INCOME TAX OFFICER, WARD-2(1), KOTA vs. M/S KANHAIYALAL RAMESHWAR DAS, KOTA

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, JAIPUR (PHYSICAL HEARING) Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Prakash, Accountant Member

ITA No: 143/JPR/2025 Assessment Year: 2015-16

Income Tax Officer M/s Kanhaiyalal Rameshwar Das, Ward 2(1), Rishabh Bhawan Rishabh Bhawan, Kota Vs New Colony, Gumanpura PAN: AABFK4323K (Appellant) (Respondent)

Assessee Represented: Sh. S. R. Sharma, CA & Sh. R. K. Bhatra, CA Revenue Represented: Ms. Namita Patel, JCIT Date of hearing : 03-08-2026 Date of pronouncement : -08-2026 आदेश/ORDER PER : PRAKASH, ACCOUNTANT MEMBER:-

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income filed under section 139(1) of the Act on 12.09.2015 declaring total income of Rs. 10,19,77,840. 4. The return was taken up for scrutiny and notices under sections 143(2) and 142(1) of the Act were issued on 05.08.2016 and 31.08.2016 respectively. The assessment was completed under section 143(3) read with section 153B(1)(b) of the Act on 28.12.2016, after obtaining the prior approval of the Joint Commissioner of Income Tax, Central Range, Jaipur under section 153D of the Act, at a total income of Rs. 10,34,22,180. 5. It is material to note the manner in which the AO dealt with the surrendered sum in the assessment order. The AO accepted the entire surrendered amount of Rs. 10,19,77,839 as forming part of the returned income, and separately made only four additions aggregating Rs. 14,44,341, namely (a) an ad hoc disallowance of Rs. 10,69,148, being 10% of certain mining and vehicle-related expenses found to be excessive and unverifiable; (b) disallowance of gratuity of Rs. 92,296 under section 36(1)(v) as it was not paid to an approved gratuity fund; (c) an addition of Rs. 70,769 being the balance of cash found during the search that remained unexplained; and (d) disallowance of Rs. 2,12,128 out of telephone and mobile expenses as being personal in nature. Significantly, in respect of the advances of Rs. 8,95,00,000 the AO neither invoked section 68 nor section 69 of the Act, nor treated the same as income

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from any undisclosed source; the amount was accepted as the assessee’s business income of the year. 6. The four additions aforesaid were subsequently deleted in their entirety by the CIT(A) vide order dated 03.08.2018 in ITA No. 424/2016-17, whereupon the assessed income stood reduced to the returned figure of Rs. 10,19,77,840. 7. Simultaneously with the assessment, penalty proceedings under section 271AAB of the Act had been initiated by notice under section 274 read with section 271AAB dated 28.12.2016. After the quantum additions were deleted by the CIT(A), the AO issued a fresh show cause notice dated 25.01.2020 and, upon considering the assessee’s reply dated 03.02.2020, passed the impugned penalty order dated 23.03.2020 under section 271AAB(1)(a) of the Act. In that order the AO reproduced the provisions of section 271AAB together with the Explanation, set out the four essential ingredients of the section, namely that there should be a search under section 132 conducted on or after 01.07.2012, that there should be undisclosed income, and that such undisclosed income should relate to the specified previous year, and held that all these ingredients were satisfied. The AO reasoned that the undisclosed income of Rs. 10,19,77,839 had been admitted in the statement under section 132(4) of the Act, reaffirmed by the letter dated 16.03.2015, declared in the return and the tax thereon paid, that the disclosure was founded upon incriminating documents found in the search and could not be explained away as having been made merely to buy peace, and that the objection regarding non- specification of the clause in the notice was an afterthought since the section

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had been mentioned in the assessment order. On that basis the AO levied penalty at 10% on the entire surrendered sum of Rs. 10,19,77,839, computed at Rs. 1,01,97,784. The AO did not embark upon any separate examination of whether each of the four heads of surrender and in particular, whether the advances of Rs. 8,95,00,000independently fell within the statutory definition of “undisclosed income”. 8. On appeal, the CIT(A), by the impugned order dated 10.12.2024, rejected the assessee’s challenge to the validity of the notice and to the character of the levy under section 271AAB, but on merits partly allowed the appeal. He confirmed the penalty referable to the cash of Rs. 1,10,00,000, the renovation expenditure of Rs. 14,25,121 and the surface rights of Rs. 52,718 (aggregating to penalty of Rs. 12,47,784), while deleting the penalty of Rs. 89,50,000 referable to the land/other advances of Rs. 8,95,00,000, on the ground that the underlying diary entries were bereft of date, mode of payment and the complete address/surname of the persons named therein and do not constitute ‘undisclosed income’ for the purposes of section 271AAB of the Act. It is only the deletion of penalty of Rs. 89,50,000 that is assailed by the Revenue in the present appeal; the confirmation of penalty on the remaining three heads has not been carried in cross-objection by the assessee and has attained finality. 9. The learned Departmental Representative (hereinafter referred to as “DR”), supporting the grounds of appeal, submitted that the land/other advances squarely fall within the wide definition of “undisclosed income” in the Explanation to section 271AAB of the Act; the seized diary being “other

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documents” within that definition, and that an outflow entry recorded outside the regular books evidences that the funds so applied were themselves sourced from undisclosed income. It was urged by the learned DR that the assessee’s admission under section 132(4) of the Act is substantive evidence which was never retracted and was, on the contrary, reaffirmed on 16.03.2015 and again offered to tax in the return of income. Reliance was placed by the learned DR on MAK Data (P.) Ltd. v. CIT [2013] 358 ITR 593 (SC). It was further submitted by the learned DR that the onus to demonstrate that the entries were false or imaginary lay upon the assessee and was not discharged; no confirmation of the parties or explanation of source having been furnished at any stage. The learned DR further contended that the decisions relied upon by the CIT(A) are distinguishable on facts, that Padam Chand Pungliya (ITA No. 112/JP/2018, dated 05.04.2019) is sub judice before the Hon’ble Rajasthan High Court, and that Nikhil Madan (ITA No. 117/JP/2018, dated 27.07.2020), and Paras Mal Jain (ITA No. 1469/JP/2024, dated 26.02.2025), were not carried in further appeal only on account of low tax effect under CBDT Circular Nos. 5/2024 and 9/2024, so that no acquiescence on the merits could be presumed. Finally, it was submitted that the impugned order is internally inconsistent in confirming penalty on some entries appearing in the very same diary while deleting it on the advances. 10. The learned Authorised Representative (hereinafter referred to as “AR”) supported the impugned order and submitted that the advances of Rs. 8,95,00,000 were recorded merely as loose notings in a diary found during the

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search, without any date, surname, address, mode of payment or particulars of the land or the parties, and without any corresponding underlying asset having been found in the course of the search. It was further submitted by the learned AR that the surrender was made to buy peace and to avoid protracted litigation; that neither during the search nor in the post-search enquiry nor in the assessment proceedings did the Department make any enquiry to establish the existence of the persons named or the lands allegedly advanced against; that the AO found no incriminating material establishing that the notings represented the real income of the assessee; that the AO did not invoke section 68 or section 69 of the Act and, on the contrary, accepted the amount as the assessee’s business income of the year; and that an advance represents an outflow of funds, whereas “undisclosed income” as defined in section 271AAB envisages an inflow of funds. The learned AR placed reliance on the CBDT Circular F. No. 286/2/2003-IT(Inv.) dated 10.03.2003 deprecating the practice of obtaining confessions of undisclosed income not based on credible evidence. It was contended that the issue stands concluded in the assessee’s favour by the consistent decisions of this Bench in Paras Mal Jain (supra), Suraj Mal Bansal (HUF) (ITA No. 124/JP/2018, dated 08.04.2019), Nikhil Madan (supra), Rajendra Kumar Gupta Gupta (IT Appeal No. 359/JP/2017, dated 18-1-2019), and Padam Chand Pungliya (supra). 11. We have heard the rival contentions and perused the material available on record. The short and the only question that falls for our determination is whether the land/other advances of Rs. 8,95,00,000 surrendered in the

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statement recorded under section 132(4) of the Act and reflected as notings in the seized diary constitute “undisclosed income” within the meaning of the Explanation to section 271AAB of the Act so as to attract penalty under clause (a) of sub-section (1) thereof. 12. Before dealing with the rival contentions, it is useful to notice the scheme of section 271AAB of the Act. The same reads as under:

Penalty where search has been initiated. 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—

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(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).

(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—

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(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 thePrincipal 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.

The section opens with the words “The Assessing Officer may … direct that … the assessee shall pay by way of penalty”, and prescribes, in the three clauses (a), (b) and (c) of sub-section (1), penalty at graded rates of ten, twenty and, as the case may be, sixty per cent of the undisclosed income of the specified previous year, according as the assessee admits the undisclosed income in the statement under section 132(4) of the Act and fulfils the further conditions, or does not so admit it, or falls in the residuary clause. Sub-section (3) makes the provisions of sections 274 and 275 applicable to the levy, so that penalty cannot be imposed without a show cause notice and a reasonable opportunity of hearing. Two features of the section are significant for the present purpose. First, the charge in every clause is levied not upon the amount surrendered as such, but upon the “undisclosed income of the specified previous year”; the existence of “undisclosed income”, as defined, is thus the jurisdictional foundation of the levy. Second, the use of the word “may”, coupled with the mandate of section

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274, indicates that the AO is required to apply his mind and record a finding that the surrendered amount answers the statutory definition, rather than to treat the levy of penalty as an automatic consequence of the disclosure. The expression “undisclosed income” is exhaustively defined in clause (c) of the Explanation to the section. 13. Being a penal provision which carries its own exhaustive definition of the very income on which it operates, section 271AAB must be construed strictly, and the amount sought to be penalised must be shown to fall squarely within one or other limb of the definition extracted above. It follows, and this Bench has consistently held, that the mere admission or surrender of an amount in a statement recorded under section 132(4) of the Act does not, ipso facto, clothe that amount with the character of “undisclosed income” for the purposes of the section. The disclosure under section 132(4) is during the course of enquiry, not the conclusion of it; the AO remains obliged to examine the facts and to record a finding that the surrendered sum answers the definition before penalty can be fastened upon it. To hold otherwise would be to read the definition out of the section and to convert the levy into an automatic incident of every disclosure, which is not what the statute contemplates. 14. Tested on this touchstone, the advances in question do not qualify as “undisclosed income”. They are plainly not “money, bullion, jewellery or other valuable article or thing” found in the search. Nor can they be said to be income “represented … by any entry … or transactions found in the course of a search”, for, as a matter of first principle, an advance represents an outflow of

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funds from the hands of the assessee, whereas the definition contemplates an inflow of funds not recorded before the date of search. The second limb of the definition, which deals with a false entry of an expense recorded in the regular books, has no application at all. The distinction between an outflow by way of advance and an inflow by way of income is neither semantic nor technical; it goes to the root of the charge, because what the legislature has sought to bring within the net of section 271AAB is undisclosed income, and not the application of funds. This is precisely the view taken by the coordinate Bench in Rajendra Kumar (supra) followed in Suraj Mal Bansal (HUF) and Nikhil Madan, wherein it was observed:

“21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed cash advances represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessees hand and an income per se represents an

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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 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

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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."

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income. The Ld. A.O. has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business income of current year. ….. Hence in view of the above facts, circumstances of the case and the decisions cited (supra), we hold that there is no undisclosed income within the meaning of section 271AAB which is either admitted by assessee or determined by A.O. in assessment and hence penalty of Rs. 1,00,11,335/- imposed by A.O. u/s 271AAB and sustained by the ld. CIT(A) are wrong and bad in law and the same is directed to be deleted.

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they do not. The submission that the outflow entry must be presumed to have been sourced from undisclosed income is, in substance, an invitation to apply the deeming fiction of section 69 of the Act to the penalty provision, which, for the reasons already given, is impermissible; a levy of penalty cannot rest upon a presumption piled upon an inference, in the absence of any material establishing an inflow of undisclosed income. 21. The plea that the precedents relied upon are sub judice, or were not carried in further appeal only on account of low tax effect, is of no assistance to the Revenue. 22. We do not find any real inconsistency in the order of the CIT(A) that would warrant interference at the instance of the Revenue. The character of each item has to be tested against the statutory definition on its own facts. The differential treatment accorded by the CIT(A) is, therefore, not a case of inconsistency but a considered application of the same definition to materially different facts, and it is a distinction which accords with the settled position in law. 23. In the light of the foregoing discussion, we hold that the land/other advances of Rs. 8,95,00,000 do not fall within the definition of “undisclosed income” given in the Explanation to section 271AAB of the Act due to absence of a finding that the advances answered that definition and therefore, the penalty

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of Rs. 89,50,000 levied thereon under section 271AAB(1)(a) of the Act was rightly deleted by the CIT(A). We find no reason to interfere with the impugned order. The grounds raised by the Revenue are accordingly rejected. 24. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 12-08-2026

Sd/- Sd/- (T.R. SENTHIL KUMAR) (PRAKASH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 12/08/2026 *Ganesh Kr., Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT 6. Guard file. By order/आदेश से,

सहायक पंजीकार आयकर अपील�य अ�धकरण