SHRI AMIT TIWARI,INDORE vs. THE DCIT (CENTRAL)-2, INDORE

आयकर अपील�य अ�धकरण, इ�दौर �यायपीठ, इ�दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No.699/Ind/2019 Assessment Year:2015-16

Shri Amit Tiwari DCIT (Central)-2 3176-E, Sudama Nagar Indore बनाम/ Indore Vs. (Appellant) (Revenue ) P.A. No.ACVPT3933C Appellant by Shri S.N. Agrawal, CA Revenue by Shri V.J. Boricha, Sr. DR Date of Hearing: 12.08.2020 Date of Pronouncement: 19.08.2020 आदेश / O R D E R PER KUL BHARAT, J.M: This appeal by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)(in short ‘Ld. CIT(A)’, Bhopal- 3 dated 23.04.2019. The assessee has raised following grounds of appeal: “1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty

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under section 271AAB of the Act without properly appreciating the facts of the case and submissions made before him. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in maintaining the levy of penalty under section 271AAB of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law. 3. The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him.”

seizure action was carried out on the business as well as residential

premises of the Moira Group of Indore including the assessee. It is

observed by the Assessing Officer that during the course of search

and seizure proceedings statement u/s 132(4) of the Income Tax Act

1961(hereinafter referred as the ‘Act’) was recorded wherein the

assessee surrendered undisclosed income of Rs.8,00,00,000/- in

various financial years after considering the seized documents in

his case. Therefore, the Assessing officer issued a notice u/s

271AAB of the Act for levying penalty. In response thereto, the

assessee filed written submission which was not accepted by the

Assessing Officer and he passed penalty order u/s 271AAB of the

Act, thereby, levied penalty @10% of the undisclosed income

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amounting to Rs.6,83,498/-.

the Ld. CIT(A) who after considering the submissions confirmed the

penalty.

for the assessee reiterated the submissions as made in the written

synopsis. For the sake of clarity submissions of the assessee are

reproduced as under:

A.1] The present appeal is filed by the assessee against the order of the Ld. CIT (A)-3, Bhopal dated 23-04-2019. A.2] Search and seizure operations under section 132 of the Income Tax Act were carried out at the business as well as residential premises of the Moira Group of Indore including the appellant and other concerns/business associates on 17-06-2015. A.3] The appellant accepted additional income to the tune of Rs. 8,00,00,000/- during the course of search in his statement recorded under section 132(4) of the Income-Tax Act, 1961 which was duly offered for tax in his income-tax return and legitimate amount of tax due was also paid on such additional income. The appellant subsequently also filed an affidavit dated 30-11-2015 during the course of post search proceedings wherein the break-up of additional income of Rs. 8,00,00,000/- as accepted during the course of search was given. A.4] It was further stated that an amount of Rs. 68,34,975/- on account of investment in construction of house pertained to the previous year relevant to the Assessment Year 2015-16 and balance amount of additional income pertained to the previous year relevant to the Assessment Year 2016-17. A.5] The income-tax return of the appellant for the Assessment Year 2015-16 was thereafter filed on 31-03-2016 wherein total income was declared at Rs. 1,10,17,010/- including additional income of Rs. 68,34,975/- on account of investment in construction of house.

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A.6] The assessing officer however initiated penalty proceedings under section 271AAB of the Income-Tax Act, 1961 in respect of such additional income of Rs. 68,34,975/- and subsequently levied penalty of Rs. 6,83,498/- being 10% of such income of Rs. 68,34,975/- stating that the appellant surrendered such undisclosed income during the course of search. A.7] The appellant thereafter preferred an appeal before the Ld CIT (A)-3, Bhopal against the penalty order as passed under section 271AAB of the Income-Tax Act, 1961 and took the following grounds of appeal: 1] That on the facts and in the circumstances of the case and in law the Ld Assessing Officer erred in levied penalty U/s 271AAB of the Act of Rs 6,83,498/-, without properly appreciating the facts of the case and submission made before him. 2] That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in levied penalty U/s 271AAB of the Act of Rs 6,83,498/- without recording proper satisfaction for initiation of the penalty in the assessment order and also in the show cause notice as issued. 3] The appellant reserves his right to add, alter and modify the ground of appeal taken before the first appellate authority. A.8] However, the Ld CIT (A)-3, Bhopal vide order dated 23-04-2019 confirmed the penalty of Rs. 6,83,498/- as levied by the assessing officer under section 271AAB of the Income-Tax Act, 1961 by observing that the impugned amount would not have been offered for taxation had there been no search and seizure operation. The Ld CIT (A) confirmed the levy of penalty under section 271AAB of the Income-Tax Act, 1961 without dealing with each ground of appeal raised before him which is neither legal nor proper. A.9] The appellant has therefore preferred an appeal before the Hon’ble Bench against the order of the Ld CIT (A)-3, Bhopal and has taken the following grounds of appeal: 1] That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in maintaining the levy of penalty under section 271AAB of the Act without properly appreciating the facts of the case and submissions made before him. 2] That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in maintaining the levy of penalty under section 271AAB of the Act even when the show cause notice as issued for levy of penalty was defective wherein no specific charge was framed against the appellant and therefore penalty imposed on the basis of such defective notice is not maintainable in law. 4

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3] The appellant reserves his right to add, alter and modify the grounds of appeal as taken by him.

