Income Tax Appellate Tribunal - Chandigarh
M/S R.D. Palace Pvt. Ltd., Ludhiana vs Dcit, Cc-1, Ludhiana on 12 July, 2019
ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 14
17. From the plain reading of Section 271AAB we find that the levy of penalty is permissible if and only if there exists 'undis closed income'. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act is sine qua non for invoking penal provisions of Section 271 AAB of the Act. Discovery and consequent assessment of undiscl osed income is a condition precedent for levy of penalty under Section 271AAB of the Act. It has to be borne in mind that every offer of the assessee to pay tax on his or her income in the course of recording of statement u/s 132 does not amount to finding of 'undisclosed income'. A mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid protracted litigati on cannot and does not amount to discovery of undis closed income for the purposes of levy penalty u/s 2 71AAB of the Act. The Legisl ature has all along been conscious in providing for levy of penalty only in res pect of "undisclosed income". We find that in all penal provisions such as Explanation 5 A of Section 271(1)(c), Section 271AAA & Section 271AAB, the Legislature has restricted the s cope of penal provision only to "undisclosed income" and not assessed total income. Moreover the term/expression "undis closed income" has been defined by the Legisl ature in all such penal provisions in a s pecifi c and restricted manner and not in an inclusive manner. For that reason the definition of undisclosed income nowhere provides that the said expression shall "include" all and every species of i ncome but the word used is undisclosed income "means". The conscious use of the expression "means" in contradisti nction to the use of word "includes " indicate that the Legislature intended to restrict the scope of penal provisions only to income which came within the ken of the said expression and not beyond. Applyi ng the definition of undisclosed income to the income of Rs.69 crores, we find that such income was offered in the statement recorded u/s 132(4) of the Act at the time of search. However only for the said reason, it could not be brought within the ambit of undisclosed income particularly when such income was not represented by any valuable asset or entry in books of accounts or which was not found as a result of search not recorded in the books. We therefore find much force in the L d. AR's arguments that since the s um of Rs.69 crores voluntarily offered to tax was not in the nature of undisclosed income, the levy of penalty u/s 271AAB was unsustainable.
ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 16 ACIT Vs Marvel Associates (s upra) wherein it was held as follows:
"9. Penalty u/s 271AAB attract s on undis closed income but not on admissio n made by the assessee u/s 132(4). The AO must estab lish that there is undisclosed inco me on the basis of incrimin at ing material. In the instant case a loose sheet was found acco rd ing to the A.O., it was incrim inating material eviden cing the und isclo sed in come. In the penalty order the AO ob served that loose sheet shows the cost per square feet is Rs .3571/- per sft. and a ssessee stated to have submitted in sworn statement cost per sq. feet at Rs.2200/- to Rs .2300/- per sq. feet. However neither the AO nor th e Ld.CIT(A) has verif ied the cost of construction w ith the books and project io ns found at the t ime of search. The counsel arg ued that it was mere project ion but not the actu als. The wr ite u p heading also men tioned that summary of the projected profitability statement. There is no eviden ce to establish that projectio ns reflected in the loose sheet is real. No other mate rial was found during the cou rse of search ind icatin g the und isclo sed inco me. There was no money, bullio n, jewellery or valuab le art icle or th ing o r entry in the books of accounts o r documents tran saction s were found du rin g the course of sear ch ind icat in g the assets not recorded in the books of accounts or other documents maint ained in the normal course, wholly or partly. The revenue did not find any undis closed asset, any other u nd isclosed in come or the inflat ion of expenditu re durin g the search/ assess ment proceedings. Though a loose sheet of page No.107 of Annexu re A/GS/MA/1 was found th at does not ind icate any suppression of income but it is on ly project ion of profit statement. The amou nt of Rs.3571/- mentio ned in the proje ct ions refers to cost and profit wh ich is approximate sale price but not the cost as stated by the AO in the penalty order. The co st of co nstruct io n in the projections pro jected at Rs.2177/- which is in synch with the statement given by the assessee. The AO was happy with the dis closu re given by the assessee and d id not verify th e fact ual posit ion wit h the books of acco unts and p rojection s an d bring the evidence to unearth the und isclo sed in come. Neither the A.O. no r the investigation win g linked the cost of p rof it or co st of asset to the entries in the books of accounts or to the sales cond ucted by the assessee to the sale dee ds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found dur ing the course of search in d icates any und isclosed in co me or asset or inflat ion of expendit ure. The Hon'b le ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 18 record a s produ ced before us by the ld. DR that the valuation report is b ased on the market price of the gold Jewellery prevailing on the date of search as against the cost o r realizatio n wherever is less. Therefore, the computation of excess sto ck based on the market price of the stock cannot be cons idered as und isclo sed income of the assessee as it is the subject matter of regular as sessment and cannot be regarded as u nd isclosed in come based on in crimin at ing mater ial. There is no such fact either recorded d uring the sear ch an d seizur e proceeding or in the assessment order or in the penalty proceeding to show that the re was d iscrepancy in th e stock as re corded in the books of acco unt and fou nd at the time of search . In the absence of any d iscrepan cy in the qu ant ity of stock the valuation of the stock is purely a question of assessment and cannot be held as und isclosed income detected dur ing the course of search and se izure proceeding. Therefore, to the extent of excess stock based on the valuation report the disclosure of the in come by the assessee would not fall in t he category of undis closed in co me as per explanat io n to Section 271AAB of the Act. It is not the ca se of t he Revenue that any stock of jewellery was fou nd which is not recorded in the books of accou nt but the value of sto ck is computed based on the valuat ion report of the departmental valuer. Once the differen ce in the value of stock is o nly d ue to market price as ag ainst the cost of the said sto ck, the same will not fall in t he amb it of und isclo sed income as def ined un der clause-(c) of explan at ion -1 of section 271AAB of the Act .
19. Similarly the accrued interest of Rs . 20,00,000 /- is also only estim ated and not b ased on any in criminat ing do cuments. This amount w as estimated as there were advan ces as per the entr ies of the se ized mater ial. Even otherwise accrued interest is dependent on the outco me of t he levy of penalty in respect of advances given by t he assessee. We have considered the issue of advan ces for the assessment year 2013- 14 and according ly in vie w of our f inding on the said issue the penalty U/s 271AAB of the Act is not sustainable in respect of the surrender amount of Rs. 1,65,38,920/-."
22. We also rely on the decision of the coordinate Bench at Ranchi in the case of Rinku Agarwal in ITA No. 262/Ran/2017 dated 30.11.2018. In the instant case as well in the course of search operations conducted at the Mi ca Mod Group on 21.11.2012, the assessee had admitted addi tional income of Rs.5,00,000/- u/s 132(4) which she had offered to tax in her return of i ncome. The AO levied penalty u/s 271AAB on such additional income ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 20 under section 14A of the Act which was in addition to the suo motu disallowance of Rs. 3,45,49,868/- returned by the assessee in this respect in his Income tax return. The Assessing officer also made an addition of Rs.2,25,54,011/- u/s 36 (1)(iii) of the Act. Though the assessee during the assessment proceedings submitted that the set off of Rs.14 crores declared on account of disallowance by the assessee of expenses/additions be given to the assessee, however, the Assessing officer rejected the above contention of the assessee since the assessee had not given any bifurcation of any surrendered income of Rs. 14 crores. Apart from that, the Assessing officer has made an addition of Rs. 9,23,231/- u/s 36(1) (v) of the Income Tax act and assessed the total income at a loss of Rs. 33,73,75,950/- as against the loss declared / returned by the assessee at Rs. 41,50,72,313/-.
11. The relevant fact in this case is that though the Assessing officer examined individually each and every item of income and expenditure and made separate disallowances, however, the Assessing officer did not point out any excess or wrong expenditure claimed so far as the surrender of Rs. 14 crores on account of disallowance of expenditure / addition was concerned. Even the Assessing officer did not allow the telescopic benefit / set off of the amount surrendered as against the disallowance made by the Assessing officer under the provisions of section 40A, 36 (1)(iii) and 36 (1)(v) of the Act. There is no mention in the assessment order that the assessee had claimed any extra or inadmissible expenditure in respect of any other item. It also apparent from the facts on the file that even during the search action, no incriminating material in respect of excessive or inadmissible expenditure was found during the search action. The assessee simply surrendered the amount of Rs. 14,39,99,158/- and in the bifurcation ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 22 convey through the aforesaid discussion is that even despite certain disallowances made by the Assessing officer, as discussed above, it cannot be said that assessee had claimed any inadmissible expenditure which would fall within the definition of "undisclosed income" as defined under the provisions of section 271AAB of the Act. Except the aforesaid disallowance made by the Assessing officer on debatable issues, there is no case of the Department in respect of any inadmissible expenditure claimed by the assessee which would cover the surrendered income of Rs. 14 cores. From the facts on the file, it is established that the aforesaid surrender of Rs. 14 crores was based on the mere statement of the assessee and nothing incriminating material which would constitute "undisclosed income"
as per the provisions of section 271AAB of the Act was detected or found during the search action. In view of the various case laws as discussed above, the aforesaid amount for Rs.14 cores would not fall in the definition of 'undisclosed income' as defined under section 271AAB of the Act and, hence, the penalty is not leviable on the said amount under the provisions of section 271AAB of the Act.
13. So far as the reliance of the Ld. DR on the decision in the case of Hon'ble Allahabad High Court in the case of 'Principal CIT Vs. Shri Sandeep Chandak' and Ors. (supra) is concerned, as discussed in the aforesaid decision of the Coordinate Bench of the Tribunal in 'DCIT Vs. Rashmi Cement Ltd, (supra) the facts in the case of Principal CIT Vs. Shri Sandeep Chandak' and Ors (supra) are distinguishable and do not apply to the facts and circumstances of the case in hand in the light of the discussion made in the above referred to decision of the Kolkata Bench of the Tribunal.
14. However, so far as the surrendered amount of Rs.
39.99 lacs is concerned, same was offered on account of ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 24
10. However,, Ld. Counsel for the assessee has been fair enough to admit that it is not in all the cases that no incriminating material was found. That certain items of jewellery of silver were found / noticed during the search action, the source of income from which as held by the Assessing Officer also stood explained and also the manner of earning of the income was also substantiated. He, therefore, has been fair enough to admit that penalty under the provisions of section 271AAB (1)(a) of the Act was liable to be confirmed to the extent of the property / material found during search action. He, in this respect has given a chart, which for the sake of ready reference, is reproduced as under:-
S.No. Particulars Sukhdarshan Rama Rani Venna Rani R.D. Place Kumar Private Limited 1 Jewellery 0 133 54.23 0 2 Silver 0 0 8.40 0 3 Income 230 67 27.37 300 Declared Total 230 200 190 300
11. In the case of Mrs. Rama Rani, (ITA No. 1240/Chd/2018) for assessment year 2016-17, as noted from the above chart, jewellery worth Rs. 1.33 crores was found, whereas, income surrendered by her during the search action was of Rs. 2 crores. In view of the discussion made ITA Nos. 1238 to 1242-c-2018- Veena Rani & Others, Ludhiana 26 during the search action, hence, the penalty is not leviable in these cases and the same is accordingly ordered to be deleted.
In the result, the appeals of the assessees in ITA No. 1240 & 1238/Chd/2018 in the cases of Mrs. Rama Rani and Smt.Veena Rani respectively are partly allowed, whereas, ITA Nos. 1239/Chd/2018 in the case of Sukhdasrshan Kumar and ITA No. 1241 & 1242/Chd/2018 in R.D. Palace Pvt Ltd., stand allowed.
Order pronounced in the Open Court on 12.07.2019 Sd/- Sd/-
(एन. के. सैनी / N.K. SAINI) (संजय गग / SANJAY GARG) उपा य /Vice President या यकसद य/ Judicial Member Dated : 12.07.2019 "आर.के."
आदे शक त ल पअ े षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकरआयु त/ CIT
4. आयकरआयु त (अपील)/ The CIT(A)
5. वभागीय त न ध, आयकरअपील!यआ धकरण, च$डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड'फाईल/ Guard File आदे शानस ु ार/ By order, सहायकपंजीकार/ Assistant Registrar