SHRI KAMAL SETHIA,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

per explanation to Section 271AAB of the Act. The ld. AR of the

assessee has submitted that a surrender of income was obtained from

the assesssee under pressure through statements recorded u/s 132(4),

even though, there was no necessity for the same. He draws our

attention to the Board's Circular dated 10th March, 2003 in which Board

has expressed its concern about the practice of confession of additional

income during the course of search and seizure proceedings and,

therefore, clarified that the confession during the course of search and

survey operation do not serve any useful purpose. There should be

focus and concentration on collection of evidence of income which leads

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

to information on what has not been disclosed or is not likely to be

disclosed before the Income Tax Department. The Board has again

issued a Circular dated 18th December, 2014 (which was immediately

following the day of search on the assessee) and advised the taxing

authorities to avoid obtaining admission of undisclosed income under

coercion/undue influence. In this manner, except the statement under

section 132(4), there is no undisclosed income in the case of the

assessee. The assessee was forced to admit and surrender the income

in the statement recorded under section 132(4). The provisions of

section 271AAB clearly requires that such undisclosed income to be

substantiated and, therefore, the AO is required to specify the manner

in which such income has been derived and further substantiate the

same with the material available with him. In the absence of any

record or material to show any undisclosed source of income, the

entire disclosure on papers is to avoid undue harassment and

unwanted litigation. In the statements recorded u/s 132(4) of the Act,

the assessee had made surrender of income only to buy peace of mind

and with a view to cooperate with the Income Tax Department and with

the condition that no penalty would be imposed on him for the income

so surrendered. During the assessment proceedings also the assessee 7

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

has fully cooperated with the department to complete the assessment

smoothly. The department should not have imposed penalty upon him

after accepting the conditional surrender of income. The ld. AR

further submitted that Various income surrendered by the assessee

during the course of search in statements recorded under section

132(4) was on account of expenditure incurred by various Partnership

firms/Companies in which the assessee was Partner/Director for the

development of projects or for purchase of land etc. The accounting

year of the assessee was not completed as on the date of the search.

Further, the profit can be declared only after end of the year. After the

end of the year, final accounts are prepared and only after that profit

can be ascertained. These firms/companies would have even otherwise

recorded these expenditure/investments in the books of accounts. But

during the course of search proceedings, the raiding party, in their zeal

to obtain maximum surrender from the assessee, obtained surrender of

these amounts in the hands of the assessee. Assessment has also been

completed on the surrendered amount without going into the merits of

the assessee. Thus, the ld. AR has submitted that the incriminating

material recording the expenditure incurred in cash on various projects

are the business activities of partnership firm and the company and 8

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

therefore, those entries found in the loose papers do not represent any

undisclosed income of the assessee when no business activity has been

carried out of the assessee in respect of Real Estate business. Thus,

firstly these are only expenses recorded in the loose sheet without any

supporting bills and vouchers or other documentary evidence. Secondly

no inquiry was conducted by the department to ascertain whether any

actual assets were acquired by the assessee on account of these

expenditure. He has further contended that any cash was paid by the

assessee and even the nature of transactions were recorded in the

loose papers found and seized during the course of search and seizure

action pertains to the business activity of the firm and company and not

to the assessee. Accordingly, the surrender made by the assessee does

not fall in the definition of undisclosed income provided in explanation

to section 271AAB of the act when these transactions pertain to the

respective firm/companies and otherwise recorded in the books of the

respective firm and company then the surrender made by the assessee

will not attract the penalty proceedings U/s 271AAB of the Act. The ld.

AR has further submitted that in this case, the AO has not done any

enquiry or examined the facts of the case as well as the basis of

surrender as per statements recorded under section 132(4) during the 9

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

proceedings u/s 271AAB. There is no mention of any enquiry or any

application of mind by the AO in the Assessment Order as well. It is

submitted that the disclosure of additional income in the statement

recorded under section 132(4) itself is not sufficient to levy the penalty

under section 271AAB of the Act until and unless the income so

disclosed by the assessee falls in the definition of undisclosed income

defined in the explanation to section 271AAB(1) of the Act. Just the

mere statements recorded under section 132(4) would not either

constitute an incriminating material or undisclosed income in the

absence of any corresponding asset or entry in the seized document

representing the undisclosed income. It was further submitted that the

department has not done any enquiry on these entries as per loose

papers, that whether the same are real assets with the assessee or not.

They have merely relied on the surrender by the assessee as per

statements u/s 132(4). It was incumbent upon the department to find

out and establish the existence of these assets in the possession of the

assessee and whether these are real assets or just sham entries.

Therefore, it was submitted that these vague entries itself do not

represent the real transaction and consequently the undisclosed income

of the assessee. The ld. AR thus submitted that as per provisions of 10

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

Sec. 271AAB, a penalty is imposed only on undisclosed income and not

on investment made by the assessee. The above

expenditure/investment per se represents an outflow of funds from the

assessee. These capital investments and expenditures in the projects of

the firms/companies and other capital assets cannot be treated as

undisclosed income of the assessee in the context of section 271AAB

read with the explanation thereto. As per the definition of undisclosed

income u/s 271AAB, the undisclosed investment in so called purchase or

expenditure cannot be stated to be income which is represented by any

money, bullion, jewellery or other valuable article or thing.

4.2 Alternatively, the ld. AR of the assessee has submitted that the

assesse was not required by law to maintain any books of accounts in

his individual capacity. The assessee is not maintaining any books of

accounts in his individual capacity. The returned income was accepted

by the AO while framing the assessment U/s 143(3) and hence

assessee’s case does not fall in the category where the regular books of

accounts are mandatory. There was no way he could have recorded

above transactions in his books of accounts. The entries in the loose

papers etc. should to be considered as recorded in the documents

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

maintained in the normal course. Therefore, the records maintained by

him on loose sheets and other documents will be deemed to be full

compliance to provisions of Explanation (c).

4.3 Apart from the surrender on account of cash expenditure on the

various real estate projects of Rs. 4,82,24,630/-, the assessee has also

surrendered of Rs. 62,17,563/- on account of purchase of jewellery and

silver items. The ld. AR has submitted that the addition has been made

in the income of the assessee only on the basis of surrender made by

him in statements U/s 132(4) of the Act. No cross verification of facts

was done by the AO. The assessee was not required to maintain any

books of accounts by law therefore, there was no way he could have

recorded these investments. Therefore, whatever documents were

available with him will constitute his documents maintained in normal

course. The ld. AR thus contended that the department has not made

any efforts to apply the rates as prevailing in the year of acquisition and

some of the jewellery even not acquired by the assessee or the family

members but is inherited. They have relied on some rough estimates.

The department also did not make any verification from any seller.

Therefore, the manner in which the disclosure is obtained on account of

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

the silver/jewellery would not represent the undisclosed income as

defined in the explanation to Section 271AAB of the Act. Thus, the ld.

AR has contended that the surrender is based on the valuation carried

out by the department without verification the correctness of the value

or cost of acquisition at the time of purchase. He has submitted that

since the jewellery found belongs to the family members of the

assessee and some of which inherited from forefather therefore, the

cost of acquisition at the time of purchase of jewellery should have

been taken into consideration not the prevailing rates at the time of

search. In support of his contention, he has relied upon the decision of

Coordinate Bench of this Tribunal in case of Shri Padam Chand Pungliya

vs. ACIT (supra) as well as decision dated 11.04.2019 in case of Gopal

Das sonkia vs. DCIT in ITA No. 306/JP/2018. Thus, the ld. AR has

contended that when this jewellery belongs to the family members of

the assessee then the same would not represent undisclosed income of

the assessee.

4.4. As regards of Rs. 50 lacs surrendered by the assessee on account

of any other irregularity the same cannot be treated as undisclosed

income as no irregularity or discrepancy was found by the department

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

at any stage either during the course of search and seizure or during

the post search inquiry as well as during the assessment proceedings.

When the Assessing Officer has not found any material or any

irregularity or discrepancy then the said surrender of Rs. 50 lacs cannot

be held as undisclosed income for the provisions of Section 271AAB of

the Act. In support of his contention, he has relied upon the decision of

this Tribunal in case of M/s Rambhojo’s vs. ACIT (supra) as well as

decision dated 18.01.2019 in case of Shri Rajendra Kumar Gupta vs.

