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7. Per contra, the Ld. AR fully supported the order of the Ld. CIT(A) cancelling the penalty. He reiterated his submissions before the lower authorities and vehemently contended that the income of Rs.69 crores voluntarily offered in the return of income did not come within the ken of the expression 'undisclosed income' as defined in Explanation (c) to Section 271AAB of the Act. The Ld. AR also vehemently argued that the AO was incorrect in stating that the levy of penalty u/s 271AAB was mandatory and automatic and he had no discretion in the matter of levying penalty u/s 271AAB of the Act. In this regard he brought to our attention the relevant provisions of Section 271AAB which provided that the AO 'may' notwithstanding anything contained in any other provisions direct the assessee shall pay penalty in addition to tax. With reference to the use of the expression 'may' in Section 271AAB, the Ld. AR argued that the levy of penalty was discretionary and not mandatory as contended by the Ld. DR as well as the AO. Drawing attention to the assessment order u/s 143(3) dated 31.03.2015 the Ld. AR submitted that nowhere in the assessment order the AO had made out a case that the income of Rs.69 crores voluntarily offered while filing of the return was in any manner represented by any asset or by an entry in the books of accounts or any other related documents found in the course of search. The Ld. AR therefore submitted that merely because with a view to avoid protracted litigation and to buy peace of mind, the appellant had made voluntary offer to pay tax on income and acted upon such offer, such fact ipso facto does not lead to conclusion that such income was in the nature of 'undisclosed income' for the purposes of clause (c) of Explanation to Section 271AAB of the Act. It was his argument that the expression 'undisclosed income' was defined for the purposes of Section 271AAB in a specified manner and therefore it was obligatory on the AO's part to prove that the income voluntarily offered came within the ambit and scope of the expression 'undisclosed income' as defined in clause (c) of the Explanation. According to Ld. AR the voluntary offer made by the assessee to pay tax on income of Rs.69 crores did not fall within any of the specified sub-clauses contemplated by clause (c) of the Explanation to Section 271AAB and therefore merely because the assessee had made offer to pay tax on income while recording his statement u/s 132(4) of the Act, that by itself did not lead to conclusion that income specified in the joint declaration u/s 132(4) was 'undisclosed income' for the purposes of Section 271AAB attracting rigors of penalty under that Section. He further submitted that the offer to pay tax on the additional income of Rs.69 crores was made and acted upon by the assessee in good faith on the assurance given by the search party that the assessee would not be visited with any penal consequences. The assessee was therefore under bona fide belief that since it had acted upon its bona fide offer and the income did not come within the meaning of undisclosed income, it would not be visited with penalty u/s 271AAB of the Act. The Ld. AR argued that the Ld. CIT(A) correctly appreciated the true and correct purport of Section 271AAB and applying the ratio laid down by the Hon'ble Apex Court in the case of Sudardhan Silk &SareesVs CIT (300 ITR

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 isparimateria 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;

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 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 RadhakrishnaVihar 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."

17. From the plain reading of Section 271AAB we find that the levy of penalty is permissible if and only if there exists 'undisclosed 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 271AAB of the Act. Discovery and consequent assessment of undisclosed 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 litigation cannot and does not amount to discovery of undisclosed income for the purposes of levy penalty u/s 271AAB of the Act. The Legislature has all along been conscious in providing for levy of penalty only in respect of "undisclosed income". We find that in all penal provisions such as Explanation 5A of Section 271(1)(c), Section 271AAA & Section 271AAB, the Legislature has restricted the scope of penal provision only to "undisclosed income" and not assessed total income. Moreover the term/expression "undisclosed income" has been defined by the Legislature in all such penal provisions in a specific 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 income but the word used is undisclosed income "means". The conscious use of the expression "means" in contradistinction 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. Applying 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 Ld. AR's arguments that since the sum 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.