
BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM
vk;dj vihy la-@ITA No. 224/JP/2018
fu/kZkj.k o"kZ@Assessment Year : 2014-15
Shri Vijay Jain cuke The DCIT,
501, Pearl Excellency, Vs. Central Circle-2,
SB-168, Bapu Nagar, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADHPJ 0798 G
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by: Shri S.L. Poddar (C.A.)
jktLo dh vksj ls@ Revenue by : Ms Anuradha (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 22/08/2019
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 23/09/2019
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 12.01.2018 of the ld. CIT(A), Jaipur arising from the penalty order passed U/s 271AAB of the I.T. Act for the assessment year 2014-15.
The assessee has raised following grounds:-
"1. Under the facts and circumstances of the case and in law the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in passing the order dated 27.09.2016 passed ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT under section 271AAB of the Income Tax Act, 1961 without recording the satisfaction that under which limb the assessee has committed offence for which penalty is leviable.
2. In the facts and circumstances of the case and in law the Learned CIT(A) has erred in confirming the penalty of Rs. 60,28,500/- u/s 271AAB of the Income Tax Act, 1961.
3. The assessee craves your indulgence and add amend or alter all or any grounds of appeal before or at the time of hearing."
2. The brief facts leading to levy of penalty U/s 271AAB of the Act are that the assessee is an individual and director in various companies engaged in the business of real estate. There was a search and seizure action U/s 132 of the Act on 04.09.2013 on the members of Okay Plus Group-JKD Group and the assessee was also covered by the said search and seizure action. During the course of search and seizure proceedings certain incriminating material was found and seized including some loose papers and diary containing notings of the advance given for land.
In the statement recorded U/s 132(4) the assessee admitted and disclosed a sum of Rs. 6,02,85,000/- as undisclosed income from the real estate business. The assessee filed his return of income U/s 139(1) declaring total income of Rs. 6,18,77,850/- including the surrender income of Rs. 6,02,85,000/-. The assessment was completed U/s 2 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT 143(3) r.w.s. 153(1)(b) of the Act on 30.03.2016 determining the total income at the return income. Subsequently, the AO initiated the penalty proceedings U/s 271AAB of the Act and levied the penalty being 10% of the surrender amount of Rs. 6,02,85,000/-. The assessee challenged the action of the AO of levy the penalty U/s 271AAB of the Act before the ld. CIT(A) but could not succeed.
3. Before us, the ld. AR of the assessee has submitted that the ld.
CIT(A) while confirming the penalty has held that the penalty U/s 271AAB of the Act is mandatory in nature and therefore, once the assessee has disclosed the undisclosed income during the statement recorded U/s 132(4) of the Act the penalty U/s 271AAB of the Act is automatic. The ld. AR has submitted that this finding of the ld. CIT(A) is contrary to the provisions of Section 271AAB of the Act as well as various decision on this point. Therefore, the finding of the ld. CIT(A) is contrary to the binding precedents and a consistent view taken by this Tribunal is not sustainable. He has referred to the provisions of Section 271AAB of the Act and submitted that sub- section (1) begins with the termed "the AO may" and therefore it is not a mandatory provisions but the AO has to take a decision for levy of penalty as well as the quantum 3 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT of penalty being 10% or 20% or 30% of undisclosed income. Further, the Assessing Officer is also required to examine whether all the conditions as prescribed U/s 271AAB of the Act are satisfied to attract the levy of penalty. In support of his contention, he has relied upon a series of decisions of this Tribunal including decision dated 13.06.2018 in case of Ravi Mathur vs. DCIT in ITA No. 969/JP/2017 as well as decision dated 10.01.2019 in case of Shri Raja Ram Maheshwari vs DCIT in ITA No. 992/JP/2017. He has also relied upon the following decisions:-
Dinesh Kumar Agarwal vs. ACIT ITA Nos. 855 & 856/JP/2017 dated 24.07.2018.
M/s. Rambhajo's vs. ACIT ITA No. 991/JP/2017 dated 11.01.2019. Rajendra Kumar Gupta vs. DCIT ITA No. 359/JP/2017 dated 18.01.2019. Shri Padam Chand Pungliya vs. ACIT ITA No. 112/JP/2018 dated 05.04.2019. The ld. AR has then contended that neither the AO nor the ld. CIT(A) has given a finding that the income surrender by the assessee falls in the definition of undisclosed income U/s 271AAB of the Act as defined in the explanation to the said section. He has further contended that the notings found in the diary is only an out go of funds and the same 4 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT in the absence of inflow of the funds cannot be treated as income of the assessee and therefore these entries of advance for purchase of land itself cannot be held an undisclosed income. For the purpose of levy U/s 271AAB of the Act it is condition precedent that the income surrender by the assessee shall fall in the definition of undisclosed income provided in the explanation to the said Section therefore, until and unless the entries/notings in the diary represents any money, bullion, jewellery, valuables articles the mere entries cannot be treated as undisclosed income. He has further contended that in the absence of any transaction of actual purchase of the land or acquisition of the said land there will be no asset corresponding to the alleged entries and therefore, it is not falling in the ambit of the undisclosed income.
The ld. AR has contended that the Revenue authorities exerted undue and uncalled for pressure to obtain surrender of income otherwise there was no undisclosed income in the hand of the assessee. He has submitted that such confessional statement violates Board's circular F. No. 286/2/2003 dated 10.03.2003 whereby the CBDT has instructed the taxing authority not to obtain confession by using force rather focus and concentration should be given together the evidence. The CBDT has again reiterated its instruction vide F. No. 286/98/2013 5 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT dated 18.12.2014 therefore, it is against the spirit of law and instruction of the CBDT to obtain the surrender in the statement recorded U/s 132(4) of the Act. Alternatively, the ld. AR has submitted that when the assessee is not required to maintain the regular books of account then the notings in the diary will be treated as recording of the transaction in the other record regularly maintained by the assessee and therefore, it is not a case of not recording the transaction in the books of accounts or other record maintained by the assessee. Hence, the ld. AR has pleaded that the penalty levied U/s 271AAB of the Act is liable to be deleted when the surrender made by the assessee during the search and seizure action does not fall in the ambit of undisclosed income. The Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132(4). The AO must establish that there is undisclosed income on the basis of incriminating material. In the instant case a loose sheet was found according to the A.O., it was incriminating material evidencing the undisclosed income. In the penalty order the AO observed nothing related to lose papers. However neither the AO nor the Ld.CIT(A) has verified the contents of the loose sheet with the books found at the time of search. No other material 6 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT was found during the course of search indicating the undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in the books of accounts or documents transactions were found during the course of search indicating the assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly.
The revenue did not find any undisclosed asset, or the inflation of expenditure during the search/ assessment proceedings.
Though a loose paper was found that does not indicate any suppression of income. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and other documents. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma Vs. DCIT (2012) 32 CCH 334 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee.7 ITA No. 224/JP/2018
4. On the other hand, the ld. DR has submitted that in the statement recorded U/s 132(4) of the Act the assessee himself explained the nature of entries found recorded in the seized material and has admitted the undisclosed income from the business of real estate during the year under consideration. Once the assessee has failed to explain the source of the investment recorded in the seized material the same falls in the ambit of undisclosed income consequently the provisions of Section 271AAB of the Act are attracted. The surrender made by the assessee itself is self explanatory to the nature of surrender and income therefore, the assessee cannot be permitted to denied the income disclosed during the search being undisclosed income. The ld. DR has further contended that as per explanatory note on Finance Bill, 2012 the provisions of Section 271AAB of the Act are mandatory in nature and the AO has no discretion but the assessee shall pay the penalty in addition to tax on the undisclosed income surrender in the statement recorded U/s 132(4) of the Act. The ld. DR has relied upon the decision of Hon'ble Allahabad High Court in case of Pr. CIT vs. Shri Sandeep 8 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT Chandak 405 ITR 648. He has relied upon the orders of the authorities below.
5. We have considered the rival submissions as well as the relevant material on record. As regards the penalty U/s 271AAB of the Act whether it is mandatory or discretionary this issue has been considered and decided by this Tribunal in a series of decisions including the decision in case of Ravi Mathur vs. DCIT (supra) as well as in case of Shri Raja Ram Maheshwari vs.DCIT (supra). In the case of Ravi Mathur vs. DCIT the Tribunal after considering an analyzing the provisions of Section 271AAB r.w.s. 274 and 275 of the Act has held in para 4 to 6 are 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 assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the 9 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of 'undisclosed income' is provided in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AAB of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :-
" 271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 49[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President50], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,--
(a) a sum computed at the rate of ten 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, 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 10 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT
(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 51[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).52
[(1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,--
(a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee--
(i) in the course of the search, in a statement under sub-section (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 sixty per cent of the undisclosed income of the 11 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53[section 270A or] 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) 52[or sub-section (1A)]. (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.
Explanation.--For the purposes of this section,--
(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 54[Principal Chief Commissioner or] Chief Commissioner or 54[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 12 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT 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 penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether the explanation furnished by the assessee is bonafide and non-compliance of the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving an opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to E. Even the quantum of penalty leviable u/s 271AAB is also subject to the condition prescribed under clauses (a) to (c) of sub-section (1) and the AO has to again give a finding for levy of penalty @ 10% or 20% or 30% of the undisclosed income. Thus the AO is bound to take a decision as to what default is committed by the assessee and which particular clause of section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of 13 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT section 271AAB stipulate that the AO may come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec. 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AO as per the provisions of section 271(1)(c) of 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 mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB. The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R in this regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given 14 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed."
Thus it was found by the Hon'ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. Amit Agarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence.
6. The question whether levy of penalty under section 271AAB by the AO is mandatory or discretionary has been considered by the Visakhapatnam Bench of this Tribunal in case of ACIT vs. M/s. Marvel Associates (supra) in para 5 to 7 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 parimateria 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;
271AAB [Penalty where search has been initiated]:
(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under 15 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT section 132 on or after the 1 st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him--
(a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee--
(i) in the course of search, in a statement under sub-section (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 which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).
(2) 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).
16 ITA No. 224/JP/2018Shri Vijay Jain vs. DCIT 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 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 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.
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 17 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT 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 A.O. Once the A.O. is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, 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 decision of the AO. Hence we fortify our view by the above decisions of Tribunal in case of ACIT vs. Marvel Associates.
A similar view has been taken in the case of Raja Ram Maheshwari vs. DCIT. Even in the other decisions as recued upon by the ld. AR the Tribunal has taken a constituent view that the levy of penalty U/s 271AAB is not mandatory but the AO has to take a decision on the basis of relevant facts of the case and after considering the reply of the assessee whether the surrender made by the assessee falls in the 18 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT definition of undisclosed income as defined in the explanation to Section 271AAB(1) of the Act. Accordingly, following the earlier decision of this Tribunal we hold that the penalty U/s 271AAB of the Act is discretionary and not mandatory. It is not an automatic as a consequence of surrender of income by the assessee but the conditions precedent as provided U/s 271AAB are to be satisfied for levy of the penalty. Therefore, the finding of the ld. CIT(A) that the penalty is mandatory in nature is not sustainable and the same is set aside. It is also pertinent to note that in all these decisions the Tribunal given a finding after considering the decisions of Hon'ble Allahabad High Court in case of Pr. CIT vs. Shir Sandeep Chandak (supra).
5.1 On the merits of levy of penalty we note that that the assessee is a director in a number of companies including M/s JKD Plus India Developer Pvt. Ltd. therefore, it is apparent from the facts emerging from record and particularly from the statement recorded U/s 132(4) of the Act that the assessee is doing the business of real estate not in his individual capacity but only through the company in which the assessee is a director. The assessee has been reporting income under the head income from salary received from M/s JKD Plus India Developer Pvt.
19 ITA No. 224/JP/2018Shri Vijay Jain vs. DCIT Ltd. income from house property, capital gain and income from other sources. Only for the year under consideration the undisclosed income as surrendered by the assessee during the search is the alleged business income. There is no material on record that either in the past or in the subsequent year the assessee has carried out any business in his individual capacity in real estate. Further, entries as recorded in the diary on account of advance for land or very vague and showing only the rate and the amount paid without giving the particulars of the person to whom the alleged amount was paid for purchase of land or even without giving the details of the land for which these advances were paid by the assessee. It is also pertinent to note that the first entry is regarding the land on Tok Road upto 31th December, 2013 whereas the search was conducted on 04.09.2013 therefore, how the entry can be made upto 31.12.2013 prior to the date of search.
Without going into the controversy whether these entries are artificial or actual payment made by the assessee when there was no asset actually acquired by the assessee or possessed by the assessee then the mere notings of payment being advanced for land cannot be held as undisclosed income of the assessee. The Revenue has not made any efforts to ascertain the correct and proper particulars of the land and 20 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT the person to whom the alleged payment was made by the assessee.
Nothing has been brought on record to show that the assessee has finally acquired these lands by executing some documents or title deeds. When there is no acquisition of land then in the absence of the corresponding asset acquired by the assessee the mere noting of the advance which is out flow of the funds cannot be held as undisclosed income. The Coordinate Bench of this Tribunal in case of Shri Raja Ram Maheshwari vs DCIT (Supra) has considered this issued in para 19 to 21 are as under:-
"19. In order to appreciate the aforesaid contention of the ld AR, we refer to the statement of the assessee recorded during the course of search u/s 132(4) and the relevant extract thereof is reproduced as under for sake of reference:
iz'u&16-vkids ;gkWa lpZ dh dk;Zokgh esa ,d uhy xxu uksVcqd feyh gS] ftls vusDlj ,&1 dk uke fn;k x;k gS] buesa ntZ fooj.k dh tkudkjh nsa& mŸkj eSusa fiNys 4 eghuksa esa tehu [kjhnus gsrq fofHkUu yksxksa dks vfxze jkf'k nh gS] tks nl izdkj gS %& ist ua- uke frfFk jkf'k 1 ykypUn 10-11-2013 8]00]000@& 2 jke/ku ;kno 18-11-2013 12]00]000@& 3 lhrkjke 'kekZ 02-12-2013 16]00]000@& 4 jkethyky lkgw 30-12-2013 19]50]000@& 21 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT 5 dkywyky lSuh 06-01-2014 17]50]000@& 6 Jo.k dqekor 11-01-2014 24]00]000@& 7 lqYrku flag o 15-01-2014 21]00]000@& dY;k.k flag 8 'kksthjke C;ktk 29-01-2014 10]00]000@& 9 jkeksrkj 'kekZ 03-02-2014 11]00]000@& 10 jes'k xqIrk 15-02-2014 2]00]000@& bl izdkj ls ;s vl :i;s 1]41]00]000@& dks fooj.k gS tks eSusa tehu isVs fofHkUu yksxksa dks fn;s gSAa iz'u&17-d`i;k crkb;s fd tks mijksDr 1]41]00]000@& :i;s tehu isVs vkius fofHkUu yksxksa dks fn;s gS oks vkidh ys[kk iqLrdksa esa fdl izdkj ntZ gS\ mŸkj ;s :i;s 1]41]00]000@& esjh fdlh Hkh izdkj dh ys[kk iqLrdksa esa fdlh Hkh izdkj ls ntZ ugha gSA ;g esjh v|ksf'kr vk; esa ls fd;k x;k fuos'k gSA eSa bl :i;s 1]41]00]000@& dks pkyw foŸk o'kZ dh v?kksf'kr vk; ds :i esa Lohdkj djrs gq, tks Hkh vk;dj gksxk pqdk nwxa kA iz'u&18- vkius iwoZ esa crk;k fd vkids fuokl LFkku 26&A laxzke dkWyksuh] t;iqj ds fuekZ.k esa 30 ls 90 yk[k :i;s dk fuos'k gqvk gS] d`i;k crkb;s fd vkius bl fuos'k dks viuh ys[kk iqLrdksa esa fdl izdkj n'kkZ;k gS\ mŸkj ;s edku esjs vkSj esjs HkkbZ Jh fxjkZt ekgs'ojh us feydj cuok;k gS ftlesa nksuksa us viuh lqfo/kkuqlkj fuos'k fd;k gSA nqdku ij j[ks dEi;wVj ij tks fMVsy j[kh gS mlds vuqlkj eSusa vc rd :i;s 31]51]609@& dk fuos'k fd;k gS vkSj esjs HkkbZ us tc rd :i;s 2169150@& dk fuos'k fd;k gSA bl izdkj ge nksuksa HkkbZ;ksa us vkt dh lpZ dh dk;Zokgh rd dqy fuos'k 5322759@& :i;s viuh ys[kk iqLrdksa esa fn[kk;k gqvk gSA eSa ;g ekurk gwWa fd eSusa viuh v?kksf'kr vk; esa ls Hkh edku fuekZ.k esa fuos'k fd;k gSA tSlk fd eSusa crk;k fd dqy fuekZ.k ykxr 80 ls 90 yk[k :i;s gSA eSa fuekZ.k ykxr yxHkx 85 yk[k :i;s ekurs gq, :i;s 3177000@& ds fuos'k dks viuh v?kksf'kr vk;22 ITA No. 224/JP/2018
Shri Vijay Jain vs. DCIT ds :i esa pkyw foŸk o'kZ esa Lohdkj djrk gwWa vkSj dj gsrq foHkkx dks lefiZr djrk gwWAa iz'u 19vkt vkids ;gkWa lpZ dh dk;Zokgh esa vkids fuokl LFkku ds cslesUV esa tks LVkWd ik;k x;k gS mlds ckjs esa vkius crk;k fd oks vkids fdl dUluZ dk gSA bl ckjs esa vki crkus esa vleFkZ gS]a d`i;k crkbZ, fd ;g LVkWd vkidh ys[kk iqLrdksa esa fdl izdkj vk jgk gS bldk Li'Vhdj.k nso\sa mŸkj esjs vkSj esjs HkkbZ dh dUluZ Øe'k% eS- flYoj fizUl vksj flYoj ,.M tSEl ,DliksVZ dk LVkWd fuokl LFkku dh cslesUV vkSj 3lh, pesyh ekdsZV] t;iqj esa ,d lkFk j[kk gqvk gSA vkSj bldks vyx&vyx ugha fd;k tk ldrk gSA gekjs fuokl dh cslesUV vkSj nwdku 3lh, pesyh ekdsZV t;iqj esa fuEu LVkWd ik;k x;k gS %& LFkku en ek=k ewY;
1- fuokl dk cslesVa flYoj ToSyjh 72-340 Kgs 2893600
fuokl dk cslesVa eSVy ToSyjh 8-962 Kgs 31367
fuokl dk cslesVa lseh izhfl;l LVkWu 573-086 Kgs 39]75]676
2- nwdku flYoj ToSyjh 453-412 Kgs 39]75]676
eSVy ToSyjh 93-300 Kgs 3]26]550
lseh izhfl;l LVkWu 154-748 Kgs 928488
3- nksuksa dk ;ksx flYoj ToSyjh 525-752 Kgs 22390316
eSVy ToSyjh 102-262 Kgs 357867
lseh izhfl;l LVkWu 727-834 Kgs 49]04]164
gekjh nwdku ij j[ks dEi;wVj esa tks ys[kk iqLrdsa cukbZ tkrh gS muds vuqlkj gekjh nksuksa dUluZ ds LVkWd dh fLFkfr lpZ ds fun rd fuEu izdkj gSa %& uke en ek=k ewY;
1- flYoj ,.M tSEl ,dliksV
23
ITA No. 224/JP/2018
Shri Vijay Jain vs. DCIT
flYoj ToSyjh 153-564 Kgs 732950
flYoj 38-406 Kgs 504335
lseh izhfl;l LVkWu 9-190 Kgs 124872
2- flyoj fizUl
flYoj ToSyjh 291-563 Kgs 1925364
flYoj 6-663 Kgs 136163
lseh izhfl;l LVkWu 8-022 Kgs 108548
3- dqy ;ksx feDl flYoj ToSyjh 445-127 Kgs 2658314
flYoj 45-039 Kgs 640498
lseh izhfl;l LVkWu 17-212 Kgs 233420
bl izdkj esVy
s ToSyjh dk bUnzkt gekjh ys[kk iqLrdksa esa ugh gSA ys[kk iqLrdksa esa tks flYoj gS ¼45-039 fdyksxzke½ oks esjs HkkbZ Jh fxjkZt ekgs'ojh cSd a kWad tkus ls igys fofHkUu dkjhxjksa dks ToSyjh fuekZ.k ds fry, nsdj x;s Fks ftldh tkudkjh mUghsa dks gSA oks okfil vkus ij bldk fooj.k vkikds izLrqr dj nsxa sA bl izdkj HkkSfrd lR;kiku eSa fueu LVkWd gekjh ys[kk iqLrdksa ds eqdkcys vf/kd ik;k x;kA eSVy ToSyjh 102-262 Kg lseh izhfl;l LVkWu 710-622 Kg flYoj ToSyjh 80-625 Kg ¼mix Jewellery½ vkt vizqOM oSY;wj us lpZ@losZ ds nkSjku tks oSy;w'ku dgh gS muls mijksDr vkbZVe dk vojst jsV bl izdkj gS & eSVy ToSyjh 357867@102-262 =3499-51 lseh fizfl;l LVkWd = 4904164@727-834 =6738-03 24 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT flYoj ToSyjh = 22390316@525-752 =42587-22 mijksDr jsV ds fglkc ls tks vf/kd LVkWd ik;k x;k gS mldh ewY; bl izdkj ls gS %& en vf/kd ikbZ xbZ ek=k jsV ewY;
eSVy ToSyjh 102-262 Kg 3499-51 357867
lseh fizfl;l LVkWd 710-622 Kg 6738-03 4788192
flYoj ToSyjh 80-625 Kg 42587-22 3433595
bl izdkj gekjs ;gkWa lpZ dh dk;Zokgh ds nkSjku :i;s 85]79]654@& dk LVkWd vf/kd ik;k x;k gS ftlds ckjs esa dksbZ Hkh Li'Vhdj.k nsus esa eSa vleFkZ gwWAa bl vf/kd ik;s x;s LVkWd esa fuos'k dks eSa pkyw foŸk o'kZ dh viuh v|ksf'kr vk; ds :i esa Lohdkj djrk gwWa vkSj dj gsrq foHkkx dks lefiZr djrk gwWA iz'u 20 vkius vkius c;kuksa esa crk;k gS fd vf/kd ik;s x;s LVkWd es]a edku ds fuekZ.k esa vkSj fofHkUu O;fDr;ksa dks tehu isVs fn;s x;s ,Mokal esa tks v|kksf'kr vk; dk mtkxj fd;k gS] d`i;k blds L=ksr dk mtkxj dhft;sA mŸkj mijksDr leLr dj ds fy;s ?kksf'kr dh xbZ v?kksf'kr vk; pkyw foRrh; o'kZ esa ToSyjh o LVkWUl dh vu vdkmUVsM foØ; ls vftZr dh xbZ gS tks fd esjh fu;fer ys[kk iqLrdksa ds ckgj dh gSA iz'u 21 d`i;k vkidks vkids tckc esa lpZ dk;Zokgh ds ckjs esa dqN dguk gS\ mŸkj lpZ dh dk;Zokgh ds nkSjku eSusa fueufyf[kr v?kksf'kr vk; dks Lohdkj fd;k gS] ftl ij tks Hkh ns; dj gksxk] eSa tek djok nwxa k& 25 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT ¼ i½ fofHkUu O;fDr;ksa dks tehu isVs = 1]41]00]000@& nh vfxze jkf'k ¼ii½ 26&A laxzke dkWyksuh] t;iqj ds fuekZ.k = 31]77]000@& esa ¼iii½ vf/kd ik;k x;k LVkWd = 85]79]654@& dqy v?kksf'kr vk; = 2]58]56]454@& tSlk eSusa mijksDr esa dgk fd eSa mDr v?kksf'kr vk; in ns; dj nsus ds fy;s rS;kj gwWa vkSj esjh vkils izkFkZuk gS fd eq> ij fdlh Hkh rjg dh isuYVh ;k tqekZuk uk yxk;k tk; vkSj uk gh dksbZ vfHk;kstu pyk;k tk,A Hkxoku esjh j{kk djsaA
20. In the assessment order, the Assessing officer has stated that above undisclosed income against land advances, undisclosed investment in construction of house and undisclosed investment in stock has been reaffirmed by the assessee by way of filing an affidavit on 14.05.2014, almost after 3 months from the date of search on 26.02.2014 during the post search proceedings and subsequently, the assessee has disclosed the same in his return of income filed on 22.11.2014. Therefore, the assessee was having ample time to retract from said surrender, however there is no such retraction during post-search proceedings and even the assessee has included the same in his return of income. Even from the perusal of the statement, there is nothing which demonstrates that there is any forced surrender by the assessee. The contention of the ld AR therefore has no legal leg to stand where he contends that the Revenue authorities have exerted undue pressure and obtained surrender of income and therefore, there was no undisclosed income in the hands of the assessee. In any case, the assessment proceedings 26 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT have attained finality where such undisclosed income has been offered and brought to tax. For the purposes of levy of penalty, what has to be seen is that whether the surrender so made, in terms of statement of the assessee recorded u/s 132(4) during the course of search, falls in the definition of "undisclosed income" which has been specifically laid down in terms of clause
(c) of explanation to section 271AAB which reads 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."27 ITA No. 224/JP/2018
21. During the course of search, a note book (diary) has been found wherein there are notings relating to advance given to various persons towards purchase of land. The notings describe the name of the persons, the amount advanced which ranges from Rs 2 lacs to Rs 24 lacs to 10 persons and the date of such advance during the period November, 2013 to February, 2014. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides, the said entries, there are no other document in terms of any agreement to sell, the description of the property which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in purchase of land cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed investment represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. An investment per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there could be subsequent outflow by way of investment. Investment and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about "income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132", what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found recorded by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the 28 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT assessee in the normal course. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such investments are deemed to be treated as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B where investments which are found either not recorded or found recorded at a lesser value in the books of accounts, and such investments are deemed to be income of the assessee of the year in which such investments have been made, cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions are contained in section 69 and section 69B and therefore, the same have to be applied in the context of bringing to tax such investments to tax in the quantum proceedings. The same cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein. In light of the same, the undisclosed investment by way of advance for purchase of land can be subject matter of addition in the quantum proceedings, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied deserve to be set-aside."
29 ITA No. 224/JP/2018Shri Vijay Jain vs. DCIT We further note that the Tribunal has consistently held that mere entries of advance for land cannot be treated as undisclosed income.
Accordingly, following the decision of the Coordinate Bench and maintaining the rule of consistency we hold that the penalty U/s 271AAB is not sustainable in respect of the income surrender on account of advance for land because of alleged transactions do not fall in the ambit of undisclosed income as defined in explanation to Section 271AAB(1) of the Act. Accordingly the penalty levied U/s 271AAB is in the case of the assessee is deleted.
6. The assessee has also raised additional ground which reads as under:-
"Under the facts and circumstances of the case the learned CIT(A) has erred in confirming the order of the Learned Assessing Officer u/s 271AAB of the Income Tax Act on the basis of notice dated 30.03.2016 which is void-ab-initio and issued without mentioning the specific provision of Section for levy of penalty and without application of mind is bad in law and therefore initiation of penalty proceedings was not proper."
Though the ld. AR as well as ld. DR has argued on the additional ground at length and also relied upon decisions in support of their contentions however, in view of our finding on the merits of the levy of 30 ITA No. 224/JP/2018 Shri Vijay Jain vs. DCIT penalty this issue raised in the additional grounds becomes academic in nature and we do propose to adjudicate the same.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23/09/2019.
Sd/- Sd/-
¼ jes'k lh0 "kekZ ½ ¼fot; iky jko½
(Ramesh. C. Sharma) (Vijay Pal Rao)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 23/09/2019.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Vijay Jain, Jaipur.
2. izR;FkhZ@ The Respondent- DCIT, Central Circle-2, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 224/JP/2018} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 31