DCIT in ITA No. 359/JP/2017.

based on seized material which is incriminating material reflecting

unaccounted cash expenditure as well as the jewellery was found in the

possession of the assessee and therefore, the said amount of surrender

falls in the definition of undisclosed income as per explanation to

Section 271AAB of the Act. The ld. DR has emphasized that

unaccounted expenditure found during the course of search is nothing

but undisclosed income. Further part of the entries in the seized

material has not been disputed by the assessee as the same were also

found recorded in the books of accounts therefore, the seized

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

documents cannot be disputed in part. The assessee has not questioned

the income surrendered as undisclosed income rather in the statement

recorded U/s 132(4) of the Act the assessee as admitted the said

amount as undisclosed income of the assessee. The assessee himself

agreeed to the penalty at minimum rate on the surrender amount and

therefore, there was no error or illegality in the order passed by the AO

U/s 271AAB as well as the ld. CIT(A). He has relied upon the orders of

the authorities below.

material on record. There is no dispute that the assessee is earning and

declaring income from salary, rent, and other sources. Even the

Assessing Officer in the caption of the assessment order has accepted

the nature of source of income as salary. Therefore, it is not in dispute

that the assessee has never declared any income from business activity

either in past or in future. The assessee is partner in partnership firms

namely M/s Sethia Real Estates, M/s Manglam Vardhman Devlopers LLP

and M/s Sathia Real Development Corporation. The assessee is also

director in the company M/s Richwell Enterprises Pvt. Ltd. and M/s

Sandworth Real Estate Pvt. Ltd. During the course of search and seizure

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

action on 17.12.2014 certain documents were found containing the

details of the expenditure incurred in respect of various housing

projects. Even the expenditure incurred on particular items i.e. iron,

cement, wood, plywood, tiles, sanitary, hardware, card, POP, paint,

bricks, electric and stone were recorded in the loose paper found during

the course of search. These loose papers also mentioned the details of

projects namely imperial Hieghts, Silver crown, Horigon and Arcadia

Greens etc. Apart from the documents certain jewellery were also found

at the residence of the assessee and subsequently the assessee has

made the surrender including an amount of Rs. 5,94,42,193/-

comprising of Rs. 4,82,24,630/- on account of unaccounted expenditure

on various projects, Rs. 62,17,563/- on account of jewelry, Rs.

2,17,563/- on account of silver items and Rs. 50 lacs for any other

irregularity or discrepancy. We will be deal each of the three items of

surrender one by one.

6.1 Surrender of Rs. 4,82,24,630/- on account of

unaccounted expenditure on various projects:- In the statement

recorded U/s 132(4) of the Act the assessee has stated in response to

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

question no. 4 about the source of his income as interest, remuneration

from firms and salary from company. The assessee in response

question no. 7 has also given the details of various firms and companies

in which the assessee is partner as well as director. It is also explained

that these companies were engaged in the business of real estate,

construction of residential complexes and other related activities.

Nothing was found or even brought on record by the department to

show that the assessee has ever engaged in any business of

construction of residential projects which are the activities of the

various firms and company of the assessee. In reply to question no. 20

the assessee has again explained about the seized documents AS-2

page 13 being expense sheet of projects of Imperial Heights as well as

summary sheet containing the entries of expenses in respect of M/s

Richwell Enterprises Pvt. Ltd. and duly recorded in the books of the said

company. Similarly in response to question no. 21 the assessee has

explained the entries at page 14 AS-2 as the details of the Residential

project, silver crown. There is no dispute all these projects were

undertaken by the firms and companies of the assessee and not by the

assessee in his individual capacity. Further some of the entries in the

seized material regarding the expenditure were also found recorded in 17

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

the books of account of the concerned company which is doing business

of construction and undertaken particular real estate projects. Even

from the statement and seized material it is manifest that expenditure

recorded in the documents pertains to specific project which belong to

the companies as well as the partnership firms of the assessee. Further,

as per AS-3 there was sale agreement in respect of the project of

Arcadia Greens Vaishali Estate and the said agreement belongs to M/s

Sethia Real Estates the partnership firm of the assessee. Therefore, the

seized material found during the search pertains to the various firms

and company and in respect of expenditure and business activity of

those companies and firms and have no connection with the business

activity of the assessee in his individual capacity, the department has

not disputed the fact of real estate projects of the firms and companies.

Therefore, the expenditure is identified to a particular project and the

said particular project is constructed by the company or the firm in

which the assessee is either the partner or director. In these facts as

recorded by the department in the statement recorded U/s 132(4) of

the Act as well as it is also manifest from the seized material

established that all these entries recorded in the seized material do not

belong to the assessee but these are the expenditure in respect of 18

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

various projects belonging the firms and company. Therefore, even if

some unaccounted expenditure fund recorded in the seized material the

same do not disclose any income of the assessee muchless the

undisclosed income of the assessee. We have carefully perused the

seized material as well as statement recorded U/s 132(4) of the Act. It

is apart from the record that though the unaccounted expenditure

found recorded in the seized material undisputedly and undoubtedly

pertains to the various projects of the companies and firms however,

for their own convenience the department has obtained the surrender

from the assessee in his individual capacity instead of his capacity as

the partner and director in those companies to disclose and surrender

undisclosed income of various companies and partnership firms. There

is no ambiguity about the identification of the particular expenditure

pertains to a particular projects and in turn pertains to a particular firm

or company therefore, a mere surrender by the assessee of the amount

which does not belong to the assessee would not be treated as

undisclosed income in terms of Section 271AAB of the Act. It is manifest

from the record that the unaccounted expenditure pertains to the firm

or the company in respect of whose projects the expenditure was

incurred and found unaccounted. Therefore, in these fact and 19

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

circumstances as emerged from the record we have no hesitation to

hold that the surrender of Rs. 4,82,24,630/- on account of expenditure

incurred for purchase of various construction material pertaining to the

projects undertaken by the firm and the company in which the assessee

is a partner and director cannot be treated as undisclosed income of the

assessee. If the assessee as well as department for their convenience

has got the surrender in the hands of the assessee instead of in the

hands of the firms and companies to which the alleged unaccounted

expenditure pertains then the department should rest their case once

the assessee has paid the taxes on the said surrender amount. For the

purpose of levy of penalty U/s 271AAB of the Act it is incumbent upon

the department/AO to establish that the surrender made by the

assessee falls in the ambit of undisclosed income as per the explanation

to Section 271AAB of the Act. In view of the facts that the alleged

unaccounted expenditure does not belong to the assessee then the

mere the surrender made by the assessee U/s 132(4) of the Act will not

ipso facto brings the case in the mischief of Section 271AAB of the Act

as the documentary evidence speaks contrary to the stand of the

department that the expenditure belongs to the assessee. Rather it

pertains to the various real estate projects of the firms and companies 20

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

and consequently treating the same as undisclosed income of the

assessee is completely ruled out.

6.2 As regards the point raised by ld. AR that the expenditure by

itself does not fall in the definition of undisclosed income as per Section

271AAB of the Act. We note that the Coordinate Bench of this Tribunal

in case of Shri Padam Chand Pungliya vs. ACIT (Supra) while

considering an identical issue as held in para 8 as under:-

“8. We have considered the rival submissions as well as the relevant material on record. Out of the four items representing the undisclosed income disclosed by the assessee during the statement under section 132(4) of the IT Act, only two items, namely, expenditure on house construction and undisclosed advances are based on the seized material. The other two items being representing excess stock and undisclosed jewellery are not based on the seized documents but these are based on the valuation of the stock as well as the jewellery found at the time of search and seizure action. First, we take up the undisclosed income on account of expenditure on house construction of Rs. 2,44,63,575/-, the relevant alleged seized document in this respect are the entries in the diary on 04.04.2013, 14.04.2013, 28.04.2013, 28.05.2013 and 01.06.2013. It is pertinent to note that all these notings are done during the month of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too when the alleged expenditure of Rs. 2,44,63,575/- was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like Rs. 15 lacs towards purchase of paint. It is

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there is an entry of some marble fixing of Rs. 5 lacs. From these entries in the alleged seized material, it is manifest that most of them are unrealistic as entry of Rs. 70 lacs is shown towards furniture which is highly impossible. Another entry of Rs. 45 lacs is shown towards steel. Thus from the notings of these papers it is clear that these are not entries representing the real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded under section 132(4) any efforts were made by the search party to find out the actual existence of these assets towards which the alleged entries are recorded in the seized material/papers. Though the admission on the part of the assessee is a relevant evidence, however, when the entries/notings in the loose papers are apparently not representing the real transactions then it was incumbent upon the department to find out and establish the existence of these assets in the possession of the assessee. In the absence of such efforts and even any question put to the assessee regarding the existence of these assets, these entries alone would not ipso facto constitute undisclosed income of the assessee. Even otherwise, these entries in itself are not having any income element but these are all expenditure entries and, therefore, until and unless a corresponding asset is found in the possession of the assessee, the entries alone cannot be regarded as representing the undisclosed income of the assessee. Therefore, when the duration of the construction period of the house has not been ascertained by the department, then showing the entire cost of construction with imaginary figures for a period of 2 month is not justified. Even we find that the construction material entries are on subsequent dates and furniture and TV entries on the earlier dates which do not support of the case of the department that these entries/notings in the seized documents represents the real transactions/assets purchased by the assessee or in the possession of the assessee. The possession of the asset was a matter of fact at the time of search and in the absence of such asset either found or otherwise discovered during the course of search and seizure, these entries in the seized documents would not constitute undisclosed income on account of expenditure in construction of the house. 22

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

Similarly, the entries in respect of advances of Rs. 5,62,000/- also very vague and ambiguous not giving any details about the purpose or date on which these advances were given. Only a date is mentioned at the bottom of the page but not against each and every entry of the page. Further, we note that the department has not tried to ascertain the full particulars of the alleged persons whose names are noted in the seized documents against certain amounts which are considered as advances given by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed income of the assessee. The Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. DCIT (supra) has considered the issue of out flow of funds from the assessee can be an undisclosed income for the purpose of section 271AAB of the Act in para 21 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 23

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

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 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 examine other provisions where the same has been 24

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

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.”

Accordingly, in view of the facts and circumstances of the case as well as the decision of the Coordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. DCIT (supra), we hold that the entries in the seized documents representing the expenditure on account of construction of the house and purchase of other assets as well as advances in the absence of the real transactions do not constitute the undisclosed income of the assessee as defined in the explanation to section 271AAB of the Act. Accordingly, the penalty levied under section 271AAB in respect of the said amount is not sustainable and liable to be set aside.”

Thus the discloser of additional income in the statement recorded U/s

132(4) of the Act itself is not sufficient to levy of penalty U/s 271AAB of

the Act until and unless the income so disclosed by the assessee falls in

the definition of undisclosed income as defined in explanation to Section

271AAB of the Act. Further the admission on the part of the assessee

may be a relevant evidence however, when the entries/notings in the

loose papers are also not representing the undisclosed income of the

assessee then in the absence of any such finding on the part of the AO 25

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

to establish that these entries are representing the undisclosed income

of the assessee the penalty levied U/s 271AAB of the Act is not

sustainable in law and liable to set aside.

6.3 This Tribunal in case of M/s Rambhojo’s vs. ACIT (supra) again

considered the issue of undisclosed income on account of the

expenditure/advance for purchase of land in para 39 as under:-

“39. Now, coming to surrender made on account of cash advances for land purchases in the statement recorded u/s 132(4) of the Act. During the course of search, a diary has been found wherein there are notings relating to advance given to various persons towards purchase of land. The notings describe the name of the persons, the amount advanced which ranges from Rs 2 lacs to Rs 50 lacs to 4 persons totaling to Rs 1.12 Crores and the date of such advance during the period 28.07.2013 to 3.9.2013 just before the date of search on 4.9.2013. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides the said entries, there are no other documents/material in terms of any agreement to sell, the description of the property etc, which has been found during the course of search. As per the definition of undisclosed income u/s 271AAB, the undisclosed investment in so called purchase of land 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 investment 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. An investment per se represents an outflow of funds from the assessee’s hand 26

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

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 could be subsequent outflow by way of investment. Investment and income thus connotes different meaning and connotation and thus cannot be used inter- changeably. In the definition of undisclosed income, where it talks 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 recorded 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. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such investments are deemed to be treated as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B where investments which are found either not recorded or found recorded at a lesser value in the books of accounts, and such investments are deemed to be income of the assessee of the year in which such investments have been made, 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 are contained in section 69 and section 69B and therefore, the same 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 in the instant case. Therefore, even on this 27

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

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 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 advance for purchase of land 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.”

A similar view has been taken by the Tribunal in a series of decision as

relied upon by the assessee accordingly, in view of the above facts and

circumstances of the case as discussed by us and following the earlier

decision by this Tribunal the penalty levied U/s 271AAB of the Act in

respect of the surrender made on account of unaccounted expenditure

for various real estate projects belong to the firms and company and

not to the assessee is deleted.

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

6.4 Surrender on account of jewellery and silver items found

at the residence of the assessee of Rs. 62,17,563/-:- During the

course of search and seizure the document exhibit-6 was found

containing transactions of purchase of silver of Rs. 4,35,125/-. The

assessee surrender half of the said amount in his hand and half was

surrender of his son namely Vivek Shethia. Thus, the ld. AR of the

assessee has surrendered an amount Rs. 2,17,563/-. Apart from

purchase of silver the assessee has also surrendered of Rs. 60 lacs on

account of the jewellery found in the bank locker. The assessee has

now raised the objection regarding valuation of the jewellery found in

the bank locker and further submitted that some of the jewellery was

not acquired by the assessee but inherited. We find that in the

statement recorded U/s 132(4) of the Act the assessee has produced

some of the bills regarding the purchase of jewellery however, the

balance quantity of 1770 grams the assessee could not produce the bills

and vouchers and accordingly surrender of Rs. 60 lacs was made on

this account. The surrender was taken as undisclosed income earned

from the real estate business whereas nothing has been found or

brought on record to show that the assessee has ever done any

business of real estate in his personal capacity. We further, note that 29

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

the personal jewellery of family members of the assessee as well as

jewellery inherited by the assessee and other family members was not

identified. During the course of search and seizure action and the entire

jewellery found in the bank locker has treated as purchase made during

the year under consideration which is not possible when there is no

material to show that the jewellery found in the bank locker was

purchase during the year under consideration. It is also not possible

that the family members and specifically married women and other

members of the family have no jewellery as their Stridhan and other

gifts received on various occasions like marriage and other ceremony.

Therefore, the benefit of CBDT Instruction No. 1916 dated 16.05.1994

to the extent 500 gram jewellery for each married women and 250

gram for unmarried woman and 100 grams of per made of member of

family is required be given while treating the unexplained jewellery

found at the time of search and seizure action. Further, the valuation

has been done by the departmental valuer at the current prevailing rate

without considering the actual cost of acquisition at the relevant point

of time when the jewellery was purchased. The department has also

not given the benefit of the jewellery which was inherited as well as

received by the women and men members at the time of marriage and 30

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

other occasions. Therefore, considering all these facts as well as the

status of the assessment family the jewellery found in the bank locker

was required to be considered after giving all the benefits of the

minimum jewellery to be held by each family members of the assessee.

Further, when the assessee has declared the income of more than Rs.

15 lacs other than the surrendered made for the year under

consideration then, the drawing of the assessee as well as other family

members in the past 5 years is also required to be considered for the

purpose of source of purchase of jewellery and silver. Thus without

considering availability of the funds in the assessee being the income

and drawings of the preceding year of assessee as well as other income

of the family members the total quantity of the jewellery treated as

undisclosed income of the assessee is not justified. The Coordinate

Bench of this Tribunal in case of Shri Padam Chand Pungliya vs. ACIT

(supra) has considered this issue in para 12 as under:-

“12. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the jewellery found during the course of search and seizure action belongs to the assessee’s family. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The department has not found that the jewellery was purchased or acquired by the assessee and other family 31

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

members only during the year under consideration. The jewellery belong to the family members of the assessee and found in the locker was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted.”

In view of the above facts and circumstances of the case when the

benefit of the personal jewellery of various family members is required

to be given while considering the undisclosed income on account of

jewellery as well as valuation of the same has been based on the cost

of acquisition for treated as undisclosed income. Since, the valuation as

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

well as the year of acquisition was not ascertained either during the

course of search or in the subsequent prevailing even in the penalty

proceeding. Therefore, this issue of levy of penalty U/s 271AAB of the

Act in respect of surrender made on account of jewellery and silver

items is set aside to the record of the AO to verify and consider all the

relevant facts as discussed above and then decide the same afresh at

the giving an opportunity of hearing to the assessee.

6.5 The penalty in respect of surrender of Rs. 50 lacs an

account of any other discrepancy or irregularity:- It is clear from

the record that the assessee has made a surrender of Rs. 50 lacs on

account of any other irregularity or discrepancy if any found. There is

no dispute that no such discrepancy or irregularity was detected either

by the department during search proceedings or by the AO during the

assessment proceedings and penalty proceedings then mere surrender

of the amount without any incriminating material or any undeclared

assets it cannot be treated as undisclosed income of the assessee in

terms of Section 271AAB of the Act. The Coordinate Bench of this

Tribunal in case of Rajendra Kumar Gupta vs. DCIT (supra) has

considered in para 22 as under:-

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

“22. Regarding surrender of Rs 17,20,000 made on account of other discrepancies if any found in the books of accounts, in absence of any such discrepancy so found by the Assessing officer either during the assessment or penalty proceedings, the said surrender may be the basis for assessment but can’t form the basis for levy of penalty which are separate and distinct proceedings in absence of a specific finding as to how the same qualify as an undisclosed income so defined u/s 271AAB of the Act. Hence, penalty levied thereon is liable to be set-aside.”

In the case in hand when no such discrepancy or irregularity was found

by the AO then the mere surrender U/s 132(4) of the Act will not ipso

facto attract the penalty U/s 271AAB until and unless the same is

qualified as undisclosed income as per definition provided in the

explanation to Section 271AAB of the Act

6.6 Before parting with the issue we may point out that the levy of

penalty U/s 271AAB is not mandatory and consequential but the AO has

to take a decision after considering all the relevant facts and material

and therefore, only on arriving the conclusion that the surrender made

by the assessee falls in the definition of undisclosed income the

Assessing Officer has to impose the penalty U/s 271AAB of the Act. This

Tribunal in case of Shri Padam Chan Pungliya vs. ACIT (supra) has

considered this issue in para 5 as under:-

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

“5. We have considered the rival submissions as well as the relevant material on record. During the course of search and seizure action under section 132 conducted on 4th September, 2013, the assessee disclosed income of Rs. 5,01,66,717/- in his statement made under section 132(4) of the Act. The said disclosure was made in pursuant to the entries in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :-

a) Unexplained expenditure on house construction 2,44,63,575/- b) Undisclosed stock 1,91,24,877/- c) Undisclosed jewellery 60,16,265/- d) Undisclosed debtors/advances 5,62,000/- ------------------ Total : 5,01,66,717/- ------------------

It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to be considered and decided in the penalty proceedings. Since the assessee has offered the said income in the return of income filed under section 139(1) of the Act, therefore, the question of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise and only when the AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per the definition provided 35

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under section 271AAB. Therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case as well as the basis of the surrender and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to the said section. Therefore, we do not agree with the contention of the ld. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after considering the fact that all the conditions provided under section 271AAB are satisfied. At the outset, we note that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of Ravi Mathur vs. DCIT (supra) in para 4 to 6 as under :-

“4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(4) has disclosed an income of Rs. 10,02,00,000/- in pursuant to the entries of advances given for purchase of land recorded in the pocket diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section 139(1) was 30th September, 2015. It is undisputed fact that the assessee is an Individual and was not maintaining regular books of account. Therefore, the transactions recorded in the pocket diary found during the course of search itself would not lead to the presumption that the assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of 36

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

income and the source of income of the year under consideration. It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of ‘undisclosed income’ is provided in section 271AAB itself and, therefore, the AO in the proceedings under section 271AAB has to examine all the facts of the case and then arrive to the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income as stipulated in the explanation to said section. The first question arises is whether the levy of penalty under section 271AAB is mandatory and consequential to the disclosure of income by the assessee under section 132(4) or the AO has to take a decision whether the given case has satisfied the requirements for levy of penalty under section 271AAB of the Act. In order to consider this issue, the provisions of section 271AAB are to be analyzed. For ready reference, we quote section 271AAB as under :-

“ 271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 49[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President50], 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 37

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

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 51[computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 52[(1A) 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 date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the 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 sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 53[section 270A or] 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) 52[or sub-section (1A)].

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (c) "undisclosed income" means— (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has— (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the 54[Principal Chief Commissioner or] Chief Commissioner or 54[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.]”

The section begins with the stipulation that the AO “may” direct the assessee shall pay by way of penalty if the conditions as prescribed 39

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

under clauses (a) to (c) are satisfied. As per sub-section (3) of section 271AAB the provisions of section 274 and 275 as far as may be applied in relation to the penalty referred in this section which means that before imposing the penalty under sec. 271AAB, the AO has to issue a show cause notice and give a proper opportunity of hearing to the assessee. Thus the levy of penalty u/s. 271AAB is not automatic but the A.O. has to take a decision to impose the penalty after giving a proper opportunity of hearing to the assessee. It is statutory requirement that the explanation of the assessee for not fulfilling the conditions as prescribed u/s 271AAB of the Act is required to be considered by the AO and particularly whether the explanation furnished by the assessee is bonafide and non-compliance of the same is due to the reason beyond the control of the assessee. Therefore, the penalty u/s 271AAB is not a consequential act but the AO has to first initiate proceedings by issuing a show cause notice and after considering the explanation and reply of the assessee has to take a decision. This requirement of giving an opportunity of hearing itself makes it clear that the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would be consequential and only computation of the quantum was to be done by the AO as in the case of levy of interest and fee u/s 234A to E. Even the quantum of penalty leviable u/s 271AAB is also subject to the condition prescribed under clauses (a) to (c) of sub-section (1) and the AO has to again give a finding for levy of penalty @ 10% or 20% or 30% of the undisclosed income. Thus the AO is bound to take a decision as to what default is committed by the assessee and which particular clause of section 271AAB(1) is attracted on such default. Further, mere disclosure of income under section 132(4) would not ipso facto par take the character of undisclosed income but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section 271AAB of the Act. Since it is not automatic but the AO has to give a finding that the case of the assessee falls in the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of section 271AAB stipulate that the AO may come to the conclusion that the assessee shall pay the 40

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec. 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AO as per the provisions of section 271(1)(c) of the Act where the AO has the discretion to levy the penalty from 100% to 300% of the tax sought to be evaded. Thus the AO is duty bound to come to the conclusion that the case of the assessee is fit for levy of penalty under section 271AAB and then only the quantum of penalty being 10% or 20% or 30% has to be determined subject to the explanation of the assessee for the defaults.

“ The ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the ld. A.R. before me. It is seen that the ld. A.R is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB.

The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R in this 41

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regard has already been reproduced above. The A.R did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed.”

Thus it was found by the Hon’ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs. Amit Agarwal (supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the ld. D/R is no more in existence. 6. The question whether levy of penalty under section 271AAB by the AO is mandatory or discretionary has been considered by the Visakhapatnam Bench of this Tribunal in case of ACIT vs. M/s. Marvel Associates (supra) in para 5 to 7 as under :-

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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 1 st 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 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;

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

(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 (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.

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Thus the Tribunal has held that the levy of penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and shall be based on judicious decision of the AO. Hence we fortify our view by the above decisions of Tribunal in case of ACIT vs. Marvel Associates.”

Thus the Tribunal has analyzed all the relevant provisions of the Act as well as various decisions on this point including the decision of Hon’ble Allahabad High Court in the case of Pr. CIT vs. Sandeep Chandak, 405 ITR 648 (Allahabad) relied upon by the ld. D/R and then arrived at the conclusion that the penalty under section 271AAB is not mandatory but the AO has the discretion to take a decision and the same should be based on judicious decision of the AO. Accordingly following the earlier 45

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decision of this Tribunal in the case of Ravi Mathur vs. DCIT (supra), we hold that the levy of penalty under section 271AAB is not mandatory but the AO has a discretion after considering all the relevant aspects of the case and then to satisfy himself that the case of the assessee falls in the definition of undisclosed income as provided in the explanation to section 271AAB of the Act.”

Accordingly, in view of the consistent view taken by the Tribunal we

hold that the levy of penalty U/s 271AAB of the Act is not mandatory

but the AO is required to take a decision based on the facts and

material and then to arrive to the conclusion that the income disclosed

by the assessee falls in the definition of undisclosed income as provided

in the explanation to Section 271AAB of the Act. Since, we have decided

the issue of levy of penalty on merits in favour of the assessee

therefore, we do not propose to go into the issue challenging the

validity of initiation of the penalty U/s 271AAB of the Act.

In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 17/06/2019.

Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:-17/06/2019. 46

ITA No. 190/JP/2018 Shri Kamal Sethia vs. ACIT

*Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Kamal Sethia, Jaipur. 2. izR;FkhZ@ The Respondent- ACIT, Central Circle-1, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 190/JP/2018} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत