Income Tax Appellate Tribunal - Jaipur
Shri Prakash Chand Surana, Jaipur vs Deputy Commissioner Of Income Tax, ... on 24 February, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES 'B' JAIPUR
BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM
ITA No. 116/JP/2018
Assessment Year :2015-16
Late Shri Prakash Chand Surana cuke DCIT,
Through L/H Smt. Shobha Surana Vs. Central Circle-02,
D-68, Near Police Memorial, Jaipur
JLN Marg, Jaipur.
PAN/GIR No.: ACTPS0755K
Appellant Respondent
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s Assessee by : Sh. S. R. Sharma (CA) &
Sh. R. K. Bhatra (CA)
jktLo dh vksj ls@ Revenue by :Smt. Runi Pal (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 22/01/2020
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24/02/2020
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-4, Jaipur dated 20.11.2017 for the assessment year 2015-16 wherein the assessee has taken the following grounds of appeal:-
"1. That the notice issued by assessing officer for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law not being specifically pointing out the default for which the Ld. AO sought to impose penalty u/s 271AAB.
2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case the Ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 20,57,007/- imposed by the Ld. Assessing Officer u/s 271AAB of the I.T. Act, 1961."
2. Briefly stated, the facts of the case are that a search and seizure action u/s 132 of the Act was carried out on Surana Group on 15.10.2014 and ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT assessee is one of the members of the said Group. During the course of search, the statement of assessee (since expired) was recorded u/s 132(4) wherein he surrendered income on account of excess jewellery amounting to Rs. 2,05,70,072/-. Thereafter, the assessee firm filed his return of income on 30.09.2015 declaring total income of Rs. 2,12,24,350/- which represents the additional income surrendered during the course of search. The assessment u/s 143(3) read with section 153B(1)(b) was completed on 22.12.2016 accepting the returned income. Separately, the penalty proceedings u/s 271AAB were initiated by way of issuance of notice u/s 274 read with section 271AAB of the Act and thereafter, the AO levied the penalty u/s 271AAB vide his order dated 14.06.2017 @ 10% of Rs. 2,05,70,072/-, being the undisclosed income of the specified previous year.
3. In the aforesaid penalty order, the Assessing Officer referred to the assessment order and stated that the assessee has not filed any further appeal against the said order. Further, the Assessing officer held that in view of the provisions of section 271AAB, it is clear that there is no scope of escapement for levy of penalty rather the provisions provides for the quantum for levy of penalty depending upon facts and circumstances of the each case and the assessee contentions that he had made bonafide disclosure were not found acceptable.
4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who noted that the assessee has made disclosure of additional income and same was also offered in the return filed u/s 153A of the Act. It was further stated that intention of legislature was very clear that section 271AAB provides for mandatory levy of penalty on surrender of undisclosed income though quantum thereof may vary subject to fulfillment of certain conditions and thus, unlike section 271AAA, wherein immunity from imposition of penalty 2 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT is possible subject to fulfillment of conditions, there is no immunity clause provided from penalty u/s 271AAB. It was accordingly held that the penalty u/s 271AAB is mandatory in nature and there is no discretion with the AO and the penalty so levied by the Assessing Officer was confirmed. Against the said findings, the assessee is now in appeal before us.
5. During the course of hearing, the ld. AR submitted that the penalty notice dated 22.12.2016 does not specify the specific limb of section 271AAB under which the penalty was sought to be levied. Similarly, the second show cause notice dated 15.05.2017 also does not specify the limb under which the Assessing Officer seek to levy penalty u/s 271AAB of the Act. It was submitted that both the notices were issued in a routine manner without mentioning under which clause of section 271AAB of the Act, the assessee is liable for penalty. The assessee should know the grounds which he has to meet specifically, otherwise, the principles of natural justice are violated and on the basis of such proceeding, no penalty could be imposed on the assessee. Thus, there is no application of mind at the time of issuing the show cause notice by the AO. It was submitted that the Assessing Officer has finally levied penalty as per clause (a) of section 271AAB of the Act, however, no such ground was specified in the show cause notice issued u/s 271AAB read with section 274 of the Act.
6. It was further submitted that the AO and the ld CIT(A) are not correct in stating that the levy of penalty u/s 271AAB is mandatory in nature as the provisions of section 271AAB states that the Assessing Officer may levy penalty which thus permits the Assessing Officer to use his discretion to levy or not to levy a penalty depending upon facts and circumstances of the case. It was further submitted that the legislature has included the provisions of section 274 and 275 of the Act in context of section 271AAB of the Act with clear intention 3 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT to consider the imposition of penalty judicially. Therefore, 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 facts and merits placed before the AO. Once the AO 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. It was further submitted that the penalty order u/s 271AAB is an appealable order u/s 246A before CIT(A) and therefore, it is not correct to hold that the penalty u/s 271AAB is mandatory in nature and had that being the intention of legislature, there would not have been any provision of appeal against the said levy of penalty.
7. It was further submitted that the assessee had declared a sum of Rs.2,05,70,072/- on account of excess 4705.93 gold jewellery found during the course of search from the bedrooms of various family members namely self, wife Shobha Surana, Son Chandra Surana and Pracheer Surana, Daughter in law Sharmila Surana and Sonal Surana, Grandson/daughters Prashant, Shivangi and Raghav, Granddaughter-in- law Aakarti. The search team after giving effect of total net weight of jewellery i.e. 9982.946 declared in Wealth Tax returns filed by assessee and his family members held the excess jewellery of 4705.93 gms as unexplained. In the statement recorded u/s 132(4), the assessee stated that 98 grams of jewellery was purchased which is in excess to the declared jewellery in Wealth tax return. Further, no credit of jewellary /gold ornaments amount was allowed for Shri Chandra Surana, Smt Sharmila Surana, Prashant Surana, Aakarati Surana, Shivangi and Raghav. Reliance was placed on the decision of Hon'ble Rajasthan High Court in case of CIT vs Shri Satya Narain Patni [2014] 46 taxmann.com 440. It was further submitted that it is now a settled position of law that the possession of jewellery is dependent on the status of family and age of marriage of family 4 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT members. It was submitted that excess items were personal items of the family members and holding is very old and reasonable looking to the size and status of family. The said jewellery was received from both sides of relatives and friends at the time of marriage and thereafter on various other festivals and auspicious occasions. It is customary in Indian society that every parent, friends & relatives to present gold ornaments etc. to her daughter & son in law at the time of marriage. The family of assessee is of repute and means. Thus looking to the status of the family, customs of the society and other facts and circumstances, the total weight of gold is reasonable and source of acquisition was explained. However, the assessee to buy piece and avoid litigation with department offered the said valuation of jewellery as his additional business income of the current year. The Ld AO has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as "Undisclosed Income" for the purpose of levy of penalty u/s 271AAB of the Act. In support, the reliance was placed on the Co-ordinate Bench decision in case of Shyam Sunder Khandelwal vs. DCIT, CC-2, Jaipur (ITA No. 307/JP/2018 dated 11.04.2019).
8. Per contra, the ld. DR is heard who has relied on the order of the lower authorities and submitted that once the assessee has surrendered the amount during the course of search in the statement recorded u/s 132(4) of the Act of the one of the partners of the assessee firm, therefore, there is no basis to state that there is no undisclosed income found during the course of search. It was further submitted that the provisions of section 271AAB are clear in contrast to section 271AAA wherein there is no mechanism for immunity from levy of penalty and the only discretion which lies with the Assessing Officer is in terms of quantum of levy of penalty and that to, depends upon the satisfaction 5 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT of the specific terms and conditions as provided in the said provisions. The ld DR accordingly supported the findings of the lower authorities.
9. We have heard the rival contentions and perused the material available on record. Firstly, the question that arises for consideration is the nature of charge(s) specified under section 271AAB of the Act. Whether it provides for a singular charge of undisclosed income for the specified previous year found during the course of search initiated under section 132 on or after the 1st day of July, 2012 or it provides for multiples charges as so contended by the ld AR in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB of the Act. On close reading of provisions of Section 271AAB, we find that the primary condition or charge for levy of penalty is the existence of undisclosed income for the specified previous year found during the course of search in the case of assessee. Once the said primary condition or charge is satisfied, for the purposes of quantifying the penalty, the Assessing officer has to examine the satisfaction of ancillary conditions as specified under clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB. Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the ancilliary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind 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 its explanations/submissions. Unlike provisions of section 271(1)(c) 6 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT 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 in terms 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 22.12.2016 is issued to the assessee firm 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 it and an opportunity has thus been given to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO on this account. Further, even for sake of argument, if it is assumed that primary charge of undisclosed income has to be read along with ancillary conditions and thus multiples charges have been prescribed in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB and where the Assessing officer has not stated the specified charge at the time of initiation of penalty proceedings, in our considered view, such uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order and so long as there is a clear finding in the penalty order, no infirmity can be said to arise in the penalty order. In the instant case, the AO has recorded his satisfaction while passing the assessment order that there is undisclosed income found during the course of search and other conditions being satisfied and therefore, the assessee is liable for penalty u/s 271AAB, thereafter the notice initiating the penalty proceedings U/s 271AAB was issued to the assessee. Thereafter, the Assessing officer has given a specific finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% on the undisclosed income found during the course of search and admitted in statement recorded u/s 132(4) of the Act. Therefore, we donot see any infirmity in the initiation of 7 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT penalty proceedings and consequent penalty order so passed by the Assessing officer on this account and the contentions so raised by the ld AR in this regard cannot be accepted.
10. Now coming to another contention of the ld AR where he has challenged the findings of the lower authorities that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. In this regard, we again refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub- section (1) to Section 271AAB. Further, as per sub-section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be 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. Further, the order levying the penalty is an appealable order and therefore, the fact that the statue has provided for an appellate remedy against the levy of penalty, the levy of penalty cannot be held as mandatory but the same will depend upon facts and circumstances of each case. Thus, we agree with the contentions of the ld AR that the levy of penalty is not mandatory in all cases but the Assessing officer has to decide based on facts and circumstances of the case. In fact, it is a consistent view of this Tribunal across various Benches that levy of penalty u/s 271AAB is not automatic in nature but the AO has the discretion and has to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an "undisclosed income" in terms of Section 271AAB(1) r/w. explanation defining the undisclosed income. Further, where the discretion so applied by the Assessing officer has been rightly exercised or not in a particular case can be reviewed and subject to appellate remedy as so provided in the Act.
8 ITA No. 116/JP/2018Late Shri Prakash Chand Surana Vs. DCIT
11. This now takes us to next contention of the ld AR regarding amount surrendered during the course of search not qualifying as an "undisclosed income" u/s 271AAB r/w explanation thereto and merely surrender made in the statement recorded u/s 132(4) is not sufficient for levy of penalty. It is a settled legal proposition that the penalty provisions needs to be construed strictly. Therefore, where the statue has provided for a charge for levy of penalty which is "undisclosed income for the specified previous year found during the course of search in the case of assessee" and has also defined the meaning of undisclosed income, for the purposes of levy of penalty, what has to be seen is 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 defined and 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 9 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT 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."
12. In the context of jewellery found during the course of search and applicability of provisions of section 271AAB, the Co-ordinate Bench in case of Shyam Sunder Khandelwal vs. DCIT, Jaipur (supra) has dealt with the matter at length and we deem it appropriate to refer to the relevant findings as contained at para 18 to 20 of the said decision wherein the Co-ordinate Bench has held as under:-
"18. During the course of search and seizure action, gold jewellery and silver was found at the residence of the assessee. The assessee has declared a sum of Rs. 20,03,474 (Rs. 11,59,100 + Rs. 8,44,374) in his statement recorded under section 132(4) of the Act on account of the excess gold jewellery and silver found from the residence. The said income was also declared in the return of income. The ld. A/R of the assessee has submitted that the family of the assessee consisting of 10 members i.e. assessee himself, wife, 2 sons, 2 daughters-in-law and 3 grandsons and 1 grand daughter. The said jewellery found during the search was received from both sides of relatives and friends at the time of marriage and thereafter on various other festivals and auspicious occasions. It is customary in Indian society that every parent, friends & relatives to present gold ornaments etc. to her daughter & son in law at the time of marriage. The family of assessee is repute and means. Thus looking to the status of the family, customs of the society and other facts and circumstances the total weight of gold is reasonable and source of acquisition was explained. However, the assessee to buy peace and avoid litigation with department offered the said valuation of jewellery as 10 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT his additional business income of the current year. The ld. AO has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as "undisclosed income" for the purpose of levy of penalty under section 271AAB.
19. On the other hand, the ld. D/R has submitted that once the jewellery was found at the residence and the assessee has admitted the fact that the jewellery was not recorded in the books of account, therefore, it is an undisclosed income of the assessee for the specified previous year for the purpose of section 271AAB of the Act. He has relied upon the orders of the authorities below.
20. We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other material to establish that the entire jewellery found at the time of search and seizure action was only acquired by the assessee and belong to the assessee alone. We find that in the Indian family most of the jewellery belong to the women of the family. It is also customary in Indian society that the women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the 11 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted."12 ITA No. 116/JP/2018
Late Shri Prakash Chand Surana Vs. DCIT
13. In the instant case as well, it is an undisputed fact that the jewellery so found during the course of search has been found from the bedrooms of various members of the assessee's family and thus, such jewellery found in possession of family members belongs to them and doesn't belong to assessee alone. Therefore, merely because the assessee has declared the same in his statement recorded u/s 132(4), it will not be regarded as undisclosed income of the assessee in absence of any fact or material to establish that entire jewellery was acquired by the assessee and belongs to the assessee alone. Further, we find that credit has been allowed in respect of jewellery disclosed in the wealth tax returns by some of the members of the family. However, there are other members of the family not subject to wealth tax, in respect of which no credit has been allowed even as per CBDT Circular dated 11.05.1994 which the Courts have held to be reasonable possession looking at the customs prevailing in our country and useful guidance can be drawn from the decision of Hon'ble Rajasthan High Court in case of CIT vs Shri Satya Narain Patni (supra) wherein the Hon'ble High Court has held as under:
"12. It is true that the circular of the CBDT, referred to supra dt. 11/05/1994 only refers to the jewellery to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family, need not be seized and it does not speak about the questioning of the said jewellery from the person who has been found with possession of the said jewellery. However, the Board, looking to the Indian customs and traditions, has fairly expressed that jewellery to the said extent will not be seized and once the Board is also of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possesion of a married lady to the extent of 500 gms, 250 gms per unmarried lady and 100 gms per male member of the family will also not be questioned about its source and acquisation. We can take notice of the fact that at the time of 13 ITA No. 116/JP/2018 Late Shri Prakash Chand Surana Vs. DCIT wedding, the daughter/daughter-in-law receives gold ornaments jewellery and other goods not only from parental side but in-laws side as well at the time of 'Vidai' (farewell) or/and at the time when the daughter-in-law enters the house of her husband. We can also take notice of the fact that thereafter also, she continues to receive some small items by various other close friends and relatives of both the sides as well as on the auspicious occasion of birth of a child whether male or female and the CBDT, looking to such cutoms prevailing throughout India, in one way or the another, came out with this Circular and we accordingly are of the firm opinion that it should also mean that to the extent of the aforesaid jewellery, found in possession of the varoius persons, even source cannot be questioned. It is certainly 'Stridhan' of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisation of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found."
Further, the jewellery so found during the course of search was old jewellery except for 98 grams, therefore, for the purposes of determining undisclosed income by way of investment in such jewellery, valuation at current rates by Department Valuer is not correct and what needs to be determined is the value/cost in the year of acquisition/investment however, no efforts have been made by the Department. Therefore, mere disclosure of such jewellery in the statement of the assessee recorded u/s 132(4) of the Act would not represent undisclosed income as defined in the explanation to section 271AAB.
14 ITA No. 116/JP/2018Late Shri Prakash Chand Surana Vs. DCIT
14. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and respectfully following the decisions referred supra, the penalty levied u/s 271AAB is not sustainable and the orders of the lower authorities are set-aside and the appeal of the assessee is allowed.
Order pronounced in the open Court on 24/02/2020.
Sd/- Sd/-
(Sandeep Gosain) (Vikram Singh Yadav)
Judicial Member Accountant Member
Jaipur
Dated:- 24/02/2020
*Santosh
Copy of the order forwarded to:
1. The Appellant- Late Shri Prakash Chand Surana, Jaipur
2. The Respondent- DCIT, Central Circle-2, Jaipur
3. CIT
4. CIT(A)
5. DR, ITAT, Jaipur.
6. Guard File {ITA No. 116/JP/2018} By order, Asst. Registrar 15