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Facts
During a search and seizure operation, Leeford Healthcare Limited and Amit Kumar surrendered income. The AO levied penalty under Section 271AAB(1A) at 60% on the surrendered amounts, holding that the manner of deriving the income was not disclosed. The CIT(A) restricted the penalty on cash surrender to 30% and deleted the penalty on other surrenders.
Held
The Tribunal held that surrenders related to construction of office blocks/guest houses and residential houses do not fall under the definition of 'undisclosed income' for Section 271AAB(1A). However, cash found during the search and surrendered does fall under this definition. Consequently, the CIT(A)'s order confirming penalty at 30% on the cash surrender was upheld, and the department's appeal was dismissed.
Key Issues
Whether penalties under Section 271AAB(1A) were leviable on surrendered income when the manner of derivation was not disclosed, and whether specific surrenders qualified as 'undisclosed income' for penalty purposes.
Sections Cited
271AAB(1A), 132, 271AAB
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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH
Before: SHRI
सुनवाई की तारीख/Date of Hearing : 07/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 27/05/2025 आदेश/Order PER KRINWANT SAHAY, AM:
These are the appeals filed by the department and Cross Objections filed by the assessee against the order as passed by the CIT(A) in respect of the penalty levied u/s 271AAB(1A) of the Income Tax Act for Assessment Year 2018-19. The grounds of appeal as taken by the department in the above two cases and the Cross Objections as filed by the assessee are as under:-
:- LEEFORD HEALTH CARE LIMITED (D)
1. Whether on facts and circumstances of the case and in law, the Id. CIT(A) was justified in restricting the penalty @ 30% as per provisions of section 271AAB(1A)(a) on the undisclosed income of Rs. 80,23,500/- surrendered during search u/s 132 of the Act on account of cash found instead of penalty levied @ 60% by AO as per provisions of section 271 AAB(LA)(b) of the Income Tax Act, 1961 and by ignoring the fact that assessee failed to disclose the manner in which the undisclosed income was derived to earn undisclosed cash? 2. Whether on facts and circumstances of the case and in law, the id. CIT(A) was justified in deleting the penalty of Rs. 1,32,00,000/- levied u/s 271AAB(IA)(b) of the Income Tax Act, 196l by the Assessing Officer on the undisclosed income of Rs. 2,20,00,000/- surrendered during search action u/s 132 of the Act as the assessee failed to disclose the manner in which the undisclosed income was derived? 3. Whether on the facts and circumstances of the case the Lel, CIT(A) was justified in holding that undisclosed investment in building of Rs. 2,20,00,000/- surrendered by Assessee on the basis of valuation report of DVO does not fall in the definition of "undisclosed income" as per provisions of clause (c) to Explanation to section 271 AAB of the Act ? 4. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. CO No. 24/CHD/2024 (Assessee)
3 1. That the Ld. CIT(A) has erred in dismissing the ground of appeal for levy of penalty u/s 271AAB being barred by limitation since the penalty order have been passed on 01.04.2022 in terms of clause 13(a) and 13(n) of notification. 4/2017, dated 03.04.2017 and further the limitation of passing the Penalty order having already expired on 31.03.2022, the passing of order u/s 271AAB on 01.04.2022 is barred by limitation.
2. That even otherwise, the CIT(A) has failed to appreciate that the order which was received before 31st of March 2022 by email on 31.03.2022, was without DIN Number and, thus, the levy of penalty u/s 271AAB is barred by limitation.
3. That respondent craves leave to add or amend the ground of cross objections before the appeal is finally heard or disposed off. Further, the assessee filed amended grounds of Cross Objections in the case of M/s Leeford Healthcare Limited which are as under:-
1. That the Ld. CIT(A) has erred in dismissing the ground of appeal
for levy of penalty u/s 271AAB being barred by limitation since the penalty order have been passed on 01.04.2022 in terms of clause 13(a) and 13(n) of notification. 4/2017, dated 03.04.2017 and further the limitation of passing the Penalty order having already expired on 31.03.2022, the passing of order u/s 271AAB on 01.04.2022 is barred by limitation.
2. That the Ld. CIT(A) has failed to appreciate that the order, dated 31.03.2022 was received through email on April 1, 2022 at 2.12 AM and that too without DIN Number and, thus, on both accounts, the penalty order being barred by time and deserves to be quashed since it went out of the hand of the Assessing Officer on 1st of April, 2022.
3. That respondent craves leave to add or amend the ground of cross objections before the appeal is finally heard or disposed off. :- AMIT KUMAR (D)
1. Whether on facts and circumstances of the case and in law, the Id. CIT(A) was justified in deleting the penalty of Rs. 1,20,00,000/- levied u/s 271AAB(1A)(b) of the Income Tax Act, 1961 by the Assessing Officer on the undisclosed income of Rs. 2,00,00,000/- surrendered during search action u/s 132 of the Act as the assessee failed to disclose the manner in which the undisclosed income was derived? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in holding that undisclosed investment in building of Rs. 2,00,00,000/- surrendered by Assessee on the basis of valuation report of DVO does not fall in the definition of “undisclosed income” as per provisions of clause (e) to Explanation to section 271 AAB of the Act?
The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
CO No. 23/CHD/2024 (Assessee)
1. That the Ld. CIT(A) has erred in dismissing the ground of appeal
for levy of penalty u/s 271AAB being barred by limitation since the penalty order have been passed on 01.04.2022 in terms of clause 13(a) and 13(n) of notification 4/2017, dated 03.04.2017 and further the limitation of passing the Penalty order having already expired on 31.03.2022, the passing of order u/s 271AAB on 01.04.2022 is barred by limitation.
2. That even otherwise, the CIT(A) has failed to appreciate that the order which was received before 31st of March 2022 by email on 31.03.2022, was without DIN Number and, thus, the levy of penalty u/s 271AAB is barred by limitation.
3. That respondent craves leave to add or amend the ground of cross objections before the appeal is finally heard or disposed off. Further, the assessee Sh. Amit Kumar filed amended grounds of Cross Objections which are as under:-
That the Ld. CIT(A) has erred in dismissing the ground of appeal
for levy of penalty u/s 271AAB being barred by limitation since the penalty order have been passed on 01.04.2022 in terms of clause 13(a) and 13(n) of notification. 4/2017, dated 03.04.2017 and further the limitation of passing the Penalty order having already expired on 31.03.2022, the passing of order u/s 271AAB on 01.04.2022 is barred by limitation.
2. That the Ld. CIT(A) has failed to appreciate that the order, dated 31.03.2022 was received through email on April 1, 2022 at 12.01 AM and that too without DIN Number and, thus, on both accounts, the penalty order being barred by time and deserves to be quashed since it went out of the hand of the Assessing Officer on 1st of April, 2022.
3. That respondent craves leave to add or amend the ground of cross objections before the appeal is finally heard or disposed off.
2. Both the appeals belong to the same group and identical issue is involved therefore, a common order is being passed. The facts are that in the case of above two assessees, there was a search and seizure operation carried out by the department on 23.03.2018. During the 5 course of search and seizure, the company i.e. Leeford Healthcare Limited surrendered income of Rs. 3,00,23,500/-, which was disclosed in the return of income by it for the AY. 2018-19 and the taxes were duly paid on the said surrendered income. The Ld. AO while passing the order u/s 271AAB(1A) has held that, though the assessee has disclosed the surrendered income, but has failed during the course of search and seizure to specify the manner, in which, such income had been derived and thus, treated the same as undisclosed income and levied a penalty @ 60% on the amount of surrendered income of Rs. 3,00,23,500/- amounting to Rs. 1,80,14,100/- u/s 271AAB(1A) in the case of company.
3. Similarly, in the case of Sh. Amit Kumar, the assessee had surrendered income of Rs. 2,00,00,000/- in the A.Y. 2018-19 during the course of search and the same income was duly declared in the return of income filed by him for A.Y. 2018-19 and the taxes were paid on such income. In reply to the show cause notice for levy of penalty, detailed submissions were made, however, the AO levied a penalty @ 60% u/s 271AAB(1A) on the amount of surrendered income Rs. 2,00,00,000/- and held that since, the assesse had failed to specify the manner, in which, such income had been derived and therefore, he levied penalty of Rs. 1,20,00,000/- u/s 271AAB(1A).
The assessee filed appeal in both the cases before the CIT(A) and made submissions that in case of company, out of total surrendered income of Rs. 3,00,23,500, the amount to the tune of Rs. 2,20,00,000/- was surrendered on account of amount spent on the Office Block/ Godown /Guest House and whereas, the balance amount of Rs. 80,23,500/- was on account of cash, as found, during the course of search and the same was offered to tax at the time of filing the return of income, taxes were paid thereon. It was further, argued by the Ld.
6 Counsel that in the case of Sh. Amit Kumar, the amount of Rs. 2,00,00,000/- was surrendered in respect of the construction of residential house of assessee and the same was offered as income and taxes paid thereon at the time of filing the return of income. It was further, argued that assessee had fulfilled all the conditions as per section 271AAB(1A) and in so far as, the amount of Rs. 2,20,00,000/- in case of company and Rs. 2,00,00,000/- in the case of Sh. Amit Kumar, as no incriminating evidence or any document or any transaction were found during the course of search as such, the same does not fall under the definition of ‘Undisclosed Income’ as defined under the relevant provision of 271AAB. Thus, relying upon the judgment of the Chandigarh ITAT in the case of M/s Jagan Nath Ram Sahai Vs DCIT in no penalty u/s 271AAB(1A) was leviable on the surrendered amount of Rs. 2,20,00,000/- in the case of company and Rs. 2,00,00,000/- in case of Sh. Amit Kumar. As regards, the amount of Rs. 80,23,500/- on account of the cash belonging to the company, which was found during the course of search and which was surrendered in the hands of the company, it was argued that since the cash found fell within the definition of “Undisclosed Income” under Explanation (c) to Section 271AAB and the same had been surrendered during the course of search and taxes paid thereon at the time of filing of return of income, therefore, as per clause (a) of section 271AAB(1A) penalty @ 30% of the said ‘Undisclosed Income’ of Rs. 80,23,500 was leviable and not @ 60% as levied by the AO.
The Ld. counsel of the assessee further referred to the order of the CIT(A) in case of company, wherein the Ld. CIT(A) had reduced penalty u/s 271AAB(1A) on the cash of Rs. 80,23,500/-from 60% to 30% as found during the course of search as per clause (a) of section 271AAB(1A), since the said sum had been disclosed during the course
7 of search and also deleted the penalty u/s 271AAB(1A)in respect of surrender of Rs. 2,20,00,000/- on account of the Office Block/ Godown/ Guest House in the case of company and Rs. Surrender of 2,00,00,000/- by Sh. Amit Kumar on account of residential house construction, since no incriminating evidence was found in respect of the same. The Ld. counsel relied upon the finding given by the CIT(A) and also stressed that the judgment in the case of ‘Jagan Nath Ram Sahai’ as cited supra was squarely applicable to the facts and circumstances.
The Ld. Counsel in respect of the Cross Objection argued before us that the order having being passed without DIN No. and also that the same was uploaded on the portal as on 1st April 2022 and even the closure date of proceeding is also dated 1st April 2022 and thus, argued that the order levying penalty u/s271AAB(1A) was time barred.
The Ld. CIT(DR) justified the action of the AO in levying the penalty in both the cases u/s 271AAB(1A) and further stated that since the mode and manner of earning the income has not been disclosed during the course of search, as such the levy of penalty by the AO was fully justified and relied upon the order of the AO.
In the Rejoinder, the Ld. Counsel of the assessee relied upon the cases as cited supra and further argued that since, no question was put to the assessee regarding the mode and manner of earning the surrendered income so no adverse view was liable to the taken against the assessee.
We have considered the arguments of the Ld. Counsel of the assessee, CIT(DR) and also gone through the order of the Assessing Officer, appellate order of Ld. CIT(A), brief synopsis and paper books filed by the Ld. Counsel. The facts as per assessment order and order of the CIT(A) have not been disputed by either of the parties and since
8 the facts and circumstances in the both the appeals are common involving common issue, they are being disposed of by way of this order.
9.1. We have gone through Section 271AABwhich by way of clause (1A) describes the levy of penalty in respect of the search conducted on the assessee and the said section has been reproduced at page 12 and 13 of the order of CIT(A) and alongwith that, for the purposes of levying the penalty, the said surrendered income should also fall within the meaning of ‘Undisclosed Income’ as per the explanation to the said section which have been reproduced at page 13 of the order of the CIT(A). It is also a fact on record that no incriminating evidence in respect of the amount surrendered in the case of the company in respect of construction of Office Block/Godown/Guest House have been found nor any incriminating evidence in respect of the construction of residential house in the case of Sh. Amit Kumar have been found. Thus, the said amount so surrendered does not fall under the definition of ‘Undisclosed Income’ as per explanation (c) to 271AAB as stated above. As regards, the surrender of cash as found during the course of search in the case of company to the tune of Rs. 80,23,500/-, the same falls under the definition of ‘Undisclosed Income’. Further, since the amount of Rs. 80,23,500/- has been disclosed during the course of search and the tax has been paid on the same at the time of filing the return of income therefore, the penalty is leviable @30% on the amount of Rs. 80,23,500/- as per clause (a) to section 271AAB(1A) and thus, the CIT(A) was justified in confirming the penalty of Rs. 24,07,050/- being 30% of the cash of Rs. 80,23,500/- as found during the course of search. Since, in the case of company, the amount of Rs. 2,20,00,000/- surrendered on account of the construction of the office block/Godown/guest house and in case of Sh. Amit Kumar, amount of 9 Rs. 2,00,00,000/- surrendered on account of construction of residential house, the same do not fall within the meaning of ‘Undisclosed Income’, no penalty u/s 271AAB(1A)is leviable as per the findings given by the Ld. CIT(A) and hence, we have no hesitation in upholding the order of the CIT(A), both in the cases of the company namely, Leeford Healthcare Limited and Sh. Amit Kumar and thus the appeal of the department is dismissed.
9.2. We have also gone through the grounds of Cross Objections and amended grounds of Cross Objections as filed by the assessee in both the cases and also considered the arguments of the Ld. Counsel. As we have dismissed the appeal of the revenue, we refrain from giving any finding on the cross objections as filed by the assesse as the same would only be an academic exercise.
Order pronounced in the open Court on 27/05/2025