SHRI OM PRAKASH MODI,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. CIT(A)-4, Jaipur dated 01/01/2018 for the A.Y. 2014-15, wherein the assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the penalty u/s 271AAB imposed at Rs. 3,75,00,000/-, arbitrarily, thus the order so passed deserves to be quashed.

either before or at the time of hearing of appeal.” In this appeal, the assessee has also raised an additional ground and the same is reproduced as under: “On the facts and in the circumstances of the case the Ld. Assessing Officer has grossly erred in not specifying the limb of section 271AAB of the Income Tax Act, 1961 (the Act) under which penalty was sought to be levied in the notice dated. 23.03.2016 issued u/s 274 r.w.s.271AAB of the Act, thus the notice so issued is void ab-initio and consequent penalty order so passed deserves to be held bad in law and penalty of Rs.3,75,00,000/-levied by ld.AO deserves to be deleted.”

2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.

3 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT 3. In this appeal, the assessee has raised an additional ground which is against the order of the ld. CIT(A) in confirming the penalty levied by the A.O. U/s 271AAB of the Income Tax Act, 1961 (in short, the Act). In this regard, the ld. AR appearing on behalf of the assessee has submitted that the show cause notice dated 23/3/2016 issued by the A.O. providing opportunity of hearing to assessee in terms of Section 274 of the Act nowhere specifies as to under which limb of Section 271AAB of the Act penalty was sought to be levied. However, inadvertently such action of A.O. could not be challenged in grounds of appeal taken while filing appeal before the ld. CIT(A) as well as while filing Form

36. He further submitted that this issue is purely legal in nature and no thorough investigation was carried out in the matter and can be raised at any stage of appellate proceedings in view of judgement of Hon’ble Supreme Court in the case of NTPC Ltd. 229 ITR 383.

4. On the other hand, the ld. CIT-DR has opposed the raising of additional ground and submitted that once the ld. CIT(A) has confirmed the penalty levied U/s 271AAB of the Act then in that situation, no additional ground with regard to imposing of penalty U/s 271AAB of the Act is maintainable and may be dismissed.

4 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT

5. Having considered the rival contentions and carefully perused the material placed on record. From perusal of record, we observe that the this issue is purely legal in nature and no thorough investigation was carried out in the matter. In the show cause notice dated 23/3/2016 issued by the A.O., nowhere specified as to under which limb of Section 271AAB of the Act penalty was sought to be levied. The Hon’ble Supreme Court in the case of NTPC Ltd. 229 ITR 383 has held that even when no thorough investigation was carried out in any of the matter then it can be raised at any stage of appellate proceedings. Considering the totality of facts and circumstances and prayer of the assessee, we admit the additional ground raised by the assessee.

6. At the time of hearing of the appeal, the ld. AR appearing on behalf of the assessee do not want to press additional ground raised and prayed to dismiss the same as not pressed. The ld. CIT-DR has raised no objection if the additional ground is dismissed as not pressed. Therefore, in view of the prayer of the assessee, we dismiss the additional ground taken by the assessee being not pressed.

5 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT 7. Now we deal with the other grounds raised by the assessee. In this regard, the brief facts of the case are that a search and seizure action u/s 132(1) of the Act and survey operation u/s 133A of the act was carried out on 04.09.2013 on the members of Okay plus- JKD group, of which assessee is one of the members. During the course of search, statements of the assessee and other persons were recorded. In the statement of the assessee recorded u/s 132(4) of the Act, income pertaining to the year under appeal was admitted. Thereafter assessee filed his return of income for the year under appeal, declaring total income at Rs. 12,50,88,490/- which includes a sum of Rs. 12,50,00,000/- being the profit from sale of land and further advanced for onward purchases. Assessment u/s 143(3) r.w.s. 153A was completed accepting the income declared by the assessee in the return of income filed. However the penalty proceedings u/s 271AAB were initiated separately. Thereafter vide impugned order penalty of Rs. 3,75,00,000/- being 30% of Rs. 12.50 crore was levied u/s 271AAB.

“A search was carried out on 04.09.2013 on the assessee and others being members of the Okay Plus- JKD group. During the course of search various books of accounts, files, loose papers and documents of the group were found and seized, but nothing incriminating was found in respect of assessee. One document / diary reflecting advances given totalling to Rs. 12.50 crores was found (Annex. AS-4 Pages 1 to 7) (APB 28-34) containing various entries of bank deposits and also advances given by assessee to certain individuals towards the purchases of land. These amounts of advances were explained in the statements u/s 132(4) as earned out of land deal and this income was over and 7 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT above the regular salary income and was included in the total income shown by assessee in the return of income filed.

It is submitted that the assessee is having regular sources of income from salary and during the year assessee did some stray activity of sale of land. Since it was not a regular course of the business of the assessee, he was not required to maintain books of accounts. The profit earned out of sale of land was given as advances to various persons which was recorded in systematic manner in the diary (AS-4) (APB 28-34) which was found during the course of search. On being asked during the course of search about this diary, the assessee stated the correct fact that it contains advances given to various persons totalling to Rs. 12.50 crore and obviously admitted it to be his income. As stated above, this diary also contained certain other notings of money which was duly found recorded in the books of accounts of group companies and since the assessee was not having any business income and does not require to maintain regular books of account thus, the entry of advances were recorded in this diary maintained by assessee.

As per the provisions of section 271AAB, the undisclosed income is defined as under (for the purpose of clarity, the relevant provisions are reproduced below):- Explanation.—For the purposes of this section,— (a) ……… (b) ……… (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 8 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT (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. As per the aforesaid provisions, undisclosed income is the income which is represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of accounts or other documents or transactions found during the course of search and not recorded in the books of accounts or other document maintained in regular course prior to the date of search. In the instant case it is clear that it is not a case where any money, bullion, jewellery or other valuable articles or things were found during the course of search. It is a case where any entry in books of accounts or other documents was found during the course of search. This being so, the next thing to be seen is whether these entries are recorded or not recorded in the regular books of accounts or documents maintained in the normal course. Since it is a case where books of accounts were not required to be maintained as the assessee being having salary and interest income on a regular basis and sale of land being taken during the year itself that too in a stray manner, it is a case where only second limb of the aforesaid phrase is applicable i.e. whether the entry or entries of advances so found are recorded in the “Other documents” or not. If ‘not recorded’ then it will be a case of undisclosed income within the meaning of section 271AAB so represented by the entries. However, it is seen that the entries of advances were found recorded in the diary which was found and seized during the course of search and this diary also contained other entries of other group concerns which are duly recorded in the books of accounts of the respective concerns. Since assessee was not required to maintain any books of accounts, these entries remained recorded in the diary itself maintained by assessee in regular course. Thus it is submitted that the income of Rs. 12.50 crore so reflected by way of entries is found

9 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT recorded in the ‘document’ namely diary in the instant case maintained in regular /normal course by the appellant and is therefore not the ‘undisclosed income’ within the meaning of section 271AAB. It is further submitted that as a result of entire search nothing incriminating was found pertaining to the assessee.

Moreover the search was conducted on 04.09.2013 i.e. in the early half of the Financial Year and assessee had enough time till the close of financial year to include this income in its return of income. Further the time for payment of first instalment of advance tax (i.e. 15.09.2013) had also not expired as on the date of search. Moreover it is not the case of the department that assessee would not have disclosed this income in the return to be filed after the close of financial year.

It is further submitted that the case of the appellant is squarely covered with the recent decision of Hon’ble ITAT Kolkata Bench in the case of Manish Agarwala in dated 09.02.2018 (case law compilation page 56-60). Brief facts of this case was that during the course of search in Nezone group of cases on 01.08.2012 various documents showing income from commodity transaction were found and the assessee alongwith other members of the group vide consolidated disclosure petition admitted undisclosed income, inter-alia including Rs. 3.00 crores relatable to assessee. The Hon’ble Tribunal observed that assessee was not engaged in the business or profession as these transactions of speculative business of commodity were stray in nature and not part of the regular business. The Hon’ble ITAT further observed that assessee’s transactions (in this case, the speculative transaction) has been found to be recorded in “other documents” which is retrieved from assessee’s accountant’s drawer and based on that assessee declared Rs. 3.00 crores and since income under question was in fact entered in the “other document” maintained in normal course, such 10 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT income offered by assessee does not fall in the ken of “undisclosed income” defined in section 271AAB of the Income Tax Act, 1961.

The above observations of the Hon’ble Tribunal clearly reveals that the penalty u/s 271AAB is not mandatory but discretionary and therefore, the entire set of facts and circumstances of the case have to be examined carefully and penalty can be levied by Ld. AO only after satisfying itself about the existence of circumstances warranting levy of penalty. The penalty cannot be imposed as a matter of routine and should be levied only if the circumstances of a particular case so require.

It is submitted that the facts of the instant case of the appellant are quite similar to the afore-cited case decided by Hon’ble ITAT Kolkata Bench in favour of assessee. In the instant case also, income under question was entered in the ‘other document’ maintained in normal course and therefore, such income will not fall within the meaning of ‘undisclosed income’ as defined in section 271AAB of the Income Tax Act, 1961.

In another decision namely DCIT Vs. Subhash Chand Agarwal & Sons (HUF) in dt. 19.2.2018, Hon’ble Kolkata bench of ITAT (case law compilation page 32-38) had also held to the effect that disclosure made on the basis of entries in the diary maintained in normal course would be covered as entries in ‘documents’ in the case where books of accounts are not maintained and therefore could not come within the ambit of ‘Undisclosed Income’.

Further heavy reliance have been placed by the Ld. AO as well as the Ld. CIT(A) on the statements of the assessee recorded u/s 132(4) to hold the income so declared by the assessee as undisclosed income. In this regard it is submitted that the statements recorded during the course of search were under the pressure created and the natural heat 11 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT which generates due to the fact of search and this fact is further established from the sequence of events taken place where search u/s 132 was initiated at the business and residential premises at around 7.00 A.M. of 4.09.2013 where the preliminary statements of the assessee were recorded at his residence(APB 35) and it was on 05.09.2013 at 5.45 PM i.e. after almost 35 continues hours of search where search team was moving around the assessee, when the confessional statements were recorded at the office and the search was finally concluded (APB 16). During the course of search, statements of the assessee were taken at various times firstly at the time of starting of the search on 04.09.2013 and lastly in evening on 05.09.2013 when the action u/s 132 was concluded after physical search and verification of the entire house and business places of the assessee and his group companies.

From the sequence of the events and seriatim of the statements recorded, it is very much clear that they were continuous statements recorded of assessee for almost 35 hours from the initiation of the search i.e. at around 7.00 A.M. in 04.09.2013 which is a torturous act and under these circumstances the statements of a normal human being especially a science graduate being senior citizen who is totally non-technical in accounts and further at an advance age of life could not be said to be free and voluntarily given statements. It is submitted that the Human Rights Commission of the State of Bihar in the case of Rajendra Singh vide its order in file no BHRC/COMP. 2665/10 (Case laws Paper Book pages 75-80) has expressed this view which has been affirmed by Hon’ble Patna High Court in Civil Writ Jurisdiction Case No.10707 of 2011 titled CCIT, Patna & Ors. Vs. The State of Bihar & Anr. (Case laws paper book pages 78-89)and thus such statements deserves to be excluded and ignored for levy of penalty u/s 271AAB which is qausi criminal in nature.

12 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT Accordingly, in view of the facts and circumstances of the case and the legal position emerging out of the aforesaid decisions, it is submitted that the Ld. AO has erred in imposing the penalty u/s 271AAB as the case of assessee with reference to the income of Rs. 12.50 crore so shown in the return of income does not fall within the ambit of undisclosed income for the purpose of section 271AAB. Therefore, it is humbly requested that penalty levied u/s 271AAB at Rs. 3,75,00,000/- may kindly be directed to be deleted in toto.

It is further submitted that in the section 271AAB, the legislature has used the word “the assessing officer ‘may’…….”. Thus it is very evident that the assessing officer is not obliged to levy the penalty in each and every case in a routine manner. He has to apply his mind as to whether the facts and circumstances of the case justify and warranted the imposition of penalty. Discretion is to be exercised judiciously having regard to the nature and extent of breach and other relevant circumstances. Therefore it is not mandatory to impose the penalty but a discretion is vested not to impose the penalty considering the facts and circumstances of that case which in section 271AAB is very heavily cast upon AO since having special circumstances. Hon’ble Supreme court in the following case has held as under:

CIT Vs. P.K. Noorjahan 237 ITR 570 (SC)(case law compilation page 61-63) Unexplained investment – Scope of section 69 – ITO is not obliged to treat source of investment as income whenever explanation regarding it is not satisfactory – Word “MAY” in section 69 cannot be interpreted to mean “SHALL” – Income Tax Act, 1961, s. 69. This judgement, though is in context of sec. 69, but the ratio decided by hon’ble court will be equally applicable in penalty proceedings which are more harsh in nature.

13 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT In support of this contention further reliance is placed on the recent decision dated 09.02.2018 of Kolkata Bench of the Hon’ble ITAT in the case of DCIT Vs. Manish Agarwala in (supra).The relevant observations of the Hon’ble Tribunal are as under(case law compilation page 56-60): “On the other hand, Ld. AR Shri Miraz D. Shah, supporting the decision of Ld. CIT(A) made contentions though taken up before the Ld. CIT(A) but has not been adjudicated on those averments, which the Ld. AR urges before us to consider while adjudicating the appeal of the Revenue. The Ld. AR also pointed out that the contentions which he is going to raise has been taken up before the AO also, however, according to Ld. Counsel, those legal arguments were not considered by the AO in the right perspective. The first contention of the Ld. AR is that since Sec. 271AAB of the Act is a penalty section it should be construed strictly, which we agree being it is a trite law that penalty provisions have to be strictly interpreted. Next contention of Ld. AR is that sec. 271AAB of the Act is not mandatory because Parliament in its wisdom has used the word ‘may’ and not ‘shall’. So, according to him, it is the discretion bestowed upon the AO whether to initiate and impose penalty u/s 271AAB of the Act. We agree with the said contention of Ld. AR because when a similar issue was adjudicate by ITAT, Lucknow (the author of this order was a member of the Bench) in Sandeep Chandak & Ors. V/s CIT (2017) 55 ITR (Trib) 209 and 2017 (5) TMI 675-ITAT-Lucknow in ITA No. 416, 417 and 418/LKW/2016 dated 30.01.2017 while adjudicating a case where penalty was levied under section 271AAB of the Act it was held that the provisions of Sec. 271AAB of the Act are not mandatory, which means that penalty need not be levied in each and every case wherever the assessee has made default as stated in clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word “may” not “shall” “May” cannot be equated with “shall” especially in penalty proceeding. Using the word “may” in our opinion gives a discretion to the AO to levy the penalty or not to levy, even if the assessee has made the default under the said provision.” Therefore, the 2nd ground of Revenue fails and we hold that penalty u/s 271AAB of the Act is not mandatory and is discretionary.” With regard to the observation of the Ld. CIT(A) that the penalty u/s 271AAB is mandatory, as submitted above, the word used in the section 271AAB is ‘may’ and not ‘shall’. The word 'May' indicates discretion of the 14 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT authority either to levy or not to levy a penalty. In other words the imposition of penalty is not mandatory. Ld. CIT(A) referred to the explanatory notes clause 96 which explains the intention for introduction of particular amendment however the same cannot replace the provision of act where the word “may” is used and not “shall”. In this regard various decisions have already been cited in the earlier paras of the submission. Hence, the observation of the Ld. CIT(A) that the penalty u/s 271AAB is mandatory is patently wrong and deserves to be ignored and excluded being made without properly appreciating the provision and language of the Act which is very much clear and inserted in the statute after long discussions before both the houses of parliament.

The Ld. CIT(A) has observed in its order that ‘recently Hon’ble Kolkata Tribunal has held that Penalty u/s 271AAB on undisclosed income is automatic in nature – 88 taxmann.com 288’. It is submitted that the aforesaid order of Hon’ble ITAT was in the case of DCIT, CC-2(2), Kolkata Vs. Amit Agarwal in 1475 & 1476 of 2015 dated 10.11.2017. (Other two appeals were against Madan Lal Beswal & Manoj Beswal of the same group).

It is submitted that aforesaid orders were passed by the ITAT, Kolkata ‘D’ Bench ex-parte on 10.11.2017, which on application filed by appellants, have been recalled in MA Nos. 218 to 220/Kol/2017 dated 12.01.2018 by observing as under: "By virtue of these miscellaneous applications, the assessee seeks to recall the order passed by this Tribunal in 1475&1476/Kol/2015 in the hands of Amit Agarwal, Madan Lal Beswal and Manoj Beswal respectively for the assessment year 2013-14 on the ground that notice was not served on the assessee for the hearing and on certain factual error that had crept in the order of the Tribunal. The first preliminary objection raised by the Ld. AR was that the notice of hearing was not served on the assessee for the hearing scheduled on 06.11.2017 and hence, the assessee could not be present on the said date by way of personal appearance. The second objection raised by the Ld. AR was that the Tribunal had stated in para 9 of its order that the 15 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT assessee himself had accepted that he is engaged in commodities trading business and therefore mandated to maintain books of accounts in terms of section 44AA of the Act and thereby inferring that the assessee had reported the profit from commodities trading business under the head "income from business or profession". Based on this crucial finding, the Tribunal had concluded that since the transaction of commodities trading had not been entered by the assessee in his books of accounts as on the date of search on 01.08.2012 and thereby it takes the character of undisclosed income for which penalty u/s 271AAB of the Act is exigible. In this regard, we find that the Ld. AR drew our attention to the computation of the total income wherein the assessee had offered income from commodity trading only under the head income from other sources. We also find that the Ld. AO had also specifically stated in the body of the assessment order vide column no. 10 that the assessee is having only salary income and income from other sources. We find that due to the absence of the assessee at the time of hearing this particular fact had escaped the attention of the Tribunal. On perusal of the fact available on record, we find that the finding recorded by this Tribunal in para 9 of its order dated 10.11.2017 that the assessee is mandated to maintain books of accounts u/s 44AA of the Act is factually incorrect and deserves to be rectified. This mistake of primary fact had led to a conclusion of upholding the levy of penalty u/s 271AAB of the Act. Hence, in these facts and circumstances and in view of the aforesaid mistake of primary fact rightly pointed out by the ld. AR, we deem it fit to recall the orders of this Tribunal dated 10.11.2017 in the case of aforesaid assessees." In the aforesaid scenario, the legal position is that an order which has been recalled for de novo adjudication, is no order in the eyes of law and so it cannot be treated as a precedent. Hence, the CIT(A) has erred in placing reliance on the order which had already been recalled and is thus no order. On the other hand it is submitted that in the same group of cases the Hon’ble ITAT Kolkata Bench in the case of Manish Agarwal (supra) has decided the similar issue in favour of assessee holding that penalty u/s 271AAB is not leviable. Moreover, recently the Hon’ble ITAT Kolkatta Bench after re-fixing the above cases of Amit Agrawal, Madanlal Beswal etc. has finally decided the cases to the effect that penalty u/s 271AAB is not leviable (vide & 1476/Kol/2015 dt. 14.03.2018). Thus these decisions so referred by Ld. CIT(A) now squarely support the case of appellant and not of department.

16 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT It may be noted that the language of section 271AAB is similar to that of section 158BFA(2). Section 158BFA(2) provides that the assessing officer ‘May” direct that a person shall pay by way of penalty...". With reference to this section various courts including the Rajasthan High Court have held that penalty under this section is discretionary and not mandatory. Principle laid down in these cases is as under:-

CIT Vs. Satyendra Kumar Dosi 315 ITR 172 (HC) (Raj.)(case law compilation page 64-66) From a plain reading of sec. 158BFA(2) it does not appear that in all cases where undisclosed income is determined by the AO under cl. (c) of s. 158BC, the imposition of penalty shall follow as a natural consequence thereof. A discretion is vested with the AO to levy penalty in respect of undisclosed income. It cannot be inferred that the absence of the circumstances enumerated in the proviso to s. 158BFA(2) will attract penalty automatically. Also, there is no presumption that imposition of penalty is automatic for any failure or violation in respect of cases other than those covered by s. 273B. In the instant case, the CIT(A) and the Tribunal have concurrently found that the difference between the undisclosed income assessed and the undisclosed income shown in the return is the result of the estimation of the opening capital prior to the block period and that the capital possessed by the assessee prior to the block period as revealed by the ledger and the material seized during search could not be treated as undisclosed income of the first assessment year in the block period. Thus, no substantial question of law arises from the order of the Tribunal upholding the order of the CIT(A) deleting the levy of penalty under s. 158BFA(2). CIT Vs. Dodsal Ltd. 312 ITR 112 (Bom.) (HC)(case law compilation page 69-70) Terminology of s. 158BFA(2) makes it clear that there is a discretion in the AO to direct payment of penalty. It is only if the authority decides to impose penalty then it would not be less than the tax leviable but shall not exceed three times the tax so leviable. Merely because the expression used is "shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable", the first part of the section cannot be read as mandatory. Both CIT(A) and Tribunal have recorded reasons for exercise of their discretion in cancelling penalty which did not warrant interference. CIT vs. Dr. Giriraj Agarwal Giri (2012) 346 ITR 152 (Raj.)(HC)(case law compilation page 67-68)

17 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT Imposition of penalty depends on facts and circumstances of each case. The AO imposed the penalty on so called three items of so called concealed income. Each item was examined, thoroughly and in detail, by the Commissioner of Income-Tax (Appeals) as well as the Income Tax Appellate Tribunal and by a reasoned order, both came to a conclusion that additions are based on estimation only. A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. Therefore appeal filed by Appellant rejected. Accordingly, in view of the facts and circumstances of the case and the legal position emerging out of the aforesaid various decisions, it is submitted that Ld. AO has erred in imposing the penalty u/s 271AAB as the case of assessee in the context of its income of Rs. 12.50 crore so shown in the return of income does not fall within the ambit of ‘undisclosed income’ for the purpose of section 271AAB and since the levy of penalty u/s 271AAB is not mandatory, therefore, penalty so levied in routine manner was unwarranted. It is therefore humbly prayed that penalty u/s 271AAB deserves to be deleted in its entirety and may kindly be deleted.

Further reliance is placed on the following recent decisions delivered by various benches of ITAT:

Without prejudice to the earlier submissions, it is further submitted that the Ld. AO has completely erred in imposing the penalty @ 30% of the income of Rs. 12.50 crore so shown. In any case, the case of the assessee is not at all covered in sub-clause (c) of sub-section (1) of section 271AAB of the Act.

It is submitted that Ld. AO has treated the case of the assessee to fall within sub-clause (c) by considering that the return of income has not been filed within the stipulated time u/s 139(1). However the Ld. AO has failed to appreciate the background conditions / situations due to which assessee could not file the return of income in time.

It is submitted that the copies of statements of assessee and his family members / employees recorded u/s 132(4) during the course of search were not provided to the assessee even after making repeated requests for the same though the copy of loose papers / documents seized were provided to assessee by Ld. ADIT himself and necessary explanation of assessee with respect to nature and entries contained was obtained. However, due to inaction on part of the department in providing the copy of statements, at last the assessee had to file the Income Tax Return without referring to the averments, if any, made in statements. It is pertinent to note that the tax due on such income (alleged additional income) stood paid in full upto the last date for filing of return u/s 139(1) of the Income Tax Act, 1961. The assessee has filed the return of income for the year under appeal after considering all the entries as contained in the seized documents and making reconciliation of the same and the income so declared in the return of income includes the income admitted during the course of search in statements recorded u/s 132(4) which was based on memory of the assessee. The return of income was filed 19 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT beyond the statutory time limit provided u/s 139(1) solely for the reason that the copies of the statements recorded of the assessee, his family members and employees, wherein the stated surrender has been admitted by the assessee during the course of search, were not provided. Counsel of the assessee regularly visited the office of the Ld. ADIT and Ld. AO and requested them many times for the supply of the copies of the statements however, the same were not provided till date. Further, the assessee has also requested in writing through various letters (APB 17-21) requesting for supply of copies of statements of assessee, however the requests of the assessee were not considered and the copies of the statements were not provided until the filing of return by the assessee. After the filing of return of income one more request was made on 20.03.2015 as the matter was under examination of Central Excise / Service Tax department who insisted upon the assessee to provide the copy of statement. This fact was stated before Ld. CIT(A) who based on this application, observed that assessee had made only one request i.e. on 20.03.2015 that too after filing of return but simultaneously failed to appreciate the fact that even after filing the return relevant copies of statements were not provided and assessee had to delay the filing of the return, as he did not file the return without actually going through the assertions made in the statements recorded u/s 132(4) during the course of search. However, since liability towards interest u/s 234 was increasing continuously with the passage of time, assessee was constrained to file the return of income without receiving and reconciling the statements with the income declared, and finally the same was filed on 12.02.2015 wherein due to delay, additional interest u/s 234A & 234B was also deposited. Therefore, it can be seen that the assessee was prevented by sufficient cause from filing the return in time stipulated in section 139(1), and this cause was beyond the control of the assessee and solely for the failure on the part of the department to provide the copies of statements of assessee and his family members / 20 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT employees recorded during the course of search, penalizing the assessee with such harsh penalty is totally unjust and unwarranted.

