N.SANTHANAM,CHENNAI vs. ACIT CENTRAL CIRCLE-1(2), CHENNAI

आयकर अपील�य अ�धकरण, ‘बी’ �यायपीठ, चे�नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI �ी धु�वु� आर.एल रे�डी, �या�यक सद!य एवं �ी जी.मंजुनाथ, लेखा सद!य के सम' BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.328/Chny/2020 (�नधा�रणवष� / Assessment Year: 2014-15) Mr. N.Santhanam Vs The Assistant Commissioner Old No.14, New No.12, Income Tax, Seethammal Colony Extension, Central Circle-1(2) 1st Cross Street, Teynampet, Chennai-600 034. Chennai-600 018. PAN: AXUPS 6533R (अपीलाथ�/Appellant) (��यथ�/Respondent)

: None अपीलाथ�क�ओरसे/ Appellant by : Ms.R.Anita, Addl.CIT ��यथ�क�ओरसे/Respondent by 26.10.2021 : सुनवाईक�तार�ख/Date of hearing : 26.10.2021 घोषणाक�तार�ख /Date of Pronouncement आदेश / O R D E R PER G.MANJUNATHA, AM:

This appeal filed by the assessee is directed against the

order of the learned CIT(A)-18, Chennai dated 23.12.2019 and

pertains to assessment year 2014-15.

“1.The order dated 23.12.2019 passed by the learned Commissioner of Income-tax, (Appeals-)-18, Chennai, is erroneous, opposed to law and facts of the case. 2. The learned Commissioner of Income-tax, (Appeals)-18, erred in dismissing the appeal without appreciating the fact the appellant had filed an application seeking adjournment of the hearing posted on 23.12.2019. 3. The learned Commissioner of Income-tax, (Appeals)-18, erred in not affording a final opportunity to the appellant of being heard before the appeal was adjudicated in the

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interest of natural justice and deciding that the appeal was not prosecuted by the appellant. 4. The learned Commissioner of Income-tax, (Appeals)-18, erred in not appreciating the fact that the appellant had voluntarily admitted the additional income in the return of income filed even when no incriminating materials were found or seized by the department. 5. The learned Commissioner of Income-tax, (Appeals)-18, erred in not appreciating the fact that the appellant had not specified the manner in which such income was earned. 6. The learned Commissioner of Income-tax, (Appeals)-18, erred in not appreciating the fact that the additional income admitted by the appellant does not fall under the income as defined in the Explanation (C) to section 271AAB of the Act. 7. The learned Commissioner of Income-tax, (Appeals)-18, erred in not appreciating the fact that the Notice issued by the Assessing officer did not specify whether penalty had been initiated u/s 271AAB(1)(a) or 271AAB(1)(b) or 271AAB(1)(c) and hence the penalty imposed is illegal and bad in law. 8. The learned Commissioner of Income-tax, (Appeals)-18, erred in dismissing the appeal without considering the issues raised by the appellant in the grounds of appeal and merits of the case. 9. For these and other grounds which the appellant may be permitted to submit at the time of hearing, it is prayed, the Hon’ble Income-tax Appellate Tribunal may be pleased to set aside the order of the learned Commissioner of Income-tax(Appeals)-18 and render justice to the appellant.”

operation u/s.132 of the Income Tax Act, 1961 was conducted

at the residential premises of the assessee on 31.10.2013.

During the course of search operation, the assessee in his

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sworn deposition recorded u/s.132(4) of the Act on 28.12.2013

had offered undisclosed income of Rs.1.00 crore for

assessment year 2014-15. Consequent to search, the assessee

has filed his return of income for assessment year 2014-15 on

29.11.2014 admitting total income of Rs.2,42,16,440/-. In the

said return, the assessee did not offer undisclosed income as

admitted in sworn statement recorded during course of search.

The case has been taken up for scrutiny and notice u/s.143(2)

has been issued calling upon various details. The assessee has

filed revised return after initiation of scrutiny proceedings on

23.03.2016 admitting total income at Rs.3,42,16,440/-,

including additional income of Rs.1.00 crore which was offered

to tax at the time of search. The assessment has been

completed u/s.143(3) r.w.s 153B(1)(b) of the Act on 28.03.2016

and accepted returned income.

Act was initiated and accordingly, notice u/s.274 r.w.s 271AAB

dated 28.03.2016 was issued and served on the assessee. In

response, the assessee has filed his written submissions and

challenged initiation of penalty proceedings on the ground that

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admission of undisclosed income without any reference to

incriminating material does not warrant levy of penalty

u/s.271AAB of the Act. The Assessing Officer was not

convinced with the explanation furnished by the assessee and

according to him, penalty u/s.271AAB is mandatory, when the

assessee has admitted additional income during the course of

search in the statement recorded u/s.132(4) of the Act and thus,

opined that it is a fit case for levy of penalty and hence, levied

penalty of Rs.30 lakhs being 30% of undisclosed income of

Rs.1.00 crore offered to tax.

preferred an appeal before learned CIT(A). Before the learned

CIT(A), the assessee neither appeared nor filed any written

submissions to justify his case. Therefore, the learned CIT(A)

decided issue and confirmed penalty levied by the Assessing

Officer u/s.271AAB of the Act by following certain judicial

precedents, including decision of the Hon’ble Delhi High Court

in the case of PCIT Vs Smt. Ritu Singhal (2018) 92

taxmann.com 224 (Del). The relevant findings of the learned

CIT(A) are as under:-

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“4.1 I have gone through the penalty order, grounds of appeal filed by the appellant in this regard. However, during the appellate proceedings it is observed that one has been attending the appellate proceedings . The following chart in tabular form shows the number of opportunities given to the appellant to explain his position in this regard.

However, it is seen that enough opportunity has been given to the appellant and since no further information is coming forth except seeking adjournment, therefore the matter is decided as per merits and on the basis of materials available on record. 5. During the course of penalty proceedings before the AO, the appellant made a plea not to levy penalty on the ground that they had cooperated with the department in all the proceedings; and that no addition was made to the income returned and there was no element of concealment. 5.1 The AO rejected the plea of the assessee stating that though the income was admitted during the course of search, the assessee failed to admit it in the original return filed and only after scrutiny proceedings were initiated, a revised return was filed and admitting the additional income. The AO further observed that penal liability u/s. 271AAB arises on the unaccounted income admitted during the course of search operation and the scope of the said income is not limited to the additions made in scrutiny assessment. The unaccounted income as admitted by the assessee was based on the material found during the course of search and also gold and jewellery and cash found. Further the AO has brought in the relevant extracts of the sworn statements recorded and the answers given by the assessee in para 3 of his penalty order wherein it

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was admitted by the assessee the unaccounted income of Rs. 1 crore for this assessment year. 5.2 Thus the AO levied penalty u/s. 27IAAB of Rs. 30 lakhs observing that undisclosed income has been admitted by the assessee during the course of search and in a statement u/s. 132(4) of the Act but the assessee failed to admit the income in the return filed originally but admitted the income by filing a revised return on 23.3.2016 only after initiation of proceedings u/s. 143(2). 6. I have gone through the facts of the case and materials available on record. The AO has levied penalty u/s. 271AAB on the admission of additional income of Rs. 1 crore for the AY under consideration. The addition relating to unaccounted cash remuneration in his profession as a film artiste has been made on the sworn statement deposed by the appellant during the course of search proceedings. The appellant had further deposed that the investments in expenses made out the books of account by the appellant needed to be telescoped against the admission of undisclosed income of Rs. 2.5 or for the FYs. 2011-12, 2012-13 and 2013-14.(needless to say that the appellant had admitted Rs. 1 cr for the FY 2013-14 relevant to AY 2014-15 being the subject matter of appeal). It has been brought on record by the AO that the appellant had pleaded that the investments in gold and diamond jewellery worth Rs. 58.8 lakhs and loan lent by his father in cash to Shri Lakshmanan, Shri Paranthaman and Shri Viswanathan during the FY 2013- 14 besides the cash expenditure incurred outside the books of account were from out of the undisclosed income admitted.

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(i) in the course of the search, in a statement under sub-section (4) of section 132 admits the undisclosed income and specifics 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 (h). (2) No penalty under the provisions of section 270A or] clause (c) of sub-section (1) of section shall be imposed upon the assessee in respect of the undisclosed income referred to in subsection (1) 4’[or sub-section (IA)]. (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;

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(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 moneys 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 the24Principal Chief Commissioner or j Chief Commissioner or 24[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. 8. Section 271AAB provides the procedure for penalty where the search has been initiated. On analysis of the said section, as per the law as it stood at the relevant point in time, it becomes that the AO may, in respect of specified years, in relation to undisclosed income, levy penalty of (a)l0% if the taxpayer admits the undisclosed income u/s 132(4); substantiates the manner of earning such undisclosed income and files return of income within the due date and pays tax;(b) 20% if the taxpayer does not admit undisclosed income u/s 132(4) ; discloses such undisclosed income and files return of income within the due date and pays tax after substantiating the manner in which such income was derived; and (c) 30%, if the taxpayer does not fall under either of the condition prescribed in (a)or (b) supra. 9. It is an undisputed fact that the appellant during the course of search action in terms of S.132(l) of the Act, on being confronted

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admitted that he had earned undisclosed income of Rs. 2.5 crore for the AYs. 2012-13 to 2014-15 as mentioned in para 6 supra and had offered the same as undisclosed income in the sworn statement recorded u/s 132(4) of the Act. However, the appellant failed to admit the income of Rs. 1 crore (that was admitted by the appellant during the course of search for the AY under consideration) in the return filed for the A.Y. 2014-15 and had admitted only after initiation of proceedings u/s. 143(2) by filing a revised return on 23.3.2016. 10. As per the section, the impugned AY is a specified year in terms of Explanation (b).The appellant did not offer his return of income admitting the undisclosed income deposed by him during search proceedings. The nature of undisclosed income admitted represented unaccounted cash remuneration in his profession as film artiste which income had been utilized for unaccounted investment and outgoings that were not recorded in the books of account. The admission as mentioned above was made by the appellant only by filing the revised return much beyond the due date as specified in Explanation (a) of the section, The specified date as per the aforementioned explanation means the due date of furnishing of the appellant’s return of income u/s 139(1) of the Act or the date on which the period specified in the notice issued u/s l53A of the Act for furnishing of return of income Act as applicable. In the appellant’s case, the factum of generation of unaccounted income and application thereof fall squarely within the limb of entry in the books of account or other relevant documents / transactions recovered during the course of search and that had not been recorded on or before the date of search in the books of account or other documents that were maintained in the day to day business activity of the appellant. Thus, the undisclosed income admitted falls within the ambit of undisclosed income defined in clause (c) of explanation of the Section. In view of the fact that the appellant had admitted undisclosed income in the course of search but had not furnished the return of income declaring such undisclosed income therein by paying tax together with interest in respect of the undisclosed income before the due date, the appellant’s case is hit by Sec. 271AAB(l)(c). 11. Accordingly, as per the provisions of Section 27IAAB the appellant is liable to pay, by way of, penalty in addition to tax, if any, a sum computed @ 30% of undisclosed income of the specified period or previous years, for in this case the appellant in the course of search in a statement u/s 132(4) had admitted the undisclosed income and specified manner in which such income has been derived as manifested as business income but

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has not filed return of income within the due date. Thus, the appellant’s case is squarely covered by clause(c) of Section 271AAB(1) of the Act and therefore the provisions of Section 271AAB get automatically attracted. 12. The Hon’ble High Court of Allahabad in the case of Pr. CIT vs Sandeep Chandak (2018) 93 taxmann.eom 405/ 405 ITR 648(Allahabad) has held that the impugned penalty proceedings under Section 27IAAB are fully justified and are initiated in accordance with law and had held that the order of the ITAT can’t be sustained and therefore the same was set aside and the penalty orders under S 271AAB of the Act passed by the assessing authority, confirmed by the CIT (Appeals), were affirmed and were restored. The Hon’ble Supreme Court has endorsed this decision by dismissing the SLP filed by the assessee in [20181 93 taxmann.com 406(SC) by which it has become a settled position of law that where an assessee in the course of search admits undisclosed income and manner in which such undisclosed income has been derived, then the provisions of S 271 AAB of the Act would automatically get attracted. 13. The Hon’ble High Court of Delhi in the case of Principal Commissioner of Income-tax Vs Smt.Ritu Singal [2018] 92 taxmann.com 224(Delhi), though in the context of S.27IAAA of the Act, held that “14. In construing Section 271AAA one must not lose sight of its essential purpose which resulted in its enactment. There is a penalty at the rate of 10% of the undisclosed amount declared, f the conditions in Section 27IAAA (2) are not met with. This is quite different from the penal provision under Section 271(1) (c) of the Act, which directs that if income is concealed or inaccurate returns are filed, which are disallowed by the AO, the penalty shall be - three times the amount of tax sought to be evaded. In the case of amounts disclosed during the course of search, the penalty amount is only ten percent of the undisclosed income. Parliament has, therefore, given a different treatment to the latter category. At the same time, if an assessee were to successfully urge the “escape route” so to say of Section 271AAA (2), all three conditions mentioned in the provision (as held in Gebilal Kanhailal in respect of pan material provisions) have to necessarily be fulfilled.” “16. That the income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely

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stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, source of the money etc). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement (under Section 132 (4))- substantiates the manner in which the undisclosed income was derived. Such being the case, this court is of opinion that the lower appellate authorities misdirected themselves in holding that the conditions in Section 271AAA (2) were satisfied by the assessee.” 13.1 Though this decision has been rendered in the context of S.27IAAA [that is applicable to search conducted from 1.6.2007 to 30.6.2012], the scope and tone & tenor are in accord with S271 AAB [ that is applicable in the appellant case on hand. 14. Further, the Hon’ble ITAT ,Kolkata Bench D in the case of DCIT, Central Circle 2(2),Kolkata Vs Anil Agarwal [2017] 88 taxrnann.com 288 (Kolkata-Trib) in para 9 has held that “We have heard the ld. DR and perused the materials available on record. It is not in dispute that the assessee’s case falls within the ambit of 271AAB(1)(a) of the Act as admittedly the assessee had satisfied the cumulative conditions prescribed thereon. We are not inclined to accept arguments of the assessee that he is not required to maintain books of accounts u/s 44AA of the Act for his commodities transactions, in view of the fact that the assessee himself had considered his case to be eligible for tax audit and had accordingly, filed the return of income u/s 139(1) of the Act on 30.09.2013 for the assessment year 2013-14. It is not in dispute that the due date for filing return of income for non-tax audit assessees is 31.07.2013 for the assessment year 2013-14. In the instant case, the assessee himself had accepted the fact that he is engaged in commodities trading business and accordingly, he is mandated to maintain books of accounts u/s 44AA of the Act. It is not in dispute that as on date of search i.e. 01.08.2012, the assessee had not entered the commodities transaction in its books of accounts. Hence, as per the definition of undisclosed income given in Explanation C to Section 271AAB of the Act, the additional income disclosed by the assessee indeed takes the character of undisclosed income. We also find that the legislature in its wisdom had consciously omitted to include Section 271AAB of the Act in the provisions of section 273B of the Act. Hence there is no requirement to look into any reasonable cause adduced by the assessee warranting grant of

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any immunity from levying of penalty u/s 271AAB of the Act. Hence, even assuming that the mistake lies on the part of the Accountant by not entering the entries in the books of accounts regarding the commodities transaction, which might tantamount to reasonable cause, the assessee would still be exigible for levy of penalty as no immunity could be claimed in terms of Section 273B of the Act. W find that the Ld. CIT (A) had looked into irrelevant circumstances for deleting the levy of penalty in the instant case forgetting the fact that the levy of penalty u/s 27IAAB of the Act is automatic in nature as per the plain reading of the provisions of the Act. Hence, we hold that the Ld. AO had rightly levied penalty at 10% of undisclosed income amounting to Rs. 30 lakhs in the instant case. Accordingly, the grounds raised by the Revenue are allowed” 15. In view of the foregoing discussions, I am of the view that there is no infirmity in the decision of the AO in levying penalty of Rs.30,00,000/- u/s 271AAB for this ÀY. Accordingly, I hold that the appellant’s grounds are dismissed.”

DR, perused materials available on record and gone through

orders of the authorities below. The facts borne out from

records clearly indicate that the assessee has undisclosed

income, which was offered to tax in the sworn statement

recorded u/s.132(4) of the Act. The assessee had also filed

revised return and declared undisclosed income offered to tax

during course of search and paid taxes. As per provisions of

section 271AAB, penalty is mandatory, where the assessee

has admitted undisclosed income during the course of search

in the statement recorded u/s.132(4) of the Act and specifies

manner in which such income has been derived. In this case,

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the assessee has admitted undisclosed income in the

statement recorded u/s.132(4) of the Act and substantiates

the manner in which undisclosed income was derived.

Therefore, we are of the considered view that reasons given by

the Assessing Officer to levy penalty of 30% of undisclosed

income is in accordance with law and thus, we are inclined

uphold order of the learned CIT(A) and dismiss appeal filed by

the assessee.

Sd/- Sd/- (जी. मंजुनाथ) (धु�वु� आर.एल रे�डी) (Duvvuru RL Reddy) (G.Manjunatha) #या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे#नई/Chennai, )दनांक/Dated 26th October, 2021 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.