1] GROUND NO. 2 – CHALLENGING THE LEVY OF PENALTY OF RS. 6,83,498/- UNDER SECTION 271AAB OF THE INCOME-TAX ACT, 1961 SINCE THE SHOW CAUSE NOTICE ISSUED PRIOR TO THE LEVY OF PENALTY WAS DEFECTIVE WHEREIN NO SPECIFIC CHARGE WAS FRAMED 1.1] The appellant in the ground of appeal has challenged the levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 since the show cause notice issued prior to the levy of penalty was defective wherein no specific charge was framed against the appellant. 1.2.1] The provision of sub-section (3) of section 271AAB of the Income-Tax Act, 1961 provides that provisions of section 274 and 275 shall apply in relation to penalty referred to in this section which implies that the assessing officer is bound to issue a notice under section 274 of the Income-Tax Act, 1961 and provide a reasonable opportunity of being heard to the assessee before passing any order imposing penalty. 1.2.2] The opportunity of being heard that ought to be given to the assessee should be a meaningful one and not farce. 1.3.1] The provisions of section 271AAB of the Income-Tax Act, 1961 further lay down various conditions relating to levy of penalty @ 10% or 20% or 30% or 60%, as the case may be. The show cause notice as issued prior to the levy of penalty must specifically point out towards the relevant clause that shall be applicable in a particular case. The assessing officer shall also specify the default committed by the assessee so as to attract the penalty @ 10% or 20% or 30% or 60% of the undisclosed income. 1.3.2] Copy of show cause notices dated 30-11-2017 and 04-05- 2018 as issued under section 274 read with section 271AAB of the Income-Tax Act, 1961 for the Assessment Year 2015-16 are also reproduced hereunder for your ready reference:

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1.3.3] On perusal of these show cause notices, it is quite evident that the assessing officer initiated penalty proceedings under section 271AAB of the Income-Tax Act, 1961 but the appellant was show caused on the charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAB of the Income-Tax Act, 1961.

1.3.4] The assessing officer in the show cause notice did not specify the default and charge against the appellant which necessitated levy of penalty under section 271AAB of the Income-Tax Act, 1961. The show cause notice as issued prior to the levy of penalty under section 271AAB of the Income-Tax Act, 1961 was vague and issued in a casual fashion which makes the alleged show cause notice defective and invalid and consequently, order imposing penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 deserves to be quashed.

1.4.1] The aforesaid issue is duly covered in the favour of the appellant by the recent judgments of the Hon’ble ITAT, Indore Bench wherein it has been categorically held that the show cause notice which is not in accordance with the mandates of law and wherein the matter written in the body of the notice issued under section 274 of the Income-Tax Act, 1961 does not refer to the charges of provision of section 271AAB of the Income-Tax Act, 1961, makes the alleged notice defective and invalid and thus, penalty order passed consequentially deserves to be set-aside.

Relevant extracts from few of these judicial precedents which have enunciated the above mentioned principles are reproduced hereunder for your ready reference:

1.4.2] The Hon’ble ITAT Indore Bench in the case of Dr. Rajesh Jain Vs. DCIT (Central)-1 [ITA No. 905/Ind/2018] vide order dated 19-02- 2020 has categorically held that:

“16. We, therefore respectfully following the judgment/decision referred above and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 8

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271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs. 2,04,900/- stands deleted. We accordingly allow the legal ground raised by the assessee challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act and quash the penalty proceeding as void ab intio. In the result appeals of the assessee(s) for Assessment Years 2014-15 is allowed on legal ground.” [Emphasis Supplied] 1.4.3] The Hon’ble ITAT Indore Bench in the case of Shri Vivek Chugh Vs. ACIT (Central)-2 [ITA No. 636/Ind/2017] has held that:

“7. A bare reading of the above notice suggests that the notice has been issued in a casual fashion. The Assessing officer has not applied his mind and no specific charge is mentioned for which the assessee was required to be show caused. In absence of the requisite contents of specific charge the initiation of proceedings cannot be sustained being bad in law. Admittedly, Ld. CIT(A) reduced the penalty by applying the provisions of section 271AAB(1)(a). There is no ambiguity under the law so far powers of Ld. CIT(A) is concerned, he can modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. However, in the present case at the very inception notice initiating penalty is not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable u/s 292BB of the Act. Therefore, we hereby quash the penalty order.” [Emphasis Supplied]

1.4.4] The Hon’ble ITAT Chennai Bench in the case of DCIT Vs. Shri R. Elangovan [ITA No. 1199/CHNY/2017] has categorically held that:

“5…………..It is clear from the Sub Section (3) of Section 271 AAB that Sections 274 and Section 275 of the Act shall, so far as may be, apply. Sub Section (1) of Section 274 of the Act mandates that order imposing penalty has to be imposed only after hearing the assessee or giving a assessee opportunity of hearing. Opportunity that is to be given to the assessee should be a meaningful one and not a farce. Notice issued to the assessee reproduced (supra), does not show whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income or for 9

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having undisclosed income within the meaning of Section 271AAB of the Act. Notice in our opinion was vague. Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows (supra) relying in its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) had held as under:- ‘’2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed’’. In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under:-

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‘’Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) , i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee;) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; penalty proceedings are distinct from the assessment proceedings: though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings; The findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings’’. View taken by the Hon’ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon’ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA’s Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside.”[Emphasis Supplied]

1.4.5] The Hon’ble ITAT Jaipur Bench in the case of Shri Ravi Mathur Vs. DCIT [ITA No. 969/JP/2017] has held that:

“7. As regards the validity of notice under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed income not recorded in the books of accounts does not exists, then the same has to be specified by the AO in the show cause notice and further the AO is required to give a finding while imposing the penalty under section 271AAB. Even if the AO is satisfied and come to the conclusion that the assessee has 11

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not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act…………..In view of the decision of the Chennai Bench (supra), the show cause notice issued by the AO in the case of the assessee is not sustainable.” [Emphasis Supplied]

1.4.6] The Hon’ble Apex Court in the case of CIT Vs SSA’s Emerald Meadows as reported in [2016] 73 taxmann.com 248 (SC) dismissed the Special Leave Petition filed by the Department against the order of the Hon’ble Karnataka High Court. The Hon'ble Karnataka High Court in the case of CIT Vs SSA's Emerald Meadows as reported in [2016] 73 taxmann.com 241 (Karnataka) following its own decision in the case of CIT Vs Manjunatha Cotton & Ginning Factory as reported in [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 dismissed the appeal of revenue by observing as under:

“3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income.The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.). 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”[Emphasis Supplied]

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1.4.7] The Hon’ble Madhya Pradesh High Court in the case of Pr CIT Vs Kulwant Singh Bhatia [ITA No. 9 to 14 of 2018] held that no penalty under section 271(1)(c) of the Act is leviable when there is no specific charge mentioned in the show cause notice [refer Para 11 of the decision]:

“11. On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show-cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (supra) and CIT V/s. SSA'S Emerald Meadows(supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is arising in these appeals. ITA.No(s).9/2018, 10/2018, 11/2018, 12/2018, 13/2018 and 14/2018, filed by the appellant have no merit and are hereby dismissed.”[Emphasis Supplied]

1.5] In view of the above discussion and judicial precedents cited supra, it is quite clear that the assessing officer mechanically issued the show cause notice in a general proforma without applying his mind and without mentioning any specific charge for which the appellant was required to be show caused thereby negating the principles of natural justice. It is also pertinent to mention that the assessing officer initiated penalty proceedings under section 271AAB of the Income-Tax Act, 1961 but the appellant was show caused on the dual charge of concealment of particulars of income or furnishing inaccurate particulars of income which falls under the scope and purview of section 271(1)(c) of the Income-Tax Act, 1961 and not under the purview of section 271AAB of the Income-Tax Act, 1961. The show cause notice thus suffers from a fatal error which is not curable under section 292BB of the Income-Tax Act, 1961 and henceforth, penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 on the basis of such defective and invalid show cause notice is not sustainable on this ground itself and deserves to be deleted in entirety.

2] GROUND NO. 1 – CHALLENGING THE LEVY OF PENALTY OF RS. 6,83,498/- UNDER SECTION 271AAB OF THE INCOME-TAX ACT, 1961

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2.1] The appellant in this ground of appeal has challenged the levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 on merits of the case.

2.2] The appellant accepted additional income to the tune of Rs. 68,34,975/- on account of investment in construction of house pertaining to the Assessment Year 2015-16 in his statement recorded under section 132(4) of the Income-Tax Act, 1961. However, the assessing officer subsequently levied penalty @ 10% on such admission made by the appellant under section 132(4) of the Income- Tax Act, 1961 which comes to Rs. 6,83,498/-.

2.3.1] The relevant extract of provision of section 271AAB of the Income-Tax Act, 1961 is reproduced hereunder for your ready reference:

“271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein;” [Emphasis Supplied]

2.3.2] On a careful reading of the above extract of provision of section 271AAB of the Income-Tax Act, 1961, it becomes quite clear that the words used in the beginning are “Assessing Officer may direct” which implies that the imposition of penalty under section

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271AAB of the Income-Tax Act, 1961 is not mandatory in nature but is discretionary. The legislature has included the provisions of section 274 and section 275 in section 271AAB of the Income-Tax Act, 1961 with a clear intention to consider the imposition of penalty judicially since section 274 of the Income-Tax Act, 1961 deals with the procedure to levy penalty only after providing a reasonable opportunity of being heard to the assessee and once the assessing officer is bound 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. 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. The aforesaid view has been affirmed in the landmark judgment of the Hon’ble ITAT Visakhapatnam Bench in the case of ACIT (Central Circle)-2 v. Marvel Associates as reported in [2018] 194 TTJ 338 (Visakhapatnam - Trib.) which leads us to a conclusion that penalty under section 271AAB of the Income-Tax Act, 1961 is not automatic.

2.3.3] Further, it is also quite evident that the term ‘undisclosed income’ assumes significant importance for levy of penalty under section 271AAB of the Income-Tax Act, 1961 since penalty under this section is levied as a percentage of ‘undisclosed income’. The term ‘undisclosed income’ has been defined in clause (c) of Explanation to section 271AAB of the Income-Tax Act, 1961 which is reproduced hereunder for your ready reference:

“(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 15

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(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.”[Emphasis Supplied] 2.3.4] In view of the above, it can be satisfactorily concluded that disclosure of additional income in statement recorded under section 132(4) of the Income-Tax Act, 1961 itself is not sufficient to levy penalty under section 271AAB of the Income-Tax Act, 1961 until and unless income so disclosed by the assessee falls in the definition of ‘undisclosed income’ defined in Explanation to section 271AAB of the Income-Tax Act, 1961.

2.4.1] The appellant accepted additional income to the tune of Rs. 68,34,975/- on account of investment in construction of house pertaining to the Assessment Year 2015-16. Hence, it becomes significantly important to analyze as to whether investment in construction of house falls within the definition of ‘undisclosed income’ so as to attract the penal provisions of section 271AAB of the Income-Tax Act, 1961. The definition of ‘undisclosed income’ as provided in the Explanation to section 271AAB of the Income-Tax Act, 1961 along with corresponding explanation/justification of the appellant in respect of its applicability in the facts of the present case is summarized as under for your ready reference: Sub-clause Definition of ‘Undisclosed income’ Explanations/Justification of the appellant of the definition (i) any income of the specified previous year The appellant accepted additional income of Rs. represented, either wholly or partly, by any 68,34,975/- on account of investment in money, bullion, jewellery or other valuable construction of house pertaining to the article or thing or any entry in the books of Assessment Year 2015-16. account or other documents or transactions The income as accepted by the appellant was on found in the course of a search under section account of investment in construction of house 132, which has— and was not on account of either any money, (A) not been recorded on or before the bullion, jewellery or other valuable article or date of search in the books of account thing or any entry in the books of account or or other documents maintained in the other documents or transactions found in the normal course relating to such previous course of a search which was not recorded on or year; or before the date of search in the books of accounts (B) otherwise not been disclosed to the or other documents. Principal Chief Commissioner or Chief Hence, it is quite clear that the additional income Commissioner or Principal of Rs. 68,34,975/- as accepted by the appellant Commissioner or Commissioner before did not fall within the definition of ‘undisclosed the date of search; or income’ as per sub-clause (i) (ii) any income of the specified previous year As stated above, the appellant accepted and represented, either wholly or partly, by any offered additional income on account of 16

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entry in respect of an expense recorded in investment in construction of house pertaining to the books of account or other documents the year under consideration. maintained in the normal course relating to It was absolutely not a case wherein the the specified previous year which is found to additional income was represented by any entry be false and would not have been found to in respect of expense recorded in the books of be so had the search not been conducted accounts or other documents which was found to be false or would not have been found had the search not been conducted. The appellant accepted additional income on account of investment in construction of house which can by no stretch of imagination be treated as entry in respect of an expense. Hence, it is quite clear that the additional income of Rs. 68,34,975/- as accepted by the appellant did not fall within the definition of ‘undisclosed income’ as per sub-clause (ii)