In this regard it is submitted that the provisions as contained in section 271AAB reads as under: (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 (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 the specified previous year, if it is not covered by the provisions of clauses (a) and (b). As submitted above, the search was conducted on 04.09.2013 where in the course of search various loose papers and documents were impounded by the department and after request, copy of the loose papers and documents were provided to the assessee however, copy of 21 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT the statements were not provided. Even after the filing of return, assessee made a request for the supply of the copy of the statements recorded during the course of search which was required to be submitted before the Central Excise Department who also summoned and questioned the assessee with regard to the additional income declared in the return of income (APB 1-5), however, till date despite of repeated requests in writing (APB 17-21) and by persona visits, the copy of statements have not been provided though the assessment stood completed and the penalty has been leviedsolely relying upon such statements of assessee. Assessee waited for the supply of the copy of the statements so that other income, if any, admitted in the statements or any other loose paper / document referred in the statements for which explanation was to be submitted could be given or included in the total income declared for the year however, in absence of the copy of the statements due to the increasing additional burden of interest, assessee had filed the return on 12.02.2015 after making due payment of additional interest thereon though as submitted earlier, due tax on such income was already paid prior to the due date u/s 139(1) for filing of return of income for the year under appeal. It is thus submitted that the delay in filing of return by the assessee is beyond his control and in no circumstances, it could not be held that the assessee has not fulfilled the conditions of section 271AAB knowingly and malafidely.

This contention was raised before the Ld. CIT(A) who has miserably failed to consider the same and has proceeded to confirm the penalty with the pre-determined notion to do so. The Ld. CIT(A) in this regard has observed that the assessee had filed the application for copy of statements only after filing the return of income. Here, the Ld. CIT(A) has clearly ignored the fact that apart from the letter dated 20.03.2015, other three letters were filed before the Ld. AO requesting for copy of statements, reference of which has been given above(APB 17-21).

22 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT In the case of the assessee, the total amount of Rs. 12.50 crore was stated to have been offered as additional income however, due to the fact that the copy of the statements recorded during the course of search were not provided therefore, the return of income could not be filed in time provided u/s 139(1), however the return was filed in the extended time period provided u/s 139 of the Income Tax Act, 1961. The Central Excise Department vide letter dated 21.08.2014 has asked the assessee to file the details of the admission made during the course of search of additional income to the extent of Rs. 75.56 crores and after receiving such notices, assessee visited the office of the Ld. AO and ask him to supply such copies of the statements where that admission of more than Rs. 75 crores were made by assessee or his family members during the course of search conducted on 04.09.2013. Besides this written requests were also made on 15.05.2014, 08.07.2014 & 10.12.2014. However, even after filing of return of income a further request was made vide letter dated 20.03.2015 to the Ld. AO for supply of the copies of the statements which were required to be submitted before the Excise Authorities being hard pressed by the Central Excise department due to this alleged additional income of more than Rs. 75 crores which was never existed nor admitted.

Further, the Ld. CIT(A) has observed that the statements of assessee have not been used by Ld. AO against the assessee and therefore, not providing the copy of statements has caused no prejudice to the assessee. In this regard it is submitted that the Ld. CIT(A) has committed gross error in ignoring and undermining the relevance and importance of the statements. In fact, the observation of Ld. CIT(A) clearly imply that he has simply assumed that the statements are of no importance. In this regard it is submitted that the fact whether the statements have been used against the assessee or not, has no bearing 23 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT over the requirement of providing copies of statement to the assessee for the purpose of filing the return of income. It is submitted that since the assessee was required to show his true and correct income which was stated by him in his statements recorded u/s 132(4) of the Act, it was necessary for him to refer to his own statements. However when the copies of such statements were not provided for a long period and considering that the heavy interest u/s 234 was running and being mandatory could not be escaped, therefore the assessee was left with no option but to file the return of income for the year under appeal without referring to the statements. The assessee did not have any option to keep the return pending anymore and wait for the department to provide copy of statements which action, looking to the attitude of Ld. AO, was not seemed to be acted upon. Had the assessee done so, the time limit prescribed u/s 139(4) would also have expired and then, the assessee would have been blamed for non filing of return of income. Further, the assessee could not have known beforehand as to whether his return would be accepted or not, or that his statements would be used against him or not by AO. It was not possible for assessee to know these things beforehand. Therefore, merely because the statements did not came to be used against assessee, it cannot be said that the assessee was not required to even refer those statements before filing return of income. The assessee in all fairness, only wanted to make sure that each and every income admitted by him in the statements gets included in the return of income and therefore, a reference to the statements was necessary. Thus not filing of return within stipulated time was beyond the control of assessee, for which assessee should not be penalized as same constituted reasonable cause within the meaning of section 273B. Since due taxes have already been paid by assessee within the stipulated time thus delay in filing the return for the reasons beyond the control of the assessee constitute reasonable cause as has been held by Hon’ble Chandigarh bench of ITAT in the case of DCIT Patiala Vs. Hari Singh 24 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT in dt. 20.9.2017, (case laws compilation page 50-51).

It is further submitted that the Ld. AO while levying the penalty u/s 271AAB had not doubted the mode and manner of earning such income which was duly explained stand substantiated by the assessee in the return itself where it was stated that advances of Rs. 12.50 crores were made out of the income from land dealing. All these facts are undisputed and nowhere controverted by the department. However, the only dispute raised by the department is with respect to the filing of return of income after the expiry of specified time u/s 139(1). In this regard detailed submissions have already been made above to the effect that the assessee was prevented by sufficient causes, beyond the control of assessee, due to which he could not file the return within the stipulated time period and this constituted a reasonable cause within the meaning of section 273B.

Therefore Ld. AO has completely erred in levying the penalty @ 30%, as the case of assessee is not at all covered in clause ‘c’ of sub section (1) of section 271AAB. With these facts and circumstances, the Ld. AO at his best could have considered the case to be falling in clause (a) of section 271AAB(1) and may have levied penalty @ 10% of the additional income. Though in view of detailed submission made hereinabove, assessee had already submitted that it is not a case of levy any penalty u/s 271AAB and entire penalty deserves to be deleted.

Under these facts and in the circumstances of the case, it is again submitted that the case of the assessee does not fall within the ambit of ‘undisclosed income’ as prescribed u/s 271AAB and since levy of penalty u/s 271AAB is not mandatory, considering the facts and circumstances of the case and legal position the penalty levied u/s 271AAB deserves to be deleted and may kindly be deleted.

25 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT 10. On the other hand, the ld. CIT-DR has vehemently supported the order of the ld. CIT(A) and has submitted that the penalty provision U/s 271AAB of the Act was introduced for search and seizure conducted on or after 01/07/2012 to strengthen the penal provisions. It was proposed to provide that the provisions of Section 271AAA will not be applicable for searched conducted on or after 1st July, 2012. It was also proposed to insert a new provision in the Act (Section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. He further submitted that unlike Section 271AAA, wherein immunity from imposition of penalty is possible subject to fulfillment of conditions in Section 271AAA(2), there is no immunity clause provided from penalty U/s 271AB of the Act. He further submitted that penalty U/s 271AAB of the Act is mandatory and is imposed at the varying rate of 10% 20% or 30% to 90% depending on the fulfillment of certain conditions.

35 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT 17. We further observe that the language of section 271AAB is similar to that of section 158BFA(2). Section 158BFA(2) of the Act provides that the assessing officer ‘May” direct that a person shall pay by way of penalty...". With reference to this section various courts including the Hon’ble Rajasthan High Court have held that penalty under this section is discretionary and not mandatory. In this regard, the ld AR has placed reliance on the decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Satyendra Kumar Dosi 315 ITR 172 (HC) (Raj) wherein it has been held as under: From a plain reading of sec. 158BFA(2) it does not appear that in all cases where undisclosed income is determined by the AO under cl. (c) of s. 158BC, the imposition of penalty shall follow as a natural consequence thereof. A discretion is vested with the AO to levy penalty in respect of undisclosed income. It cannot be inferred that the absence of the circumstances enumerated in the proviso to s. 158BFA(2) will attract penalty automatically. Also, there is no presumption that imposition of penalty is automatic for any failure or violation in respect of cases other than those covered by s. 273B. In the instant case, the CIT(A) and the Tribunal have concurrently found that the difference between the undisclosed income assessed and the undisclosed income shown in the return is the result of the estimation of the opening capital prior to the block period and that the capital possessed by the assessee prior to the block period as revealed by the ledger and the material seized during search could not be treated as undisclosed income of the first assessment year in the block period. Thus, no substantial question of law arises from the order of the Tribunal upholding the order of the CIT(A) deleting the levy of penalty under s. 158BFA(2). In the case of CIT Vs. Dodsal Ltd. 312 ITR 112 (Bom.) (HC) the Hon’ble Bombay High Court has held as under: Terminology of s. 158BFA(2) makes it clear that there is a discretion in the AO to direct payment of penalty. It is only if the authority decides to impose penalty then it would not be less than the tax leviable but shall 36 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT not exceed three times the tax so leviable. Merely because the expression used is "shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable", the first part of the section cannot be read as mandatory. Both CIT(A) and Tribunal have recorded reasons for exercise of their discretion in cancelling penalty which did not warrant interference. In the case of CIT vs. Dr. Giriraj Agarwal Giri (2012) 346 ITR 152 (Raj.) the Hon’ble Rajasthan High Court has held as under: Imposition of penalty depends on facts and circumstances of each case. The AO imposed the penalty on so called three items of so called concealed income. Each item was examined, thoroughly and in detail, by the Commissioner of Income-Tax (Appeals) as well as the Income Tax Appellate Tribunal and by a reasoned order, both came to a conclusion that additions are based on estimation only. A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. Therefore appeal filed by Appellant rejected. Even the Coordinate Benches of the ITAT under the similar facts have decided the matter in favour of the assessees in deleting the penalty in the case of (1) Shri Suresh Chand Mittal Vs. the DCIT, order dated 02/07/2018 (2) Shri Anju Mathur Vs DCIT, ITA No. 971/JP/2017 order dated 13/06/2018 (3) Shri Ravi Mathur Vs DCIT, ITA No. 969/JP/2017 order dated 13/06/2018 (4) Shri Ram Das maheshwari Vs PCIT, ITA No. 421/JP/2018 order dated 14/08/2018 (5) Shri Ashok Kumar Maheshwari Vs PCIT, in ITA No. 919/JP/2018 order dated 14/06/2018 (6) Shri Dinesh Kumar Agarwal Vs ACIT, in ITA No. 855 & 856/JP/2017 order dated 24/07/2018 (7) Shri Raja Ram Maheshwari Vs DCIT, in ITA No. 992/JP/2017 order dated 10/01/2019 37 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT (8) Shri Rajendra Kumar Gupta Vs DCIT, in order dated 18/01/2019 (9) M/s Silver & Art Palace Vs DCIT, in ITA No. 236/JKP/2018 order dated 11/02/2019 (10) Shri Krishna Yadav Vs DCIT, in ITA No. 987/JP/2017 order dated 26/03/2019. The Coordinate Bench of this Tribunal under similar facts and circumstances, in the case of Shri Gauri Shankar kandoi Vs DCIT in ITA No. 576/JP/2018 order dated 21/08/2019 had decided identical issue in favour of the assessee by holding as under: “8. Heard both the parties and perused the material available on record. In this case, the search was conducted on 18.07.2012 in case of Kandoi Group, Jaipur to which the assessee belongs. During the course of search, a document was found and seized which states that the assessee has made payment of Rs. 36,83,406/- vide cheque dated 13.07.2012 and Rs. 17,16,594/- towards fully and final payment of a Villa at Suncity Township, Sikar Road, Jaipur. Further, copy of cheque No. 0014 dated 13.07.2012 for an amount of Rs. 36,83,406/- issued by the assessee from his saving bank account maintained with Bank of Baroda was also found, besides physical cash of Rs. 9 lacs. Therefore, it is an admitted position that the the assessee has made total payment of Rs. 54 lacs towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and as far as the cheque payment is concerned, the same has not been disputed by the Revenue and has been taken as disclosed investment by the assessee. However, as far as the cash payment of Rs. 17,16,594/- and cash of Rs. 9 lacs which was found during the course of search, the same has been taken as undisclosed income by the assessee. During the course of search, in his statement recorded u/s 132(4), the assessee has surrendered the said amount and subsequently, offered the same in his return of income. The question that arises for consideration is whether 38 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT the cash payment towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and cash of Rs. 9 lacs found in possession of the assessee can be termed as undisclosed income within the meaning as defined in section 271AAB as undisclosed income under explanation (c) of section 271AAB of the Act. In this regard, we refer to the Co-ordinate Bench decision in the case of Silver & Art Palace vs. DCIT (supra) wherein it was held that the undisclosed investment by way of purchase of land can be subject matter of addition in the quantum proceedings but the same does not fall strictly within the meaning of undisclosed income as so defined in section 271AAB of the Act and deeming fiction u/s 69B cannot be extended and applied automatically in the context of section 271AAB of the Act. Further, the fact that the transaction so found recorded in a document has not been disputed by the Revenue. Given that the assessee is a salaried person who is not required to maintain any books of accounts and there is no mechanism to report the investment in the tax return, the said investment cannot be held as undisclosed investment and more so, undisclosed income so defined in section 271AAB of the Act. In light of the same, the investment of Rs. 17,16,594/- so found in purchase of Villa at Suncity Township at Sikar Road, Jaipur cannot be termed as undisclosed income within the meaning of “undisclosed income” as so defined u/s 271 AAB of the Act and penalty levied thereon is liable to be set aside.”

Order pronounced in the open court on 18th March, 2021.

Sd/- Sd/- ¼foØe flag ;kno½ ¼lanhi x®lkÃa½ (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 18/03/2021 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 46 ITA 196/JP/2018_ Sh. Om Prakash Modi Vs DCIT vihykFkhZ@The Appellant- Shri Om Prakash Modi, Jaipur. 1. izR;FkhZ@ The Respondent- The D.C.I.T., Central Circle-2, Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 196/JP/2018) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत