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PER SHAMIM YAHYA, AM; 1. This is an appeal by the assessee arising out of the order dated 31.01.2018 of learned Commissioner of Income Tax (Appeals)-11, Mumbai [for short ‘the ld. CIT(A)] and pertains to Assessment Year 2012-13. The assessee has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the learned CIT (Appeal) erred in dismissing the appeal and in confirming the penalty levied at Rs. 50,000/- u/s. 271AAA of the Income Tax Act, 1961 which was worked out by the learned assessing officer after considering income as original return of income and assessed income.
2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeal) erred confirming the penalty which was levied without Mum 2018-Shankarlal Virji Thakkar.
considering the revised return of income filed by the assessee and further erred in confirming the penalty under section 271AAA of the Income Tax Act, 1961.
3. On the facts and in the circumstances of the case and in law, learned CIT (Appeal) erred in confirming the penalty levied which is levied without issuing any specific allegation in the show cause notice made by the Assessing Officer who had issued the vague notice and hence order of penalty is not sustainable.
Brief facts of the case are that the assessee is a company engaged in the business of wholesale trading of food grains. The search action was carried out on 22.02:2012 at the premises of the assessee. The assessee and his family members declared 1.11 crores as additional income vide letter dated 16.05.2012. Out of the said declaration of Rs.5 lacs was offered in the hands of the assessee. Assessee filed the revised return on 07.03.2013 showing total-income of Rs.16,24,750/- including Rs.05 lacs for disclosure made pertaining to certain documents, loose papers and materials seized at the premises of the assessee. The assessment was completed u/s 143(3) of IT Act 1961 in which AO has initiated penalty u/s 271AAA on the issue of undisclosed income of Rs.05 lacs. During the course or penalty proceeding the AO held that the assessee has not substantiated the manner in which the undisclosed income is derived. Thus, the condition prescribed in section 271AAA(2)(ii) is not satisfied. Therefore AO levied penalty u/s 271AAA of IT Act 1961. Mum 2018-Shankarlal Virji Thakkar.
Before the ld. CIT(A), the assessee claimed that through search was carried out on 22.02.2012 and no statement was given under section 132(4) admitting any additional income, a letter given to ADIT on 16.05.2012 should be treated as sufficient compliance of provision of section 271AAA(2). The assessee’s submission noted by ld. CIT(A) is as under:
“1) The assessee is engaged in the business of food grains trading. 2) The search & survey action was earned out cm 22/2/2012 at the premise of the assessee . The assessee and his family members declared 1.11 crores as additional income vide letter dt. 1615/2012 addressed to The Addl. Director of Income Tax (Inv), Thane. Out of the said declaration of 5 lakhs was, offered in the hands of assessee , Shri Shankarlal V. Thakkai: The assessee filed the revised return on 0.7.0.3.20.14 showing total income of Rs.16,24,750/- including Rs.5,00,000/- for disclosure made pertaining to jewellery and cash found at the premises of the assessee. Further, such income was earned by the assessee from food grains trading business which was unaccounted while filing the original return. But the Assessing Officer levied penalty under section 271AAA for the reason that the assessee could not substantiate the source of such income.
It is pertinent here to make a reference to clause (2) of section 271MA for which the provisions as contained in section 271AAA are reproduced herein below for ready reference: .
“Section 271AAA states as under: Penalty where search has been initiated.- (l) 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 June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum 3 Mum 2018-Shankarlal Virji Thakkar. computed at the rate of ten per cent of the undisclosed income of the specified previous year. . (2) Nothing contained in sub-section (1) shall apply if the assessee,- (i) In the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income end specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income.”
Since the assessee has admitted the income in the course of search: he has returned the 'undisclosed income by way of revised return; he has not explained the nature of sources of undisclosed income as no such statement was recorded during the course of scrutiny assessment and the assessee had paid the tax together with interest. Hence the penalty levied is bad in law. The same was held in following cases: 1. AACT, Central Circle-Z, Jaipur vs. Ajit Singh (ITAT Jaipur Bench) 2. Neerat Singal vs. ACIT, Central Circle-13, New Delhi (ITAT Delhi Bench 'E’ 3. Naval Kishore Agrawal vs. ACIT, Central Circle-(I), (ITAT, Nagpur Bench)
As the source of Income is unaccounted cast I receipts from Food grains trading business, the penalty may kindly be waived. Further in the case of M/s Naval Kishore Agarwal v/s Asst Comm of Income Tax, Centra Circle -1(1), Nagpur, the ITAT, Nagpur Bench, it was held that when during the course of search the assessee has duly disclosed the undisclosed income and exhibited the nature thereof the penalty u/s 271 AAA cannot be levied if no further query whatsoever has been asked by the Revenue regarding further clarifying the manner of earning of income or substantiating the source thereof.
3) We humbly submit that the penalty levied uls.271AAA is not supported by facts and in law and may kindly be deleted."
Mum 2018-Shankarlal Virji Thakkar.
The ld. CIT(A) was not convinced. She did not accept the letter given on 16.05.2012 as recording to statement u/s. 132(4) upon search on 22.02.2012, she held as under:
“5. I have gone through the penalty order as well as the submission made by the assessee . If we go by the assessment order it is noticed that during the course of the search assessee has admitted and offered an amount of Rs.05 lacs as additional income and the same is disclosed in the return of income. During the course of search action, statement was recorded u/s 132(4) wherein assessee has not specified or substantiated the manner in which such income has been derived. The assessee vide letter dated 16.05.2012 addressed to Addl. DIT(Inv), Thane has admitted and offered the income of Rs.5,00,000/- which is almost three months after the date of search. During the course of assessment proceeding also assessee has not - given any explanation of the undisclosed income, let alone specify or substantiate the manner of earning such income.
Besides, on the facts of the case I do agree with the AO levying the penalty that there was no details regarding source of the unaccounted income during the search and the manner of earning the same was-not disclosed; Even during assessment as well as penalty proceedings there is not even a whiff of explanation put forward by the assessee regarding the manner in which such income has been derived. In my view the assessee has therefore not satisfied all the three conditions required for immunity from penalty u/s 271AAA. Hence the penalty levied by the AO is confirmed.”
Against the above order assessee is in appeal before us.
6. We have heard both the parties and perused the record. The ld. counsel for the assessee relied upon the order of ITAT in and 1946/Mum/2018 for AY 2011-12 & 2012-13 in case Shri Jitendra Virji ITA No. 1947 Mum 2018-Shankarlal Virji Thakkar.
Thakkar assessee’s brother and claimed that since facts are identical, the penalty is to be deleted.
Per contra, ld. DR submitted that in this case assessee has not admitted any undisclosed income in the course of search u/s 132(4), hence, the provision of section 271AAA(2) are not complied with. Hence, the penalty is rightly levied. He further relied upon the several case law.
Upon careful consideration, we note that the provisions of section 271AAA provide as under:
‘271AAA. 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 June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. (2) Nothing contained in sub-section (1) shall apply 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 ) pays the tax, together with interest, if any, in respect of the undisclosed income. (3) 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). (4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a ) "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 Mum 2018-Shankarlal Virji Thakkar. 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 Chief Commissioner or Commissioner before the date of the 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; (b ) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of filing 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 said date; or (ii) in which search was conducted.’.
From the above it is clear that the penalty is not to be levied if in the course of search in a statement u/s 132(4) assessee admits the undisclosed income and specifies the manner in which the income has been earned.
In the present case, there is no statement u/s 132(4) by the assessee during course of search on 22.02.2012 admitting any additional income. As such the question of specifying the nature in which such income has been earned does not arise. The letter given on 16.05.2012 to ADIT is certainly not a statement u/s 132(4) in the course of search. Hence, as per the sanguine provisions of the Act, assessee has not complied with the provision of section 271AAA sub-section (2) to come out of the regours of the penal provisions of section Mum 2018-Shankarlal Virji Thakkar.
271AAA. The decision of ITAT referred by ld. counsel of the assessee is not applicable on the facts of the present case as in that case it has been duly noted that assessee has made due disclosure u/s 132(4). The Hon’ble Delhi High Court decision relied therein of PCIT Vs. Emirate Technology Pvt. Ltd. (399 ITR 189) is also not supporting assessee case in present case. As that decision provided that if manner of earning undisclosed income was not asked during the search adverse inference against assessee cannot be taken.
In the present case assessee in the course of search on 22.02.2012, made no disclosure of undisclosed income u/s 132(4). Hence, the said decision is not helpful to the assessee.
In the background of the aforesaid discussion and precedent we uphold the order of learned CIT(A).
I the result, appeal by the assessee is dismissed.
Order pronounced in open court on 25.05.2021.