THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, GUNTUR vs. SILEMANKHAN & MAHABOOBKHAN, GUNTUR

आदेश /O R D E R

Per Shri D.S.Sunder Singh, Accountant Member : This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-3, Visakhapatnam in Appeal No.74/2019-20/CIT(A)-3/VSP/2019-20 dated 19.07.2019 for the Assessment Year (A.Y.)2016-17 and cross objections are filed by the assessee in support of the order of the Ld.CIT(A).

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Rs.15,27,00,000/- in the hands of the firm. The above additional income of Rs.15.27 crores was admitted as on money receipt u/s 132(4) of the Act over and above the registered value representing sale consideration from N.S.Vaishno Devi Developers (India) Pvt. Ltd. Subsequently, Notice u/s 153C was issued to the assessee and the assessee filed return of income on 10.12.2018 admitting total income of Rs.29,81,87,770/- which includes long term capital gains of Rs.15,27,00,000/- declared by the assessee u/s 132(4). The AO completed the assessment u/s 143(3) r.w.s. 153C of the Act accepting the income returned and initiated the penalty proceedings u/s 271AAB of the Act and accordingly issued show cause notice calling for explanation of the assessee as to why the penalty should not be levied on undisclosed income.

2.1. In response to the notice, the assessee filed explanation stating that the assessee had admitted the undisclosed income u/s 132(4) of the Act, substantiating the manner in which the income was derived and paid the taxes and cooperated with the department at all stages and submitted that there was a reasonable cause, hence requested to drop the penalty proceedings.

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2.2. Not being convinced with the explanation of the assessee, the AO levied penalty of Rs.4,58,10,000/- @30% on undisclosed income of Rs.15,27,00,000/- u/s 271AAB of the Act.

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to M/s N.S.Vaishno Devi Developers (India) Pvt. Ltd located at Mangalagiri Road, Guntur. But for the search conducted u/s 132, the on money received by the assessee would not have come to the notice of the department, therefore, argued that the undisclosed income offered by the assessee attracts penalty u/s 271AAB of the Act, therefore, argued that the order of the Ld.CIT(A) required to be set aside and the order of the AO to be upheld.

4.1. On the other hand, the Ld.AR relied on the order of the Ld.CIT(A).

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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,—--

5.1. From plain reading of section 271AAB, it is observed that for invoking penalty u/s 271AAB, search u/s 132 is required to be initiated, whereas in this case, there is no evidence put forth by the department initiating search u/s 132 of the act. The assessee relied on the decision of ITAT Bangalore in the case of Suresh H.Kerudi Vs. Income Tax Officer [2019] 76 ITR (Trib) 44 [ITAT (Bang)], wherein, the coordinate bench of ITAT held that the penalty cannot be sustained in case, where the persons are not subject to search u/s 132 of the Act. The Coordinate Bench has relied on the decision of ITAT Panaji in the case of DCIT Vs. M/s Volga Dresses. Similar view was taken by this Tribunal in the case of Rajendra Kumar Jain Vs. DCIT in I.T.A. No.80& 81/Viz/2017 dated 11.08.2017 in respect of penalty initiated u/s 271AAB of the Act. This Tribunal also held that in the absence of search u/s 132, the AO is not permitted to invoke the penalty u/s 271AAB of the Act. ITAT “B” Bench, Ahemdabad in the case of DCIT Vs. M/s Shreeji Corporation also viewed that AO is not permitted to assume jurisdiction u/s 271AAB in the absence of search u/s 132. For the

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sake of clarity and convenience, we extract para No.4 to 12 of the ITAT, Bangalore in the case of Suresh H.Kerudi (Supra) which reads as under :

“4. In all these appeals, the issue that requires adjudication is as to whether the revenue authorities were justified in imposing penalty on the assessee u/s. 271AAB of the Income-Tax Act, 1961 ["the Act"]. The admitted factual position is that assessee is an individual. He was a partner of a firm by name M/s. Kerudi Hospital & Research Centre. The partnership firm was subjected to a search u/s. 132 of the Act on 21.11.2012 at Bagalkot. Certain evidence was found during the course of such search and based on those documents proceedings u/s. 153C of the Act were initiated against the assessee in AYs 2007-08 to 2012-13. Various additions were made to the total income of the assessee in the order passed u/s. 153C of the Act r.w.s. 143(3) of the Act. In respect of those additions, penalty proceedings were initiated u/s. 271AAB of the Act. 5. Section 271AAB of the Act reads as follows:- "Penalty where search has been initiated. (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, 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; (b) a sum computed at the rate of twenty 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, does not admit the undisclosed income; and

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(ii) on or before the specified date-- (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of thespecified 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--

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(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 found to be false and would not have been found to be so had the search not been conducted." 6. The AO imposed penalty on the assessee ignoring the plea of assessee that the amount brought to tax was accepted and taxes paid thereon just to purchase peace. The CIT(Appeals) confirmed the order of AO. 7. Aggrieved by the order of CIT(Appeals), the assessee has preferred the present appeals before the Tribunal. 8. Before the Tribunal, the assessee has challenged the order of CIT(Appeals) on the ground that imposition of penalty is bad in law. In this regard it was submitted that the provisions of section 271AAB(1) applies only to a person who is searched u/s. 132 of the Act and in respect of persons again whom assessments are framed u/s. 153C of the Act penalty cannot be imposed u/s. 271AAB of the Act. Our attention was drawn to the decision of ITAT Ahmedabad Bench in the case of DCIT v. Shreeji Corporation, IT(SS)A No.73 & 74/Ahd/2017 for AYs 2012-13 & 2-13-14 wherein on an identical plea the Ahmedabad Bench cancelled the order imposing penalty. Our attention was also drawn to the decision of ITAT Panaji Bench in the case of DCIT v. Volga Dresses in ITA Nos.201 & 201/PAN/2016 for AYs 2013-14 & 2014-15, order dated 27.03.2017 wherein similar decision was rendered. 9. The ld. DR relied on the order of CIT(Appeals). 10. We have considered the rival submissions. We find that an identical plea was put forth by the assessee in the case of Shreeji Corporation (supra) and the Ahmedabad Bench of the Tribunal in its order accepted the stand and held as follows:- "5. A perusal of the assessment order undisputedly points out that no search had taken place in the case of the assessee per se under s.132 of the Act. A bare reading of law codified in Section 271AAB(1) clearly provides that the AO may direct the assessee to pay a sum by way of

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penalty at specified percentage where undisclosed income of the specified previous year has been detected as a result of search under s.132 of the Act. Section 271AAB(1)(a) however simultaneously provides concessional treatment in the matter of penalty under s.271AAB where the assessee admits the undisclosed income in a statement under sub- section 4 of Section 132 of the Act subject to fulfillment of other conditions with which we are presently not concerned with. Therefore, it is manifest that applicability of Section 271AAB is integrally connected to search under s.132 of the Act. In the absence of search under s. 132 of the Act, the assessee has no occasion to avail the concessional treatment by way of admission under s.132(4) of the Act. Thus, we find obvious merits in the observations made by the first appellate authority that provisions of Section 271AAB of the Act are not applicable to the case of the assessee. In the absence of search under s.132 of the Act, the consequential or incidental assessment proceedings under s.153C of the Act will not, in our view, entitle the AO to usurp jurisdiction under s.271AAB of the Act for the purposes of imposition of penalty. Hence, we do not see any infirmity in the conclusion drawn by the CIT(A)." 11. The Pune Bench of the Tribunal in the case of Volga Dresses (supra) has also taken a similar view:- "6. We have considered the rival submissions. A perusal of the provisions of section 271AAB shows that the opening words are "penalty where search has been initiated" a perusal of the provisions under Section 271AAB also talks of the assessee declaring any undisclosed income in the course of the search in the statement under section 132(4). Admittedly in the present case, that is in the case of the assessee firm in appeal there has been no search. Search admittedly is on the residence of one of the partner of the assessee firm. Further a perusal of the order of the learned CIT(A) also clearly shows that the learned CIT(A) has cancelled the penalty on the ground that there was no search in the case of the assessee firm. The revenue has not been able to point out as to how this finding of the learned CIT(A) is erroneous. This being so the finding of the learned CIT(A) on this issue stands confirmed." 12. In view of the aforesaid decision of coordinate Benches, we are of the view that the penalty in the case of assessee cannot be sustained as the assessee was not a person who was subjected to search u/s. 132 of the Act and consequently the provisions of section 271AAB could not be invoked in his case.”

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5.2. Similarly, we also extract para No.10 of the order of this Tribunal in the case of Rajendra Kumar Jain (supra) with regard to invoking 271AAA of the Act. “10. The assessee is in the business of pawn brokering and there is a search conducted in his case on 03/02/2009. Subsequently, a notice under section 153C was issued to assess the income of six years immediately preceding the assessment relevant to the previous year in which the search was conducted. The assessee was issued one more notice under section 153C read with section 153A(1)(b) . Accordingly, assessment was completed under section 143(3) read with section 153C of the Act by making addition of ₹ 6,86,400/- as unexplained investment in pawn broking business. The assessee carried the matter in appeal before the ld. CIT(A) and the ITAT, where the order passed by the Assessing Officer has been confirmed. Subsequently, the Assessing Officer has initiated the penalty proceedings under section 271AAA of the Act and also imposed penalty of ₹ 68,460/-. The main argument of the learned counsel for the assessee is that once assessment order is passed under section 143 read with section 153C, no penalty can be imposed under section 271AAA of the Act. We have gone through the details filed by the assessee and also other details available on record. We find that the Assessing Officer has issued a notice in respect of impugned assessment under section 153C read with 153A(1)(b) of the Act and the assessment was completed under section 143(3) read with section 153C of the Act and subsequently, penalty is imposed under section 271AAA of the Act. For the sake of convenience, the relevant portion of section 271AAA is extracted as under:- “271AAA. (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 June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. “ 5.3. In the instant case, no search was conducted u/s 132 and only survey u/s 133A was conducted and the assessment order was passed u/s 153C r.w.s. 143(3) of the act. Therefore, respectfully following the view taken by the coordinate bench of ITAT we hold that the Ld.CIT(A) has rightly cancelled the penalty levied u/s 271AAB of the Act and we do not find any

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reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Accordingly, the appeal of the revenue is dismissed.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयकसदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नििधंक /Dated :23.11.2020 L.Rama, SPS

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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. रधजस्व/The Revenue –Asst.Commissioner of Income Tax Central Circle-2 Guntur 2. निर्धाऩरती/ The Assesseee–M/s Silemankhan & Mahaboobkhan, D.No.15-11- 16, Mangalagiri Road, Guntur 3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. तिभागीयप्रतितिति, आयकरअिीिीयअतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam