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(b) The undersigned AR on receipt of the penalty order could not advise the appellant for filing appeal against the said penalty order Lalit Johri vs. ACIT since the AR was under a wrong impression that the provisions of sec 271AAB are of mandatory in nature. Although the levy of penalty u/s 271AAB was not mandatory, the AO proceeded to levy the penalty without appreciating the definition of "Undisclosed Income" as appearing in Explanation (c) to sec 271AAB As soon as subsequent interpretation coming into the knowledge of the AR that the levy of penalty u/s 271AAB is not mandatory and that as per the surrender made by the assessee and as per factual position obtaining in the assessee's case, there was no undisclosed income as per its definition given in Explanation (c) to sec 271AAB and no penalty u/s 271AAB is attracted in the assessee's case, the AR realized the mistake and immediately advised the assessee to file the appeal with a request of condonation of delay and there was no fault on the part of the assessee to decide for not to file the appeal on receipt of the penalty order as it is purely a technical matter and the assessee has to rest upon the advice of the counsel. Thus in this case there was a plausible and reasonable cause for filing the appeal with delay of 565 days as stated above for which a request by way of grounds No. 3 in appeal memo Le. Form 35 supported with an affidavit has been made before CIT for condonation of the said delay and for admission of the appeal for hearing on its merit. It was therefore very humbly submitted before the CIT (A) that the above said delay being attributed to the wrong advice given by the counsel and no fault or negligence is found on the part of the assesse and therefore it may kindly be condoned and the appeal may please be admitted for hearing on its merit. The reliance was placed on the decisions of PEOPLE EDUCATION & ECONOMIC DEVELOPMENT SOCIETY (PEEDS) vs INCOME TAX OFFICER (2006) 100 ITD 0087 (TM) placed at Paper Book page No.11 to 27, EDITH WILKINS HOPE FOUNDATION vs. DIRECTOR OF INCOME TAX (EXEMPTION) (2008) 111 ITD 0097 placed at Paper Book page No.28 to 34, INTERNATIONAL SOCIETY FOR KRISHNA CONSCIOUSNESS vs. DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS) (2008) 15 DTR 0633 placed at Paper Book page No 35 to 41,INCOME TAX OFFICER vs SECOND LEASING (P) LTD (2007) 18 SOT 0557 placed at Paper Book page No.42 to 46

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 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 AP High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 1588PA held that we are of the opinion that while the words shall be liable under sub section (1) of section 1588FA 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 Lalit Johri vs. ACIT 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"

132. A cash advance 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 can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used interchangeably. 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 s. 132", what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of account or other documents, and which has not been recorded before the date of search in the books of account or other documents maintained by the assessee in the normal course and not vice versa. We are also conscious of the fact that there are deeming provisions in terms of ss. 69 and 698 wherein such amounts may be deemed as income in absence of satisfactory Lalit Johri vs. ACIT explanation. In our view, the deeming fiction so envisaged under s. 69 and s. 69B cannot be extended and applied automatically in context of s. 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 contained in s. 69 and s. 698 could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of s. 271AAB provide for a specific definition of undisclosed income and where a specific definition of undisclosed income has been provided in s. 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject-matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded under s. 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of s. 271AAB read with the Explanation thereto and penalty so levied thereon deserved to be set aside." Accordingly, in view of the facts and circumstances of the case as well as the decision of the Co- ordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. Dy. CIT (supra), we hold that the entries in the seized documents representing the expenditure on account of construction of the house and purchase of other assets as well as advances in the absence of the real transactions do not constitute the undisclosed income of the assessee as defined in the explanation to s. 271AAB of the Act. Accordingly, the penalty levied under s. 271AAB in respect of the said amount is not sustainable and liable to be set aside."

In view of the above humble submissions, it is requested to your honour kindly to allow the appeal of the assessee by quashing the order of the dt 24.05.2023 vide which the penalty of Rs 3850000/ levied by the A.O. u/s. 271AAB has been confirmed and direct the 40 to drop the above said penalty and oblige."

8. The ld. Departmental Representative relied upon the assessment order and the order of the ld. CIT(A) .

9. Heard both the sides and perused all the relevant material on record. The ld. Authorized Representative at the time of hearing submitted that the CIT(A) has also dismissed the appeal of the assessee on the ground of delay as well as commented on the merit and dismissed the appeal. Since the ld. CIT(A) has already decided on merit ground nos. 1 & 2 in respect of delay before the CIT(A) is allowed. As regards, the merits of the case are concerned, the ld. Authorized Representative submitted that the notice issued for initiation of penalty u/s. 271AAB(1)(a) is not appropriate notice and bad in law appears to be not justifiable as the Assessing Officer has invoked the penalty provisions u/s. 271AAB and therefore when there is undisclosed income which has been surrendered at that juncture, the notice is just and proper. This contention of the ld. Authorized Representative does not survive. As regards the merits once the assessee has admitted the undisclosed income and offer the income for taxes accordingly the penalty u/s. 271AAB immediately gets attracted. The penalty u/s. 271AAB is on the Lalit Johri vs. ACIT basic threshold undisclosed income found and the explanation given by the assessee prior on discovery of the undisclosed income is insufficient then the penalty u/s. 271AAB is very much applicable. The each case laws referred by the ld. Authorized Representative on each of the aspect of the assessee's case are different in facts and will not be applicable in the present case. Thus, the ground no. 3 of the assessee's appeal is dismissed.