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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. 1381/JP/2018
vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Udaipur dated 05.10.2018 for Assessment Year 2016-17 wherein the assessee has taken the following grounds of appeal:- “
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, invalid 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. 4,44,570/- u/s 271AAB(1)(a) of the Act out of penalty of Rs. 13,33,710/- 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 inference 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.
On the facts and in the circumstances of the case and in law the ld. 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 ld. 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.
6. The appellant prays for leave to add, to amend, to delete or modify the all or any grounds of appeal on or before the hearing of appeal.”
2. 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 19.09.2016, the assessee has declared total income of Rs. 84,27,110/- which includes undisclosed income of Rs. 44,45,700/- 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 excess cash amounting to Rs. 13,42,300/-, gold jewellery valued at Rs. 13,88,400/-, diamond jewellery valued at Rs. 13,15,000/-, Chinese currency Yuwan equivalent to Indian Rs. 4,00,000/-. 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. 1,65,11,990/-. Penalty proceedings u/s 271AAB were simultaneously initiated vide show cause dated 29.12.2017 in respect of undisclosed income surrendered during the course of search amounting to Rs. 44,45,700/-.
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. 44,45,700/- 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), the assessee is in appeal before us.
4. 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. Regarding cash of Rs. 13,42,300/- found at the residence of the assessee, it was submitted that the same represent the savings of the assessee and his family which was kept by the assessee to meet out any eventuality or untoward incident in the family and the said savings were made during last 20-25 years from the household expenses of the assessee family which cannot be termed as undisclosed income within the meaning of section 271AAB. Regarding gold and diamond jewellery, it was submitted that the said jewellery was the parental jewellery given to the assessee for the marriage of his son and it did not find place in the wealth tax return of the assessee and wife of the assessee, the said jewellery was offered for tax just to buy mental peace. However, the said jewellery cannot be treated as undisclosed income. Regarding the Chinese currency found in possession of the assessee, it was submitted that during the course of statement recorded u/s 131(1) on 21.08.2015, the assessee in reply to Question No. 12 submitted that he has purchased Chinese yuan worth Rs. 4,00,000/- during April, 2015 for ensuing China tour, which subsequently cannot be carried out for one or another reason. It was submitted that the said Chinese yuan was purchased out of the saving of assessee and were offered for tax just to buy mental peace and the same cannot be treated as undisclosed income. 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.
6. Heard both the parties and perused the material available on record. This Tribunal is taking a consistently view that levy of penalty u/s 271AAB is not automatic in nature and the levy of penalty will depend upon the satisfaction of the primary condition as to whether there is any undisclosed income which has been found during the course of search and once the said primary condition is satisfied, the satisfaction of other conditions needs to be analysed for levy of penalty at rates varying from 10%- 30% so specified in section 271AAB of the Act. Therefore, the question of different limbs in section 271AAB and not specifying the same in the show-cause notice doesn’t arise for consideration. Unlike section 271(1)(c), there is only one charge which has been specified in section 271AAB which is undisclosed income found during the course of search in the hands of the assessee. In any case, the penalty order is very clear and specific where the AO has invoked the provisions of section 271AAB(1)(C) of the Act. Similar view has been taken by the Tribunal in case of Shri Raja Ram Maheshwari vs. DCIT (ITA No. 992/JP/2017 dated 10/01/2019) wherein it was held as under:
“7. The question that arises for consideration is the nature of charge(s) specified under section 271AAB of the Act. Whether it provides for a singular charge of undisclosed income for the specified previous year found during the course of search initiated under section 132 on or after the 1st day of July, 2012 or it provides for multiples charges as so contended by the ld AR in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB of the Act.
On close reading of provisions of Section 271AAB, we find that the primary condition or charge for levy of penalty is the existence of undisclosed income for the specified previous year found during the course of search in the case of assessee. Once the said primary condition or charge is satisfied, for the purposes of quantifying the penalty, the Assessing officer has to examine the satisfaction of ancillary conditions as specified under clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB. Merely because the quantum of penalty varies from 10% to 30% subject to compliances with the ancilliary conditions, it cannot be said that where the AO has initiated the penalty under section 271AAB, there is any ambiguity in the charge or there is any lack of application of mind on part of the Assessing officer. Further, the levy of penalty under Section 271AAB is not based on addition made and investigation/enquiry conducted during the course of assessment proceedings, rather it is based on search conducted on the assessee on or after the 1st day of July, 2012, in such a situation, where the penalty show-cause notice is issued u/s 271AAB, the Assessing officer is making the assessee aware of the charge against him in terms of undisclosed income found during the course of search and thus, the assessee is granted an opportunity to refute such charge and file his explanations/submissions. Unlike provisions of section 271(1)(c) which provides for separate charge of “concealment of particulars of income” or “furnishing of inaccurate particulars of income”, there is a singular charge under section 271AAB i.e, of the existence of undisclosed income for the specified previous year found during the course of search. Therefore, in the instant case, where the notice dated 15.3.2016 is issued to the assessee to show-cause why penalty should not be levied u/s 271AAB of the Act, the assessee is made aware of the specific charge against him and an opportunity has thus been given to him to rebut such charge and therefore, we donot see any infirmity in the initiation of the penalty proceedings and consequent penalty order so passed by the AO. A similar view has been taken by the Co-ordinate Bench in case of Mahesh Kumar Jain & others (ITA No. 630/JP/17 & others dated 27.11.2017) wherein it was held as under:
“10. The first and foremost question that arises for consideration is the nature of penalty provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c). In other words, whether these provisions provide for levy of penalty on account of separate and independent charges or these provision provide for levy of penalty for the same charge under section 271AAB, however, subject to satisfaction of the prescribed conditions, the quantum of penalty may vary as specified in the respective sub- clauses of 271AAB of the Act.
In this regard, we refer to the provisions of section 271AAB which are reproduced 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, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,—
(a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date— (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum which shall not be less than thirty percent but which shall not exceed ninety percent 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) or sub-section (1A).
(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 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.
On reading of the above provisions, it provides that the Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of 10% of the undisclosed income of the specified previous year, if such assessee, in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and satisfies other conditions as provided in 271AAB(1)(a). It further provides that where the declaration of undisclosed income is not made by the searched person in the course of search but is declared in the return of income furnished for the specified previous year and subject to satisfaction of other conditions, penalty @ 20% is payable by him. It further provides that where the declaration of undisclosed income is neither made by the searched person in the course of search nor declared in the return of income furnished for the specified previous year and additions are made during the course of assessment proceedings, penalty which can vary from 30% to 90% is payable by him.
13. Both the provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c) thus provides for levy of penalty in cases where search has been initiated under section 132 on or after the 1st day of July, 2012 and quantum of penalty has been kept at 10% where there is declaration in the statement recorded during the course of search, and where there is neither a declaration in the statement u/s 132(4) recorded during the course of search nor a declaration in the return of income, the penalty has been kept at a higher pedestal which can vary from 30% to 90%. Further, it is noted that the provisions of section 271AAB overrides section 271(1)(c) which infact contain provisions for levy of penalty under two separate limbs- concealment of particulars of income or furnishing inaccurate particulars of income. Further, the decision of the Hon’ble Supreme Court in case of SAS Emerald Meadows (supra) rendered in the context of two separate limbs/charges under section 271(1)(c) therefore doesn’t support the case of the assessee company. In our considered view, both the provisions of section 271AAB(1)(a) and 271AAB(1)(c) provides for levy of penalty for an identical charge i.e, undisclosed income for the specified previous year which is found during the course of search initiated under section 132 on or after the 1st day of July, 2012. Therefore, we are unable to accede to the contention of the ld AR that the ld CIT(A) has erred in confirming the levy of penalty u/s 271AAB(1)(a) which provides for a separate and independent charge and comes under different section than the provisions of section 271AAB(1)(c) which has been specifically invoked by the AO.”
Further, even for sake of argument, if it is assumed that primary charge of undisclosed income has to be read along with ancillary conditions and thus multiples charges have been prescribed in terms of clause (a), clause (b) or clause (c) to sub-section (1) to Section 271AAB and where the Assessing officer has not stated the specified charge at the time of initiation of penalty proceedings, in our considered view, such uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order and so long as there is a clear finding in the penalty order, no infirmity can be said to arise in terms of initiating of such proceedings and subsequent penalty order. In this regard, reference can be made to the Three Member Bench decision in case of HPCL Mittal Energy vs Add. CIT reported in 97 Taxmann.com 03 where the issue for consideration. Though the said decision has been rendered in context of section 271(1)(C), it has laid down certain legal proposition revolving around initiation of penalty proceeding and charges towards levy of penalty and we, therefore, deem it relevant to consider the same for the purposes of present appeal.
In the said decision, the Coordinate Bench after analyzing catena of judicial pronouncements, including the decision of Hon’ble Karnataka High Court in case of Manjunatha Cotton and Ginning Factory (supra) which has been cited by the ld AR in the instant case, it was held as under:
“15. The moot question is that what should be the nature of specification of a charge by the AO at the stage of initiation of penalty proceedings and at the time of passing the penalty order. Is the AO required to specify in the penalty notice/order as to whether it is a case of 'concealment of particulars of income'; or 'furnishing of inaccurate particulars of income'; or both of them, which can be expressed by using the word 'and' between the two expressions. When the AO is satisfied that it is a clear-cut case of concealment of particulars of income, he must specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. The AO cannot initiate penalty on the charge of 'concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of 'furnishing inaccurate particulars of income'. In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of 'furnishing of inaccurate particulars of income', he must again specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. After initiating penalty on the charge of 'furnishing of inaccurate particulars of income', he cannot impose penalty by finding the assessee guilty of 'concealment of particulars of income'. Again, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s. 271(l)(c) of the Act on two or more additions/disallowances, one or more falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income', he must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'concealment of particulars of income' and also 'furnishing of inaccurate particulars of income' in the penalty order. If the charge is not levied in the above manner in all the three clear-cut situations discussed above in the penalty notice and also in the penalty order, the penalty order becomes unsustainable in law.
The Hon'ble Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory has held that a person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(l)(c) do not exist as such he is not liable to pay penalty. The Hon'ble High Court went on to hold that: 'Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income.... But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law….. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid'.
In Manu Engg. Works (supra) penalty was imposed by noting: 'that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income'. Striking down the penalty, the Hon'ble High Court held that: 'it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the IAC and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down.'
In Padma Ram Bharali (supra), the Hon'ble High Court did not sustain penalty levied u/s. 271(l)(c) when: 'the initiation of the penalty proceeding was for concealment of the particulars of income. But the Tribunal finally held that the assessee would be deemed to have concealed the particulars of income or to have furnished inaccurate particulars of such income.'
Thus it is evident that when the AO is satisfied at the stage of initiation of penalty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained.
Another crucial factor to be kept in mind is that the satisfaction of the AO as to a clear-cut charge leveled by him in the penalty notice or the penalty order must concur with the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand.
Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been made, but the AO is not sure at the stage of initiation of penalty proceedings of the precise charge as to 'concealment of particulars of income' or "furnishing of inaccurate particulars of income'. In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during the penalty proceedings, he must get decisive, which should be reflected in the penalty order, as to whether the assessee is guilty of 'concealment of particulars of income' or 'furnishing of inaccurate particulars of such income'. Uncertain charge at the time of initiation of penalty, must necessarily be substituted with a conclusive default at the time of passing the penalty order. If the penalty is initiated with doubt and also concluded with a doubt as to the concealment of particulars of income or furnishing of inaccurate particulars of such income etc., the penalty order is vitiated. If on the other hand, if the penalty is initiated with an uncertain charge of 'concealment of particulars of income/furnishing of inaccurate particulars of income' etc., but the assessee is ultimately found to be guilty of a specific charge of either 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income', then no fault can be found in the penalty order.
In Manu Engineering Works (supra), the Hon'ble Gujarat High Court noticed that the charge at the stage of initiation of penalty proceedings as well in the penalty order was uncertain and the expression used at both the stages was concealment of particulars of income and/or furnishing of inaccurate particulars of such income. It struck down the penalty by holding that the assessee must have been found to be guilty of a certain charge in the penalty order. It, however, did not find anything amiss with the initiation of penalty on such uncertain charge, which is vivid from the following observations : —
'We find from the order of the IAC, in the penalty proceedings, that is, the final conclusion as expressed in para. 4 of the order: "I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had finished inaccurate particulars of such income". Now, the language of "and/or" may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee.'
It is thus evident that uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear- cut charge in the penalty order. In any case, existence of a clear- cut charge in penalty order is a must so as to validate any penalty order.”
11. In the instant case, the notice initiating the penalty proceedings talks about initiation of penalty proceedings U/s 271AAB of the Act. However, while passing the penalty proceedings, the Assessing officer has given a finding as reflected in the penalty order that the assessee is liable for penalty U/s 271AAB(1)(a) which provides for levy of penalty @ 10% of the undisclosed income. As held by the Coordinate Bench (supra), the uncertain charge at the time of initiation of penalty has been made good and substituted with a conclusive default at the time of passing the penalty order and that in such a case, no fault can be found in the penalty order. In such a case, we donot see any infirmity in the initiation of penalty proceedings and consequent penalty order so passed by the Assessing officer and the contentions so raised by the ld AR in this regard cannot be accepted. Further, we find that the decision of the Coordinate Bench in case of Ravi Mathur (supra) so relied upon by the ld AR, has been rendered without taking into consideration earlier decision of the Co-ordinate Bench in case of Mahesh Jain (Supra) and earlier decision of the larger Bench of the Tribunal in case of ONGC Mittal (Supra) and thus doesn’t act as a binding precedent. Also the decision of the Co-ordinate Bench in case of Sandeep Chandak (supra) so relied upon by the ld AR doesn’t support the case of the assessee as the same has been subsequently overruled by Hon’ble Allahabad High Court in case of PCIT vs Sandeep Chandak reported in 93 Taxmann.com 409. In light of above discussions, the additional ground so raised by the assessee is hereby dismissed.
12. Now, coming to another contention of the ld AR where he has challenged the findings of the ld. CIT(A) 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 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 decision of Hon’ble A.P High Court in case of RadhaKrishna Vihar (ITA no. 740/2011).
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 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 92 Taxmann.com 109 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— (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;
(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.
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.
7. 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 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.”
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.”
Now, coming to the contention of the ld AR regarding amount surrendered during the course of search not qualifying as undisclosed income u/s 271AAB of the Act. 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 amounting to Rs.
26 Sh. Shambhu Kumar Agarwal, Kota vs. DCIT, Kota 13,42,300/-, gold jewellery valued at Rs. 13,88,400/-, diamond jewellery valued at Rs. 13,15,000/-, and Chinese currency equivalent to Rs. 4,00,000 and 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 and foreign currency purchased is out of past savings of the assessee and the jewellery so found has been gifted to 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 44,45,700 so sustained by the ld CIT(A).
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 28/03/2019.
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:- 28/03/2019 *Ganesh Kr आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shambhu Kumar Agarwal, Kota 2. izR;FkhZ@ The Respondent- DCIT, Central Circle, Kota 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A)