2.4.2] On perusal of the above table, it is quite clear that the amount of additional income of Rs. 68,34,975/- as accepted by the appellant on account of investment in construction of house was outside the scope and purview of the definition of ‘undisclosed income’ as provided in Explanation to section 271AAB of the Income-Tax Act, 1961. It is pertinent to note that since the amount of additional income of Rs. 68,34,975/- as accepted in the statement recorded under section 132(4) of the Income-Tax Act, 1961 did not fall within the definition of ‘undisclosed income’ as provided in Explanation to section 271AAB of the Income-Tax Act, 1961; hence, there arises no question of levy of penalty of Rs. 6,83,498/- under section 271AAB of the Income-Tax Act, 1961 and the penalty so levied now requires to be deleted in entirety. Relevant extracts from few of the judicial precedents which have enunciated the above mentioned principles are reproduced hereunder for your ready reference:

2.5.1] The Hon’ble ITAT Visakhapatnam Bench in the case of ACIT (Central Circle)-2 v. Marvel Associates as reported in [2018] 194 TTJ 338 (Visakhapatnam - Trib.) has held that:

“9.Penalty u/s 271AAB attracts on undisclosed income but not on admission made by the assessee u/s 132(4). The AO must establish that there is undisclosed income on the basis of incriminating material. In the instant case a loose sheet was found according to the A.O., it was incriminating material evidencing the undisclosed income. In the penalty order the AO observed that loose sheet shows the cost per square feet is Rs.3571/- per sft. and assessee stated to have submitted in sworn statement cost per sq. feet at Rs.2200/- to 17

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Rs.2300/- per sq. feet. However neither the AO nor the Ld.CIT(A) has verified the cost of construction with the books and projections found at the time of search. The counsel argued that it was mere projection but not the actuals. The write up heading also mentioned that summary of the projected profitability statement. There is no evidence to establish that projections reflected in the loose sheet is real. No other material was found during the course of search indicating the undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in the books of accounts or documents transactions were found during the course of search indicating the assets not recorded in the books of accounts or other documents maintained in the normal course, wholly or partly. The revenue did not find any undisclosed asset, any other undisclosed income or the inflation of expenditure during the search/ assessment proceedings. Though a loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. The amount of Rs.3571/- mentioned in the projections refers to cost and profit which is approximate sale price but not the cost as stated by the AO in the penalty order. The cost of construction in the projections projected at Rs.2177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable. The facts of the assessee's case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of 18

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the lower authorities and cancel the penalty u/s 271AAB of the Act.”[Emphasis Supplied]

2.5.2] The Hon’ble ITAT Jaipur Bench in the case of Padam Chand Pungliya v. ACIT (Central Circle)-1 as reported in [2020] 113 taxmann.com 446 (Jaipur - Trib.) has held that:

“8. We have considered the rival submissions as well as the relevant material on record. Out of the four items representing the undisclosed income disclosed by the assessee during the statement under section 132(4) of the IT Act, only two items, namely, expenditure on house construction and undisclosed advances are based on the seized material. The other two items being representing excess stock and undisclosed jewellery are not based on the seized documents but these are based on the valuation of the stock as well as the jewellery found at the time of search and seizure action. First, we take up the undisclosed income on account of expenditure on house construction of Rs. 2,44,63,575/-, the relevant alleged seized document in this respect are the entries in the diary on 04.04.2013, 14.04.2013, 28.04.2013, 28.05.2013 and 01.06.2013. It is pertinent to note that all these notings are done during the month of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of Rs. 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like Rs. 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there is an entry of some marble fixing of Rs. 5 lacs. From these entries in the alleged seized material, it is manifest that most of them are unrealistic as entry of Rs. 70 lacs is shown towards furniture which is highly impossible. Another entry of Rs. 45 lacs is shown towards steel. Thus from the notings of these papers it is clear that these are not entries representing the real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded under section 132(4) any efforts were made by the search party to find out the actual existence of these assets towards which the alleged entries are 19

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recorded in the seized material/papers. Though the admission on the part of the assessee is a relevant evidence, however, when the entries/notings in the loose papers are apparently not representing the real transactions then it was incumbent upon the department to find out and establish the existence of these assets in the possession of the assessee. In the absence of such efforts and even any question put to the assessee regarding the existence of these assets, these entries alone would not ipso facto constitute undisclosed income of the assessee. Even otherwise, these entries in itself are not having any income element but these are all expenditure entries and, therefore, until and unless a corresponding asset is found in the possession of the assessee, the entries alone cannot be regarded as representing the undisclosed income of the assessee. Therefore, when the duration of the construction period of the house has not been ascertained by the department, then showing the entire cost of construction with imaginary figures for a period of 2 month is not justified. Even we find that the construction material entries are on subsequent dates and furniture and TV entries on the earlier dates which do not support of the case of the department that these entries/notings in the seized documents represents the real transactions/assets purchased by the assessee or in the possession of the assessee. The possession of the asset was a matter of fact at the time of search and in the absence of such asset either found or otherwise discovered during the course of search and seizure, these entries in the seized documents would not constitute undisclosed income on account of expenditure in construction of the house. Similarly, the entries in respect of advances of Rs. 5,62,000/- also very vague and ambiguous not giving any details about the purpose or date on which these advances were given. Only a date is mentioned at the bottom of the page but not against each and every entry of the page. Further, we note that the department has not tried to ascertain the full particulars of the alleged persons whose names are noted in the seized documents against certain amounts which are considered as advances given by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee.………………..Accordingly, in view of the facts and circumstances of the case as well as the decision of the Coordinate 20

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Bench of this Tribunal in the case of Rajendra Kumar Gupta (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 section 271AAB of the Act. Accordingly, the penalty levied under section 271AAB in respect of the said amount is not sustainable and liable to be set aside.”[Emphasis Supplied]

2.5.3] The Hon’ble ITAT Jaipur Bench ‘A’ in the case of Smt. Aparna Agrawal v. DCIT (Central Circle), Kota as reported in [2019] 105 taxmann.com 233 (Jaipur - Trib.) has held that:

“4. We have considered the rival submissions as well as the relevant material on record. The AO has levied the penalty under section 271AAB of the Act in respect of the income surrendered by the assessee on account of LTCG from purchase and sale of equity shares. The question arises whether the surrender made by the assessee in the statement recorded under section 132(4) will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) of Explanation to section 271AAB of the Act. There is no dispute that in the statement recorded under section 132(4), the assessee has disclosed the income under consideration as undisclosed income on account of LTCG. However, for the purpose of levying the penalty under section 271AAB, the primary condition is that the assessee shall pay the penalty equivalent to 10 percent, 20 percent or 30 percent of undisclosed income of specified previous year depending upon the satisfaction of the condition as provided under section 271AAB. The term "undisclosed income" has been defined in the Explanation to section 271AAB and, therefore, the penalty under the said provision has to be levied only when the income surrendered by the assessee falls in the ambit of undisclosed income as defined under this section. The mere disclosure of income in the statement recorded under section 132(4) would not ipso facto be regarded as undisclosed income unless and until it is tested as per the definition provided in the Explanation to section 271AAB of the Act……………..The levy of penalty under section 271AAB does not dependent on the addition made during the assessment proceedings but the conditions provided under section 271AAB are precedent for levy of penalty. The assessment order is relevant only for the 21

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purpose of limitation provided under section 275 of the IT Act whereas the penalty under section 271AAB has to be imposed only when the income disclosed by the assessee falls in the ambit of undisclosed income as defined under section 271AAB of the Act. The definition of undisclosed income contemplates various forms and the primary condition is that the income of the specified previous year represented 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 during the course of search which has 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. In the case in hand, since the surrender was made in respect of the LTCG recorded in the seized material, therefore, it is based on the entries in the other documents found during the course of search. The income in the shape of entries in other documents found during the course of search would be considered as undisclosed income if the said income has not been recorded in the books of account on or before the date of search. In the case in hand, it is undisputed fact that all the transactions of purchase and sale and LTCG arising from the sale of equity shares of the listed companies are duly recorded in the books of account. Therefore, it is not the case of any income of the specified year representing the entry in the other documents which has not been recorded in the books of account on the date of search. Therefore, the primary condition of undisclosed income that the income represented by the entry in the other record is not recorded in the books of account on the date of search is not satisfied. The definition of "undisclosed income" is subjected to two conditions that the said income has 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. The second condition is not relevant for our purpose since these entries are undisputedly duly recorded in the books of account of the assessee. We further note that the seized material does not reveal the nature of transaction being genuine or bogus but the entry in the seized material is only the computation of long-term capital gain on sale of shares. Therefore, the documents which were found and seized during the course of search and seizure action contains the details of LTCG would not be regarded as incriminating material disclosing any income not recorded in the books of account. Hence the primary condition for treating such income as undisclosed income in terms of section 271AAB is not satisfied…………For bringing the income surrendered by the assessee in the fold of 22

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undisclosed income as per the definition of "undisclosed income" in Explanation to section 271AAB, the said income must represent either any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents but has not been recorded in the books of account as on the date of search. Therefore, the primary condition for treating an income as undisclosed income is that it should represent inter alia any entry in the books of account or other documents found during the search but the said income is not recorded in the books of account. In the case in hand, the document found during the search is not an incriminating material when the entry and the income were duly recorded in the books of account. Therefore, the statement of the assessee recorded under section 132(4) would not constitute incriminating material. Therefore, the said income disclosed by the assessee cannot be considered as undisclosed income in terms of section 271AAB of the Act. The Tribunal has taken a consistent view that the penalty under section 271AAB is not automatic but the AO has to take a decision as per the provisions of section 271AAB and particularly in the light of the definition of the undisclosed income as prescribed in the Explanation to section 271AAB of the Act.”[Emphasis Supplied]

2.5.4] The Hon’ble ITAT Ahmedabad Bench ‘C’ in the case of M/s Shree Vallabha Developers Vs. DCIT, Central Circle-2 [ITA No. 1873 & 1874/AHD/2018] has held that:

“5. We find that a total disclosure of Rs.10.51 Crores was made with respect to various entities including assessee as well as Bharatkumar Parikh besides other entities. In the case of assessee, the disclosure was on account of inflated expenses. However, no incriminating material was found during search operations and the undisclosed income was not represented by any money, bullion, Jewellery or other valuable article or thing or any entry in the books of accounts. None of the entries in the books was found to be false and the disclosure was voluntary. Therefore, the same would not fall within the term undisclosed income as defined in Explanation-c(ii) to Sec.271AAB. Hence, the factual matrix does not convince us to confirm the impugned penalties. By deleting the same, we allow both the appeals.”[Emphasis Supplied]

2.6] In view of the above discussion and judicial precedents cited supra, it is clearly evident that the mere disclosure of income in the 23

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statement recorded under section 132(4) of the Income-Tax Act, 1961 would not ipso facto be regarded as undisclosed income unless and until it is tested as per the definition provided in the Explanation to section 271AAB of the Income-Tax Act, 1961. However, in the facts of the present case, the assessing officer merely levied penalty @ 10% on the additional income accepted in the statement recorded under section 132(4) of the Income-Tax Act, 1961 without testing whether the additional income fell within the definition of ‘undisclosed income’ as provided in Explanation to section 271AAB of the Income-Tax Act, 1961. Hence, penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 in absence of such a finding is neither legal nor proper and deserves to be deleted in entirety.

WITHOUT PREJUDICE TO THE ABOVE

2.7] The appellant is an individual and he maintains separate books of accounts for the proprietorship business carried out in the name of M/s Shree Engineers. However, the appellant is not required to maintain his personal books of accounts. Hence, it is submitted that details of construction expenses as incurred by the appellant was in fact found entered in “other documents” which were retrieved during the course of search and henceforth, it cannot be treated as ‘undisclosed income’ as per the definition provided in the Explanation to section 271AAB of the Income-Tax Act, 1961.

Relevant extracts from few of the judicial precedents which have enunciated the above mentioned principles are reproduced hereunder for your ready reference:

2.8.1] The Hon’ble ITAT Kolkata Bench ‘B’ in the case of DCIT, Circle- 2(2), Kolkata Vs. Manish Agarwala [ITA No. 1479/Kol/2015] has held that:

“7…………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 24

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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.”[Emphasis Supplied]

2.8.2] The Hon’ble ITAT Jaipur Bench in the case of Shri Ravi Mathur Vs. DCIT, Central Circle-4, Jaipur [ITA No. 969/JP/2017] has categorically held that:

“8…………..Since in the case of assessee the transactions of investment were found in the diary, therefore, whether these entries in the diary constitute undisclosed income as per clause (c)(i) of Explanation to Section 271AAB of the Act. The assessee is an Individual and for the year under consideration the assessee has not reported any business income nor it was assessed by the AO. Therefore, it is clear that the assessee was not required by any mandate of law to maintain regular books of accounts. In the computation of income, the assessee has shown income from Salary, income from house property and income from other sources. The returned income was accepted by the AO while framing the assessment under section 143(3) and hence assessee’s case does not fall in the category where the regular books of accounts are mandatory. The entries of investment in real estate were found recorded in the diary and in the absence of any other document maintained in the normal course relating to the year under consideration, the entries in the diary are to be considered as recorded in the documents maintained in the normal course. It is not 25

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the case of the revenue that the assessee has recorded the other transactions in the other documents maintained in the regular course relating to the year under consideration and only these entries are recorded in the diary. Since the levy of penalty under section 271AAB is not based on the addition and enquiry conducted by the AO in the assessment proceedings, therefore, it is incumbent on the AO to conduct a proper examination of facts, circumstances and explanation furnished by the assessee before arriving to the conclusion that penalty under section 271AAB is leviable and further whether it is 10% or 20% or 30% of such undisclosed income. Therefore, the AO is under statutory obligation to examine all the issues during the proceedings under section 271AAB after giving the assessee an opportunity to explain the charges/grounds on which the penalty is proposed to be levied. Hence it is a pre-requisite condition that the AO first specify the charges against the assessee and to make known the assessee of his default so as to afford an opportunity to explain the default/charges so brought against the assessee. Without considering the explanation of the assessee on the specific default, the order passed by the AO under section 271AAB suffers from serious illegality and therefore not sustainable in law. When a stringent action is provided in the Statute against the default committed by the assessee, then it also cast an equally stringent and strict duty on the authority responsible to take such action. Therefore, when the provisions for levy of penalty under section 271AAB is a specific provision to deal with the undisclosed income and it provides a strict penal action then the corresponding duty of the tax authority is also equally stringent. The AO cannot escape from following the strict mandatory requirement of law and particularly the principle of natural justice. The AO has neither specified the grounds and clause of section 271AAB nor has dealt with the same in the impugned order passed under section 271AAB. The AO has also not given a finding that the case of the assessee falls in the definition of undisclosed income provided under clause (c)(i) of Explanation to section 271AAB. When the transactions of investment in real estate are recorded in the diary being other documents maintained by the assessee for the said purpose, then in the absence of any requirement of maintaining regular books of accounts by the assessee, the case of the assessee would not fall in the definition of undisclosed income as per clause (c) of Explanation to section 271AAB of the Act. 9………..Therefore, when the assessee is not required to maintain the books of account as per section 44AA, then the matter is required 26

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to be examined whether the alleged undisclosed income is recorded in the other documents maintained in the normal course as per clause (c) to Explanation to section 271AAB. Undisputedly the alleged income was found recorded in the diary which is nothing but the other record maintained in the normal course, thus the same would not fall in the definition of undisclosed income. Once the said income is found as recorded in the other documents maintained in the normal course, then it cannot be presumed that the assessee would not have disclosed the same in the return of income to be filed after about one year from the date of search. Hence, in view of the above facts and circumstances of the case as well as the various decisions on this point, we hold that the penalty levied under section 271AAB is not sustainable and the same is deleted.”[Emphasis Supplied]

2.9] In view of the above discussion and judicial precedents cited supra, it is quite clear that details of construction expenses as found entered in “other documents” which were retrieved during the course of search cannot be treated as ‘undisclosed income’ as per the definition provided in the Explanation to section 271AAB of the Income-Tax Act, 1961. It is also pertinent to mention that the assessing officer has neither dealt with the specific ground and clause of section 271AAB of the Income-Tax Act, 1961 in the impugned order nor has the assessing officer given a finding that the case of the appellant falls in the definition of ‘undisclosed income’ provided under clause (c)(i) of Explanation to section 271AAB of the Income-Tax Act, 1961. Therefore, penalty order as passed under section 271AAB of the Income-Tax Act, 1961 deserves to be quashed

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being void-ab-initio and penalty of Rs. 6,83,498/- as levied under section 271AAB of the Income-Tax Act, 1961 requires to be deleted on this count itself.

submissions and supported the order of the authorities below.

available on record and gone through the orders of lower

authorities. The submissions of the assessee are that penalty

proceedings u/s 271AAB as initiated is bad in law on account of

firstly penalty notice so issued is defected as it does not disclose

specific charge and secondly there is no concealed income as search

took place prior to due date of filing of income tax return. It is also

contended that even otherwise the issue is squarely covered in

favour of the assessee by the decisions of the Coordinate Benches of

this Tribunal.

It is noteworthy that the assessing officer issue notice u/s

271AAB of the Act, the notices so issue are reproduced as under:-

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specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (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 Chief Commissioner or Commissioner before the date of search; or (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

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found to be false and would not have been found to be so had the search not been conducted.'. 8. Further section 274 of the Act reads as under: 274. Procedure (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) 6 No order imposing a penalty under this Chapter shall be made- (a) by the Income- tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) 7 An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer'.]

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ingredients of section 271AAB of the Act. Under these facts the notice is improper and is not in accordance with requirement of law. The assessing officer is expected to make his direction clear as to which clause of section 271AAB of the Act, he wishes to invoke. There is clear absence of such direction. Ld. counsel for the assessee has relied upon various judicial pronouncements in support of his contention that where the notice is being defective, therefore, no penalty can be levied or sustained.

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the ground of defective notices. Similarly in the case of Shri Vivek Chugh vs. ACIT (ITANo.636/Ind/2017) the penalty was deleted.

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the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon’ble ITAT Delhi Bench in the case of Ajay Sharma Vs. DCIT (2012) 32 CCH 334 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable. The facts of the assessee’s case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of the lower authorities and cancel the penalty u/s 271AAB of the Act.

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

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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.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore; �दनांक Dated : 19/08/2020 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, Indore 37