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Income Tax Appellate Tribunal, JAIPUR BENCHES ’A’ JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 1436/JP/2018
vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the Revenue and the assessee against the order of ld. CIT(A)-2, Udaipur dated 05.10.2018 for Assessment Year 2016-17. (Grounds of appeal taken by the Revenue):
1. Whether on the facts and circumstances of the case and in law, the CIT(A) was right in reducing the penalty of Rs. 2,25,53,134/- levied by the AO @ 30% of the undisclosed income under clause 1(c) of section 271AAB of the Income Tax Act to Rs. 75,17,711/- under clause 1(a) of that section despite the fact that manner of earning of undisclosed income was not disclosed by the assessee.” (Grounds of appeal taken by the assessee):
“1. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in not holding the penalty order as wrong, bad in law, in-valid and void-ab-initio as the ld. AO initiated the penalty u/s 271AAB of Income Tax Act, 1961 without specifying the clause of section 271AAB of the Act in the penalty notice under which the penalty was initiated i.e. whether it is for clause (a) or clause (b) or clause (c) of section 271AAB(1) because the conditions for imposing the penalty under each such clauses are separate.
2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in applying the provisions of section 271AAB(1) (a) as against levy of penalty u/s 271AAB(1)(c) of I.Tax Act by ld. AO without issuing notice as required u/s 251 (2) of I. Tax Act.
3. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the penalty of Rs. 75,17,711/- u/s 271AAB(1)(a) of the Act out of penalty of Rs. 2,25,53,134/- imposed by the AO u/s 271AAB(1)(c) of the Act more so when:- a) the appellant was not having any undisclosed income within the meaning of section 271AAB of the Act, therefore no penalty under this section can be imposed on assessee. b) the penalty was levied by drawing the interference only from the statement recorded u/s 132(4) of the Act whereas there is no incriminating material or evidence was found during search to prove that the assessee was having undisclosed income. c) the penalty was imposed by holding that the appellant surrendered the bogus long term capital gain while no long term capital gain was surrendered by the appellant. Therefore the penalty was imposed on incorrect and misconceived finding. d) there is no finding/reason/conclusion in the penalty order regarding imposing the penalty on income of Rs. 7,51,77,115/- declared in Income Tax Return.
4. On the facts and in the circumstances of the case and in law the CIT(A) erred in holding that the penalty u/s 271AAB of the Act is mandatory.
5. On the facts and in the circumstances of the case and in law the CIT(A) erred in not giving the finding on the allegation of AO that the appellant find in the position of mens rea and intention was of wrong doing that constitutes part of a crime.”
Briefly stated, the facts of the case are that a search & seizure operations u/s 132(1) were carried out on 02.07.2015 at the various premises of M/s Kota Dal Mill Group including the residential premises of the assessee. In his return of income filed on 13.09.2016, the assessee has declared total income of Rs. 8,32,88,910/- which includes undisclosed income of Rs. 7,51,77,115/- which was surrendered by the assessee during the search action carried out on 02.07.2015 at his residential premises. The said undisclosed income represents advances given to various suppliers amounting to Rs. 7,43,79,200/- and cash of Rs 7,97,915. The assessment proceedings were completed u/s 143(3) r.w.s. 153B(1)(b) of the Act. and the assesseed income was determined at Rs. 8,32,88,910/-. Penalty proceedings u/s 271AAB were simultaneously initiated vide show cause dated 27.12.2017 in respect of undisclosed income surrendered during the course of search amounting to Rs. 7,51,77,115/-.
During the course of penalty proceedings, the Assessing Officer has given a finding that the assessee satisfies all the conditions specified in section 271AAB(1)(a) except the condition relating to substantiating the manner in which undisclosed income was derived by the assessee. Accordingly, penalty u/s 271AAB(1)(c) on the undisclosed income of Rs. 7,51,77,115/- was levied @ 30% vide order dated 27.06.2018. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld CIT(A) has returned a finding that the assessee has offered the income in the statement recorded u/s 132(4), offered the same in the return of income and paid the due tax thereon and thus, the assessee has satisfied all the conditions specified u/s 271AAB(1)(a) of the Act. Accordingly, he modified/reduced the penalty @ 10% of undisclosed income as against 30% levied by the Assessing Officer. Now, against the said finding of the ld. CIT(A), both the Revenue and the assessee are in appeal before us.
During the course of hearing, the ld. AR submitted that in the show cause notice, the AO has not specified the limb under which he proposes to levy the penalty u/s 271AAB of the Act which shows lack of application of mind on the part of the AO and basis such uncertain charge, the consequent proceedings are bad in law. It was further submitted that the AO has not recorded his satisfaction in the assessment order that the provisions of section 271AAB(1)(c) were attracted in the case of the assessee. The ld. A/R has further submitted that the levy of penalty under section 271AAB(1) of the Act is not automatic but the AO has to take a decision by considering all the conditions to be satisfied as provided under the said section. Since the disclosure and surrender of the amount does not fall in the definition of undisclosed income, therefore, the penalty under section 271AAB is not leviable in the case of the assessee merely because the assessee has declared and surrendered some income to tax. It was further submitted that it is undisputed that penalty is imposable under Section 271AAB on "undisclosed income of the specified previous year". The word "undisclosed income" has been defined in the explanation (c) of the Sub Section-3 of Section-271AAB.
It was submitted that on bare perusal of the definition of "undisclosed income" given in the Income Tax Act, for the purpose of applicability of Section 271AAB(1), the characteristics, as prescribed therein shall have to be fulfilled. However, before testing upon the case of Appellant in the four corners of definition of "undisclosed income" as applicable for the purpose of Section-271AAB, it is submitted that case of Appellant is not related with any expenses, as such, there appears no need for any discussion pertaining to the explanation (c)(ii) of Section 271AAB. Thus, for covering the case of Appellant under Section 271AAB, the characteristics prescribed under explanation (c) (i) is to be examined. At the cost of repetition it is submitted that for sustaining the case of Appellant under Section- 271AAB(1) of the Act, there must be "undisclosed income", as per explanation (c)(i). Therefore, considering the provisions, as prescribed by Parliament under explanation (c) (i) of Section 271AAB, for defining any income as "undisclosed income", it must fulfill following characteristics:
(A) The income should not have been recorded on or before the date of search in the books of account or other documents maintained in normal course.
(B) The income should not have been disclosed before the date of search.
In so far as above (B) i.e. explanation (c)(i)(B), is concerned, the same is not applicable to the case of Appellant inasmuch as the assessment year under consideration is concerned. The search was carried out on 02.07.2015 and the date of filing of return for the assessment year 2016-17 was after the date of search. Therefore, disclosure before the date of search for the assessment year 2016-17 was not applicable in the case of Appellant and therefore, the case of Appellant is beyond the purview of explanation (c)(i)(B) of Sub Section (3) of Section 271AAB. Now, the only and only point to cover the case of Appellant under definition of "undisclosed income" is whether the case of Appellant falls under explanation (c)(i)(A) of Section 271AAB, which inter alia provides that income should not have been recorded in the books of accounts or other documents. It is undisputed fact on record that the advance provided by the Appellant to the farmer for agriculture purpose for subsequent purchase of wheat was duly recorded in the diary maintained by the Appellant (Copy of seize diary is at PB Page 13-73), which falls under the definition of "other document" and the same was taken into account by the search and seizure team so as by Ld. AO. Therefore, considering the facts on record that the advance provided by the Appellant was recorded in the other documents of Appellant before the date of search, thus, case of Appellant is also out of the purview of explanation (c) (i) (A) to the Sub Section (3) of the Section-271AAB(1). Thus, it is altogether well established and clear that advance provided by the Appellant during the impugned assessment year is not covered under definition of "undisclosed income" for the purpose of Section 271AAB(1), as prescribed under explanation (c) to Sub Section (3) of Section 271AAB. Even otherwise, it is no matter as to what is alleged but it is in fact has to be proved that the Appellant is having undisclosed income, within the meaning of section 271AAB, which is not in the instant case of Appellant, resulting proceeding ab initio void and deserves to be quashed.
It was further submitted that the contention of the Appellant that advance for purchase of wheat provided to the farmers, which was duly recorded in the diary and offered for tax during the course of search and seizure operation does not fall under the definition of ‘undisclosed income’ as prescribed under explanation (c) to Section 271AAB (1), has also been endorsed in a number of judicial pronouncements such as that of ITAT Kolkata in case of Dy. Commissioner of Income Tax, Circle-2 (2), Kolkata V. Manish Agarwal, reported in (2018) 92 taxman.com 81 (Kolkata-Trib) wherein it was held as under:
"According to the ld. AR, from the facts and circumstances described above, since the assessee is not engaged in business or profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee's case falls in the second limb i.e. "or other documents" as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section which is very important to adjudicate this issue. Therefore, the question is when the search took place, the assessee's transactions (in this case, the speculative transaction) has been found to be recorded in the "other documents" which is (retrieved from the assessee's accountant's drawer) and based on that the assessee declared Rs. 3 cr. during search and later returned income of Rs. 3 cr. as income under the head "Income from Other Sources" which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the ‘other documents’ maintained in the normal course relating to the AY 2013-14, which document was retrieved during search. Hence, the amount of Rs. 3 cr. Offered by the assessee does not fall in the ken of ‘undisclosed income’ defined in Sec. 271AAB of the Act. So, Rs. 3 cr. Which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as ‘undisclosed Income’ in the definition given u/s 271AAB of the Act. Since Rs. 3 cr. cannot be termed as “undisclosed income’ as per sec.
271AAB of the Act, no penalty can be levied against the assessee. Therefore, we uphold the order of the ld. CIT(A) on the aforesaid reasoning rendered by us.”
It was further submitted that the advances recorded in documents are out of purview of provisions of section 271AAB of the Act. In this regard we will like to refer the finding of Jaipur ITAT given in the case of M/s Rambhao’s v/s ACIT, Central Circle-1, Jaipur dated 12.10.2018 wherein in the identical issue, it was decided in favour of the assessee. In view of findings of ITAT, Jaipur Bench, Jaipur, the advances given to parties cannot be said to qualify as an undisclosed income in the context of section 271AAB.
It was further submitted that the saving of Appellant family since long being Rs. 7,97,915/- was also offered for tax though it was kept by the Appellant to meet out any eventuality or untoward incident in the family and the said savings were made during 20-25 years from the household expenses of the Appellant family and from petty gifts received time to time, which cannot termed as ‘undisclosed income’ within the meaning of Section 271AAB. The same was offered for taxation only to avoid litigation.
It was accordingly submitted that the penalty imposed by the AO and so sustained by the ld. CIT(A) should be deleted.
The ld DR is heard who has relied on the findings of the lower authorities and submitted that the case of the assessee clears falls in the definition of undisclosed income and the ld CIT(A) has already granted relief to the assessee by reducing the penalty from 30% to 10% and given the facts of the case, the order of the ld CIT(A) deserves to be sustained.
We have heard both the parties 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 to 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. 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.
In the instant case, the amount found during the course of search at the premises of the assessee and surrendered by the assessee in his statement u/s 132(4) consist of cash advances to farmers for purchase of wheat amounting to Rs. 7,43,79,200/-, and cash of Rs 7,97,915. As far as cash of Rs 7,97,915 found in possession of the assessee during the course of search is concerned, there cannot be any dispute that the same represents undisclosed income so defined in section 271AAB and which has not been recorded in the books of accounts of the assessee at the time of search. Regarding the contention of the ld AR that such cash is out of past savings of the assessee, 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 the ld CIT(A) has duly considered and has upheld the levy of penalty @ 10% as against 30% levied by the AO. In the result, we confirm the levy of penalty @ 10% on the undisclosed income of Rs 7,97,915 so sustained by the ld CIT(A).
Regarding cash advances to farmers for purchase of wheat amounting to Rs. 7,43,79,200/-, it is noted that the assessee is proprietor of M/s Jagdamba kirana stores and is engaged in business of wholesale and retail trading of aata, maida, suji and kirana items and was required to maintain regular books of accounts in respect of his business activities. The slip pad and two notebooks found during the course of search and seizure at the residential premises of the assessee contains the entries of advances given for purchase of wheat. These transactions for purchase of wheat are thus part of regular business activity of the assessee and the advances so given are required to be entered in the regular books of accounts. Though these transactions are recorded in the notepad and two note books which are in nature of “other documents”, however the fact of the matter is that these transactions are regular business transactions which are required to be maintained in the regular books of accounts maintained in the normal course relating to such business and which has not been entered on or before the date of search. However, the question that remains is whether the advances so given to the farmers for purchase of wheat qualify as undisclosed income. 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 on or before the date of search. 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 definition of undisclosed income. A similar issue has been dealt by the Tribunal in case of M/s Rambhajo vs ACIT (ITA No. 991/JP/2017 dated 11.01.2019) wherein it was held 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
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 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.”
In light of above discussions and following the earlier decision of the Coordinate Bench of the Tribunal in the case of M/s Rambhajo vs ACIT(supra), we delete the penalty levied under section 271AAB of the 15 & 1377/JP/2018 The DCIT, Kota vs. Shri Vasudev Agarwal, Kota Act on cash advances of Rs 7,43,79,200 paid to farmers towards purchase of wheat. 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 Revenue is dismissed and the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 04/04/2019. Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 04/04/2019. *Ganesh Kr आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- DCIT, Central Circle, Kota 2. izR;FkhZ@ The Respondent- Shri Vasudev Agarwal, Kota 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 { & 1377/JP/2018}