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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 123/JP/2018
ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 21/11/2017 of ld. CIT(A)-4, Jaipur arising from the penalty order passed U/s 271AAB of the Income Tax Act, 1961 (in short, the Act) for the A.Y. 2015-16. The assessee has raised following grounds of appeal: “1. That the notice issued by the A.O. for initiating the penalty U/s 271AAB of the IT Act, 1961 is not in accordance with law not being specifically pointing out the default for which the Ld. A.O. sought to impose penalty U/s 271AAB.
2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case, the ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs. 13,00,000/- imposed by the ld. A.O. U/s 271AAB of the IT Act, 1961.
2 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT 3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them.”
2. The assessee is an individual and derives income from business as well as other sources. A search and seizure action U/s 132 of the Act was conducted on 05/02/2015 in the case of Bundi Silicon Group, Kota in which the case of the assessee was also covered. In the course of search, some documents were found and seized, marked as Annexure-AS Exihibti-13 containing certain notings/entries of advances on account of land and otherwise. In the statement recorded U/s 132(4) of the Act, the assessee surrendered a sum of Rs. 1.30 crores on this account and subsequently the assessee filed her return of income U/s 139(1) of the Act on 29/09/2015 declaring total income of Rs. 1,38,18,810/- including the said amount of Rs. 1.30 crores disclosed during the course of search and seizure action. The A.O. completed the assessment U/s 143(3) r.w.s. 153B(1)(b) of the Act on 15/12/2016 accepting the returned income. The A.O. also initiated the penalty proceedings U/s 271AAB of the Act by issuing a show cause notice on 15/12/2016 and consequently a penalty of Rs. 13,00,000/- was levied by the A.O. U/s 271AAB of the Act vide order dated 19/06/2017. The assessee challenged the action of the A.O. before the ld. CIT(A) but could not succeed.
3 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT 3. Before the Tribunal, the ld AR of the assessee has submitted that an identical issue arising from the same search and seizure action and penalty levied U/s 271AAB of the Act has been considered by this Tribunal in the case of other family members of the assessee in the case of Shri Surajmal Bansal HUF and others in to 127/JP/2018 vide order dated 08/04/2019. Thus, the ld AR has submitted that the penalty levied by the A.O. on the identical surrender of income during the same search and seizure action, has been deleted by this Tribunal. He has relied upon the said decision of the Tribunal.
4. On the other hand, the ld DR has submitted that the surrender was made by the assessee based on the incriminating documents found and seized during the course of search and seizure action disclosing undisclosed income of the assessee. The assessee has duly admitted the undisclosed income in the statement recorded U/s 132(4) of the Act, therefore, all the conditions have required U/s 271AAB of the Act for levy of penalty are satisfied. The A.O. has levied penalty at minimum rate of 10% of the undisclosed income. She has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record at the outset, we note that this Tribunal in case of Shri
4 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT Surajmal Bansal HUF and others including Shri Navneet Bansal Vs DCIT who is husband of the assessee, has considered the issue of levy of penalty U/s 271AAB of the Act arising from the disclosure and surrender made by the other family members of the assessee under the same search and seizure action conducted on 05/02/2015. In the case in hand, the surrender was made in respect of entries found regarding the advance in names of certain persons for land and otherwise which are identical entries as in case of other family members and particularly in the case of the husband of the assessee Shri Navneet Bansal Vs. DCIT. The Tribunal vide order dated 08/04/2019 has discussed this issue in para 11 to 21 as under: “11. We have heard the rival contentions and perused the material available on record. This Tribunal is taking a consistent view that levy of penalty u/s 271AAB is not automatic in nature but the AO has discretion to take a decision after arriving at the conclusion that the income disclosed by the assessee in the statement recorded U/s 132(4) of the Act is an undisclosed income in terms of Section 271AAB(1) r.w. explanation defining the undisclosed income. In this regard, we refer to the decision of the Tribunal in case of Rajendra Kumar Gupta vs DCIT (Supra) wherein it was held as under: “12. Now, coming to the main ground of appeal. In this regard, the ld AR has raised the contention challenging the findings of the AO that penalty U/s 271AAB is mandatory in nature and there is no discretion with the Income tax authorities. It was submitted by the ld AR that in section 271AAB, the word ‘may’ is used instead of ‘shall’ so 5 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT it is not mandatory but same is discretionary. It was submitted that it is settled position of law that penalties are not compulsory, not mandatory but are also discretionary considering the overall facts and circumstances of the case. In support, reliance was placed on provisions of section 158BFA(2) wherein similar phraselogy has been used by the legislature and the decisions of the Coordinate Benches in case of DCIT vs Manish Agarwal 92 taxmann.com 81 and ACIT vs Marvel Associates 92 taxmann.com 109.
13. Per contra, the ld. DR submitted that the assessee has surrendered the undisclosed income in his statement recorded u/s 132(4) and therefore, there cannot be any question of said surrender of income not falling in the definition of undisclosed income. It was submitted that the penalty U/s 271AAB is mandatory in nature and is imposed at the varying rate of 10%, 20% or 30% depending on the fulfillment of certain conditions therein. It was submitted that all the conditions specified in Section 271AAB have been fulfilled in the instant case, therefore, the penalty U/s 271AAB being in the nature of mandatory penalty and there being no discretion with the Income tax authorities, the penalty so imposed by the AO was rightly confirmed by the ld CIT(A) and the order of the ld CIT(A) should be upheld.
14. In this regard, we refer to the provisions of Section 271AAB which begins with the stipulation that the Assessing officer may direct the assessee and the assessee shall pay the penalty as per clause (a) to (c) so satisfied in sub-section (1) to Section 271AAB. Further, as per sub-section (3) of Section 271AAB, the provisions of section 274 and section 275 as far as may be applied in relation to penalty under this section which means that before levying the penalty, the Assessing officer has to issue a show-cause granting an opportunity to the assessee. Thus, the levy of penalty is not automatic but the 6 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT Assessing officer has to decide based on facts and circumstances of the case. Similar view has been taken by the various Co-ordinate Benches and useful reference can be drawn to the decision of the Co- ordinate Bench in case of ACIT vs Marvel Associates (supra) wherein it was held as under: “5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the appeal hearing, the Ld. A.R. vehemently argued that the A.O. has levied the penalty under the impression that the levy of penalty in the case of admission of income u/s 132(4) is mandatory. The Ld. A.R. further stated that penalty u/s 271AAB of the Act is not mandatory but discretionary. The provisions of section 271AAB of the Act is parimateria with that of section 158BFA of the Act relating to block assessment and accordingly argued that the levy of penalty under section 271AAB is not mandatory but discretionary. When there is reasonable cause, the penalty is not exigible. The Ld. A.R. taken us to the section 271AAB of the Act and also section 158BFA(2) of the Act and argued that the words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical. Hence, argued that the penalty section 271AAB of the Act penalty is not automatic and it is on the merits of each case. For ready reference, we reproduce hereunder section 158BFA (2) of the Act and section 271AAB of the Act which reads as under: 271AAB [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—
7 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT (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 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
8 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT 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). (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). Section 158BFA(2): (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC: Provided that no order imposing penalty shall be made in respect of a person if— (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable. (iii) Evidence of tax paid is furnished along with the return; and 9 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT (iv) An appeal is not filed against the assessment of that part of income which is shown in the return: Provided further that the provisions of the preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.
6. Careful reading of section 271AAB of the Act, the words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.
The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear 10 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because the opportunity of being heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon'ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that 'we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Accordingly we hold that the penalty u/s 271AAB is not mandatory but to be imposed on merits of the each case.”
15. Therefore, we agree with the contentions of the ld AR that the levy of penalty under section 271AAB is not mandatory. In the instant case, it therefore needs to be examined whether there is any basis for levy of penalty or non-levy thereof and the same will depend upon the facts and circumstances of the present case which we shall discuss in subsequent paragraphs.”
For the purposes of levy of penalty, what has to be seen is that whether the surrender so made, in terms of statement of the assessee recorded u/s 132(4) during the course of search, falls in the definition of “undisclosed income” which has been specifically laid down in terms of clause (c) of explanation to section 271AAB which reads as under:
11 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT “(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 (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.”
In the instant case, during the course of search, a diary has been found wherein there are notings relating to advance given to certain persons towards purchase of land. The notings describe the name of certain persons, the amount advanced which ranges from Rs 25 lacs to Rs 70 lacs and the date of such advance is from 16.12.2014 to 28.01.2015 before the date of search on 5.02.2015. Therefore, what has been found during the course of search is certain entries relating to undisclosed advances/investment in purchase of land. Besides the 12 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT said entries, there are no other documents/material in terms of full particulars and address of the person to whom the advance has been given, any agreement to sell, the description and location of the property etc. which has been found during the course of search. The assessee HUF is a partner in two partnership firms and derives income from share in the profit and interest from such partnership firms which it has reported in its return of income and therefore, as far as maintenance of books of accounts is concerned, the assessee HUF not carrying on any business is thus not required to maintain regular books of accounts. The diary found during the course of search and seizure at the premises of the assessee contains the entries of advances given for purchase of land and therefore, the said amount of advance given for purchase of land can be recorded in the capital account of the assessee. Thus the transactions found recorded in the diary are to be recorded in the capital account of the assessee as well as in the balance sheet prepared as on 31.03.2015 and not on the date of search as on 5.02.2015. These transactions are recorded in a diary which is nothing but “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 the date of search. Another question that arise for consideration is whether the advances so given for purchase of land qualify as “undisclosed income” as per definition given in the explanation to section 271AAB of the Act. An advance represents an outflow of funds and what has been envisaged by the legislature while defining “undisclosed income” in section 271AAB is an inflow of funds which has not been recorded in the books of accounts or other documents on or before the date of search and not an outflow of funds. Further, the deeming fiction so envisaged in section 69 and 69B cannot be extended and applied automatically in context of section 271AAB which contains a specific 13 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT definition of undisclosed income. An identical matter has come up for consideration before the Tribunal in case of Rajendra Kumar Gupta vs DCIT (Supra) wherein it was held as under:
“21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed cash advances represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee’s hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter- changeably. In the definition of undisclosed income, where it talks 14 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT about “income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132”, what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to 15 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside.”
In light of above discussions and following the earlier decision of the Coordinate Bench of the Tribunal in the case of Rajendra Kumar Gupta (supra), we delete the penalty levied under section 271AAB of the Act on cash advances of Rs 2,25,00,000 towards purchase of land. Since the issue of levy of penalty U/s 271AAB of the Act has been decided on merits, therefore, the issue of validity of initiation of the penalty proceeding due to defective show cause notice become academic in nature and we do not propose to adjudicate the same.
In the result, the appeal of the assessee is allowed.
In ITA No. 125/JP/18 in case of Ashok Bansal, both the parties submitted that the facts and circumstances of the case are identical except the fact that besides the surrender of additional income during the course of search consist of cash advances of Rs 1,00,50,000 towards purchase of land, there is surrender on account of jewellery valued at Rs 49,62,554 found during the course of search.
As far as jewellery valued at Rs 49,62,554 which has been physically found in possession of the assessee, and which is in excess of what has been disclosed in the wealth tax return, during the course of search is 16 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT concerned, there cannot be any dispute that the same represents undisclosed income so defined in section 271AAB and which has not been disclosed on or before the date of search. Regarding the contention of the ld AR that such jewellery is personal jewellery of the assessee and his family members and has been purchased out of past savings and/or has been received as gift in the past on various festivities and other auspicious occasions, these are contentions which are relevant for determining the nature and source of such undisclosed income for the purposes of determining the quantum of penalty which can be levied and which we find that the lower authorities have duly considered while levying penalty @ 10%. In the result, we confirm the levy of penalty @ 10% on the undisclosed income of Rs 49,62,554.
Regarding levy of penalty on cash advances of Rs 1,00,50,000 towards purchase of land basis the statement of the assessee recorded during the course of search, the facts and circumstances of the case are exactly identical and similar contentions have been raised by both the parties. Hence, our findings and directions contained in shall equally apply in this case and following the same, the penalty so levied on such cash advances is hereby directed to be deleted.
In the result, the appeal of the assessee is partly allowed.
ITA No. 126-127/JP/18
In the AO has similarly levied penalty on cash advances of Rs 2,05,00,000 towards purchase of land basis the statement of the assessee recorded u/s 132(4) during the course of search. In ITA No. 127/JP/18, the AO has levied penalty on cash advances of Rs 2,25,00,000 towards purchase of land basis the statement of the assessee recorded u/s 132(4) during the course of 17 ITA 123/JP/2018_ Smt. Alka Devi Bansal Vs DCIT search. Both the parties fairly submitted that the facts and circumstances of these two cases are exactly identical to case in ITA No. 124/JP/18 and similar contentions have been raised by both the parties. Hence, our findings and directions contained in ITA No 124/JP/2018 shall equally apply in this case and following the same, the penalty so levied on such cash advances is directed to be deleted. In the result, both these appeals are allowed.
In the result, the appeals of the respective assessees in ITA No. 124/JP/18, 126/JP/18 and 127/JP/18 are allowed and the appeal of the assessee in ITA No. 125/JP/18 is partly allowed. “ Thus, in the said case, the Tribunal has decided the leviability of penalty U/s 271AAB of the Act in the identical facts and circumstances and considering this issue as common in respect of all the four appeals of the family members and the HUF. Following the earlier order of this Tribunal passed in the identical facts and circumstances of the case, penalty levied in the present appeal U/s 271AAB of the Act is deleted.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 21st October, 2019.
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