Document Fragment View

Matching Fragments

2. The sole ground of revenue's appeals is against the orders of Ld. CIT(A) in deleting the penalty imposed u/s. 271AAB of the Income-tax Act, 1961 (hereinafter referred to as the "Act").

2. Briefly stated facts are that there was a search and seizure operation in respect of Nezone Group of cases on 01.08.2012 and on subsequent dates; and the assessee before us is Shri Subhas Chandra Agarwala is one of the key persons of this group. In the penalty order, the AO notes that during the course of post search operation, the assessee admitted an undisclosed income of Rs.5,55,00,000/- for the AY under consideration in the form of commodity profit vide a consolidated disclosure petition filed by Shri Manoj Beswal, Chairman of Nezone Group. Further, the AO acknowledges that the assessee has filed his return of income for AY 2013-14 on 30.09.2013 declaring a total income of Rs.5,71,54,600/-. According to AO, on verification of accounts, he noticed that the assessee for the relevant year disclosed a sum of Rs.5,55,00,000/- and had shown the same under the head "Other Income". Then the AO notes that the return was selected for compulsory scrutiny and assessment was completed u/s. 143(3) of the Act on 29.08.2014 on a total income of Rs.5,71,54,600/- (on the same income returned by the assessee in the ROI) and penalty proceedings were initiated u/s. 271AAB of the Act on the amount disclosed during search of Rs. 3 cr. and after serving the penalty notice u/s. 271AAB read with section 274 of the Act on the assessee on 05.09.2014. In response, the assessee submitted a written submission, which we note has been reproduced by the AO in the order passed u/s. 271AAB of the Act dated 24.02.2015. After considering the submission of the assessee, the AO imposed penalty u/s. 271AAB(1)(a) of the Act by observing that the entire undisclosed income can only be treated as arising out of documents/transactions/evidence found in the course of search u/s. 132 of the Act and the same was not entered in the books of account. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who deleted the penalty by observing as under:

Aggrieved, the revenue is in appeal before us.

3. We have heard rival submissions and gone through the facts and circumstances of the case. At the outset, it has been brought to our notice by the Ld. AR that similar penalty u/s. 271AAB of the Act was levied by the AO against Shri Manish Agarwala and Subhas Chandra Agarwala & Sons, HUF which was also deleted by the Ld. CIT(A), which decision of the Ld. CIT(A) was assailed by the Department before the Tribunal which has been confirmed and the appeal of the Revenue has been dismissed in ITA Nos. 1479/Kol/2015 and 1470/Kol/2015 dated 09.02.2018 and 19.02.2018 respectively. The Ld. DR could not controvert the aforesaid averment of the Ld. AR. We note that on the same date of search on 01.08.2012 on the admitted undisclosed income penalty was levied u/s. 271AAB of the Act in the case of Manish Agarwala and Subhas Chandra Agarwala & Sons, HUF which was deleted by the Ld. CIT(A) which action has been confirmed by the Tribunal in the case of Manish Agarwala in ITA No. 1479/Kol/2015 for AY 2013-14 dated 09.02.2018 as under:

i) The assessee has substantiated the manner in which the income was derived. Ii) Furnished the return of income therein and
iii) Paid the tax along with interest.

Based on the said finding, according to AO, the assessee satisfies the conditions enumerated in sec. 271AAB(i)(a) of the Act and thereafter levied ten percent of Rs.3 cr., which have been deleted by the impugned order of Ld. CIT(A).

4. The Ld. DR brought to our notice that in the very same group case of Manoj Beswal & Ors. the Tribunal had confirmed the levy of penalty and contended before us that penalty ITA Nos.1474 & 1478/Kol/2015 Sybhas Chandra Agarwala & Pradip Kr. Agarwala, AY- 2013-14 u/s. 271AAB of the Act is mandatory and therefore, according to Ld. DR, the Ld. CIT(A) erred in deleting the penalty by stating that the assessee did not had any 'mens rea' not to disclose the amount in question. According to him, penalty has to be mandatorily levied u/s. 271AAB of the Act on the undisclosed income found during search. On the other hand, Ld. AR Shri Miraz D. Shah, supporting the decision of Ld. CIT(A) made contentions though taken up before the Ld. CIT(A) but has not been adjudicated on those averments, which the Ld. AR urges before us to consider while adjudicating the appeal of the Revenue. The Ld. AR also pointed out that the contentions which he is going to raise has been taken up before the AO also, however, according to Ld. Counsel, those legal arguments were not considered by the AO in the right perspective. The first contention of the Ld. AR is that since Sec. 271AAB of the Act is a penalty section it should be construed strictly, which we agree being it is a trite law that penalty provisions have to be strictly interpreted. Next contention of Ld. AR is that sec. 271AAB of the Act is not mandatory because Parliament in its wisdom has used the word 'may' and not 'shall'. So, according to him, it is the discretion bestowed upon the AO whether to initiate and impose penalty u/s. 271AAB of the Act. We agree with the said contention of Ld. AR because when a similar issue was adjudicated by ITAT Lucknow (the author of this order was a member of the Bench) in Sandeep Chandak & Ors. Vs. CIT (2017) 55 ITR (Trib) 209 and 2017 (5) TMI 675-ITAT-Lucknow in ITA No. 416, 417 and 418/LKW/2016 dated 30.01.2017 while adjudicating a case where penalty was levied under section 271AAB of the Act it was held that the provisions of Sec. 271AAB of the Act are not mandatory, which means that penalty need not be levied in each and every case wherever the assessee has made default as stated in clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word "may" not "shall". "May" cannot be equated with "shall" especially in penalty proceeding. Using the word "may" in our opinion, gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision." Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s. 271AAB of the Act is not mandatory and is discretionary. Before proceeding further, we note that the ex parte order passed by the Coordinate Bench relied upon by Ld. DR, Manoj Beswal, supra, have been recalled in MA Nos. 218 to 220/Kol/2017 dated 12.01.2018 by observing as under:

(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."

According to the Ld. AR, from the facts and circumstances described above, since the assessee is not engaged in business or profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee's case falls in the second limb i.e. "or other documents" as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section which is very important to adjudicate this issue. Therefore, the question is when the search took place, the assessee's transactions (in this case, the speculative transaction) has been found to be recorded in the "other documents" which is (retrieved from the assessee's accountant's drawer) and based on that the assessee declared Rs. 3 cr. during search and later returned income of Rs. 3 cr. as income under the head "Income from Other Sources" which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the "other documents" maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of Rs. 3 cr. offered by the assessee does not fall in the ken of "undisclosed income" defined in Sec. 271AAB of the Act. So, Rs. 3 cr. which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as "undisclosed Income" in the definition given u/s. 271AAB of the Act. Since Rs. 3 cr. cannot be termed as "Undisclosed Income" as per sec. 271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the Ld. CIT(A) on the aforesaid reasoning rendered by us.