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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Shri P.M. Jagtap & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad in Appeal no. CIT(A)-12/39/CC-1/2018-19 vide order dated 03/05/2019 passed for the assessment year 2012-13.
Page No. 2 Shilpaben R. Luhana vs. DCIT
The assessee has taken the following grounds of appeal:-
“1.00 Imposition of Penalty to the tune of Rs 1,42,500/- on addition made on account of Undisclosed Income. 1.01 On the facts and circumstances of appellant's case and in law, the ld. CIT (Appeals) has erred in confirming the levy of penalty to the tune of Rs.1,42,500/-under section 271AAB of the Act although there is no deliberate intention of appellant to defraud the revenue for concealment of income . While doing so, the ld. CIT (Appeals) failed to appreciate that the addition made did not have the character of undisclosed income. 1.02 Your appellant prays to hold so now and delete the impugned penalty. 2.00 YOUR APPELLANY CRAVES LEAVE TO ADD, AMEND AND /OR DELETE ALL OR ANY GROUND(S) TAKE HEREIN ABOVE.”
The brief facts of this case are that the search u/s 132 of the Act was carried out in the Dhanjimama group of cases on 03.07.2012. Consequent to the search action, proceedings under section 153A of the Act were initiated in the case of the assessee for assessment year 2007-08 to 2012-13. Accordingly, notice under section 153A of the Act was issued on 06.09.2013 and in response thereto, the assessee filed return of income for assessment year 2012-13 declaring total income of � 88,390/-. Thereafter notice under section 143(2) and 142(1) of the Act were issued and assessment under section 153A r.w.s. 143(3) of the Act was completed on 23.01.2015 at the total income of � 5,63,390/-. Penalty proceedings under section 271AAB of the Act were initiated on addition of Rs. 4,75,000/- on account of Page No. 3 Shilpaben R. Luhana vs. DCIT unexplained cash credits. During the course of penalty proceedings u/s. 271AAB of the Act, the AO noted that the quantum appeal filed by the assessee against the additions in the assessment order was withdrawn by the assessee. None appeared on behalf of the assessee during the course of penalty proceedings. The AO during the course of penalty proceedings observed that the assessee had deposited various amounts in her bank accounts for which she had no plausible explanation. The assessee had failed to explain the reasons and nature of cash credits and could not establish the identity/ creditworthiness of the source of unsecured loans taken in cash. The AO further observed that this addition during the course of assessment proceedings could only be possible due to the strenuous exercise carried out by the Department in the cases of Dhanjimama Group and therefore the real income of the assessee was unearthed only due to search proceedings. Had research not taken place on Dhanjimama Group, the addition of Rs. 4,75,000/- made in the case of the assessee would have remained unnoticed. Hence, the AO imposed penalty under section 271AAB(1)(c) of the Act to the tune of � 1,42,500 @ 30% of Rs. 4,75,000/- on the assessee. In appeal before Ld. CIT(Appeals), he confirmed penalty imposed by the assessing officer by holding that the search having taken place, the said money having not been disclosed before the date of search falls in the ambit of “undisclosed income” and thus the assessee is liable for penalty under section 271AAB of the Act.
Before us, the counsel for the assessee submitted that the instant case does not fall in the ambit of section 271AAB of the Act, since for invoking the said section, the undisclosed income should have been unearthed/seized Page No. 4 Shilpaben R. Luhana vs. DCIT during this course of search proceedings and also the AO should have asked about the same during statement recorded under section 132(4) of the Act. However, in the search conducted on the Dhanjimama group, in the statement recorded on 01.09.2012 u/s 132(4) additional income was declared pertaining to various persons, but notably the assessee’s name did not figure in the list of such persons in respect of whom additional income was disclosed. Therefore, the unexplained income of � 4,75,000/- (by way of cash credit) was identified only during the course of assessment proceedings of the assessee, and not during the course of search proceedings which is a prerequisite for imposing penalty under section 271AAB of the Act. The assessee placed reliance on several decisions in support of his contention. In response, the Ld. DR relied upon the observations of Ld. CIT(Appeals) in the appeal order.
We have heard the rival contentions and perused the material on record. In the facts placed before us, it is clear that the unexplained cash credit of � 4,75,000/- were discovered during the course of assessment proceedings. The issue for consideration before us is that whether if the assessment proceedings are conducted in consequence to search carried out at the group’s premises, and subsequently during the course of assessment, unexplained cash credits are unearthed, whether the penalty can be imposed under section 271AAB of the Act and whether the income qualifies as “undisclosed income” under section 271AAB of the Act. Admittedly, in this � case the unexplained cash credits of 4,75,000/- were not discovered/unearthed during the course of search on Dhanjimama group, but were unearthed during the course of assessment proceedings on the assessee, Page No. 5 Shilpaben R. Luhana vs. DCIT albeit the assessment proceedings on the assessee were conducted as a consequence to search proceedings. In order to understand the issue, it would be useful to reproduce sections to 271AAB (relevant extracts) for reference: [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 89[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President90], 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— Page No. 6 Shilpaben R. Luhana vs. DCIT
(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).
Explanation. —For the purposes of this section,— (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 94[Principal Chief Commissioner or] Chief Commissioner or 94[Principal Commissioner or] Commissioner before the date of search; or Page No. 7 Shilpaben R. Luhana vs. DCIT
(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.] 5.1 It is the assessee’s submission, which has also not been controverted by the Department, that no incriminating documents were found against the assessee during the course of search carried out on Dhanjimama group. The unexplained cash credits were discovered only during the course of assessment carried out on the assessee. This unexplained cash credits had no nexus with any documents found or incriminating statement made during the course of search and such discovery of cash credits discovered during the course of assessment proceedings on the assessee, was independent of any statement or incriminating material found during the course of search carried out on Dhanjimama group. It would be useful at this stage to refer to some judicial precedents which have dealt with the issue in hand.
5.2 In the case of Shiv Bhagwan Gupta v. ACIT [2021] 125 taxmann.com 306 (Patna - Trib.)it was held that for levy of penalty under section 271AAB, case must fall within four corners of definition of expression 'undisclosed income' as defined under section 271AAB itself. The ITAT observed as under:
Page No. 8 Shilpaben R. Luhana vs. DCIT
A perusal of the assessment order reveals that the Assessing Officer had not mentioned about unearthing of any undisclosed income as defined under section 271AAB during search action carried out at the premises of the assessee. The income declared by the assessee in the return of income or found or assessed by the Assessing Officer in the assessment proceedings may be relevant for assessment of the income under section 68/69 and other related provisions and also for the levy of penalty under section 271(1)(c) in view of the relevant provisions of section 68/69 and section 271(1)(c). However, for the levy of penalty under section 271AAB, the case must fall within the four corners of the definition of expression 'undisclosed income' as defined under section 271AAB itself. The assessee in this case is an individual and has earned income from partnership firm and interest income. The assessee has neither earned any business income nor earned any income exceeding Rs. 50 lakhs so as to require mandatory filing of personal assets and liabilities or to maintain books of account; even the assessee is not required to otherwise disclose any such income to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; the alleged income is not any income 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. The assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of Page No. 9 Shilpaben R. Luhana vs. DCIT the Assessing Officer imposing the penalty on the assessee under section 271AAB does not pass the mandate of the provisions of section 271AAB, therefore, the same being bad in law is hereby quashed.
5.3 In the case of Chandra Suresh Kothari v DCIT [2022] 135 taxmann.com 275 (Nagpur - Trib.), it was held that where assessee had neither made any surrender of any undisclosed income during search nor penalty had been initiated on basis of undisclosed income found during such search, impugned order of Assessing Officer imposing penalty on assessee under section 271AAB did not pass mandate of provisions of section 271AAB, therefore, same being bad in law was to be quashed and penalty levied under section 271AAB was to be deleted
On a perusal of the provisions of section 271AAB, it is evident that the section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the penal provision can be attracted are self-explanatory. It can be noticed that the Co-ordinate Benches of the Tribunal have categorically held that the expression 'undisclosed income' is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and Page No. 10 Shilpaben R. Luhana vs. DCIT
restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of "undisclosed income" as defined u/s. 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged 'undisclosed income' maybe relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self- contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each every case of levy of penalty pursuant to search action. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed and we direct to delete the penalty levied u/s. 271AAB of Rs. 10,87,500/-.
5.4 Thus, on a reading of the relevant statutory provisions and the interpretation of section 271AAB, it is seen that section 271AAB of the Act Page No. 11 Shilpaben R. Luhana vs. DCIT is a separate code in itself and it operates independent of the assessment proceedings. For initiation of the penalty proceedings therefore, the provisions of section 271AAB are self-contained and are not dependent upon commencement or finalization of the assessment proceedings. That having said, in case penalty has not been initiated on basis of undisclosed income found during search proceedings, impugned order of Assessing Officer imposing penalty on assessee under section 271AAB, in our view, does not pass the mandate of provisions of section 271AAB of the Act. A perusal of the assessment order reveals that the Assessing Officer has not mentioned anything about unearthing of any undisclosed income in respect of the assessee, during search action carried out in the Dhanjimama group of cases on 03.07.2012. The income unearthed/discovered by the Assessing Officer during the course of assessment proceedings was independent and unconnected with the information found during the course of search action carried out in the Dhanjimama group of cases. Therefore, while the same may be relevant for assessment of the income under section 68 and also for the levy of penalty under section 271(1)(c) of the Act, however, so far as penalty under section 271AAB of the Act is concerned, the foundation thereof is independent of assessment proceedings. Therefore, in the instant set of the facts, since no incriminating material was found during research carried out on Dhanjimama group of cases on 03.07.2012, which could have formed the basis of addition of � 4,75,000/-, in our considered view, penalty could not have been imposed under section 271AAB of the Act only on the basis of addition on account of cash credits u/s 68 of the Act found during the course of assessment proceedings. Therefore, in our view, Ld. CIT(Appeals) has erred in fact and law in confirming action of the assessing Page No. 12 Shilpaben R. Luhana vs. DCIT officer imposing penalty under section 271AAB of the Act, in the instant set of facts.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30-05-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 30/05/2022 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, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद