MANGI LAL KANDOI ,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE – 2, JAIPUR, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oaJh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 322/JP/2022 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke Shri Mangi Lal Kandoi Assistant Commissioner of Vs. D-91, Amba Bari, Income Tax, Jaipur Central Circle-02, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACMPK 6560 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri S. L. Poddar, Adv. jktLo dh vksj ls@Revenue by: Smt. Runi Pal, Addl. CIT lquokbZ dh rkjh[k@Date of Hearing : 20/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 13/10/2022 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeals)-4, Jaipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2013-14 dated 29.07.2022 which in turn arises from the order passed by the ACIT, Central Circle-03, Jaipur passed under Section 271AAB(1)(c) of the Income tax Act, 1961 (in short 'the Act') dated 19.03.2020.

2 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

appeal;

“1. In the facts and circumstances of the case the learned CIT(A) has erred in confirming the action of the learned AO in imposing the penalty u/s 271AAB((1)(c) of the Income Tax Act, 1961.

conducted on 18.07.2012 in the case of Kandoi Group, Jaipur to which the

3 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur assessee belongs. Various assets/books of account and documents were

found and seized as per annexure prepared during the course of search.

Thereafter, jurisdiction over the case was assigned to Deputy

Commissioner of Income Tax, Central Circle-3, Jaipur vide notification u/s

127 of the Income-tax Act, 1961 by the CIT, Jaipur-ll, Jaipur issued vide

order No: CIT-II/JPR/127/Kandoi Group/12-13/1992 dated 24.12.2012.

12.12.2013 for filing of return of income. In compliance to the notice u/s

142(1) of the IT Act, 1961, return of income was e-filed on 30.12.2013 for

the A.Y. 2013-14 declaring total income of Rs. 10,55,520/-.

which was served upon the assessee on 26.09.2014. Thereafter, notices

u/s 142(1) and 143(2) of the IT Act, 1961 along with questionnaire were

issued on 11.11.2014. Meanwhile, the assessee filed an application before

the Hon'ble Income Tax Settlement Commission, New Delhi [ here in after

referred as ITSC ] on 04.03.2015. Various reports including Rule-9 report,

reply to Counter Comments under rule 9A and Verification Report were also

filed before the Hon'ble ITSC from time to time during the pendency of

4 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur settlement proceedings, The Hon'ble ITSC, New Delhi passed order u/s

245D(4) of the IT Act rejecting the assessee's application vide S.A. No.

RJ/JP-51/2014-15/40-IT on 19.09.2016 stating that “Considering the facts

of the case the issues emanating therefrom as discussed in the foregoing

pages, and judicial opinion as narrated in the earlier para, we are of the

considered opinion that the appellants have failed to make neither a fair and

true disclosure, nor given any sound basis for explaining the manner of

earning such undisclosed income and working out such income. Hence, the

mandatary conditions of section 245C remain unfulfilled. As such, the

Commissioner if unable to provide for the terms of settlement as required

u/s. 245D(6). Accordingly, the application in both cases, are hereby

rejected.” As a result, the proceedings were abated to the assessing officer.

153B(b)(1) r.w.s. 245A of the Act at Rs. 11,03,13,509/- as against the

returned income of the assessee at Rs. 10,55,520/-. The assessee carried

this quantum proceeding in the appeal and the on the disposal of appeal ld.

AO proceeded to levy the penalty u/s. 271AAB of the Act vide order dated

19.03.2020. While passing the order of levying the penalty he has

concluded as under :-

5 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur “10. In the instant case, the assessee did not disclose voluntarily the income detected from the incriminating documents during the search in its return of income filed for the year under consideration. The assessee has furnished the return of income for the specified previous year declaring undisclosed income after search action. Since, the assessee has not voluntarily disclosed and due taxes were not paid on the same within the due date therefore, the case is not covered by sec. 271AAB(1)(a) wherein tax has to be paid on the undisclosed income in the return filed within the due date and u/s 271AAB(1)(b) as undisclosed income was admitted in the statement recorded u/s 132(4) during the search and hence this case falls under clause (c) of sec. 271AAB(1), therefore is liable for levying penalty u/s 271AAB(1)(c).”

271AAB of the Act for the sustained addition/ undisclosed income within the

meaning of section 271AAB of the Act for an amount of Rs. 3,80,10,054/- [

as against the addition of Rs. 10,92,57,989/-] calculated @ 30 % for an

amount of Rs. 1,14,03,016/-. Assessee carried the matter of levy of penalty

before the ld. CIT(A) who has after considering the facts of the assessee

vide his order dated 29.07.2022 reduced the figure on which the ld. AO has

levied the penalty from Rs. 3,80,10,054/- to Rs. 2,73,91,444/- being the

addition on which he considered to levy the penalty. The relevant findings of

the ld. CIT(A) in this regard as reiterated here in below :

“5.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the penalty order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:- (i) I have perused the order of the AO imposing penalty and detailed submissions made by the Ld. AR including the judgements cited in this regard. The Yes remains that during the course of search, various incriminating documents were found and seized from the premises of the appellant based on

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which undisclosed income earned by the appellant was detected and the same was also admitted by him in his statement recorded u/s 132(4) dt 19.07.2017. It is observed that subsequently, the appellant once again confirmed the undisclosed income detected during the search proceedings in an affidavit filed before the Department on 30.07.2012. However, the appellant retracted from the disclosure made during the course of search proceedings in the settlement application filed before the Hon'ble ITSC and offered a total income of Rs. 2,63,30,220/- only (both by Sh. Mangi Lal Kandoi and Sh. R.K. Kandoi) as against the total undisclosed income at Rs. 15.89 Crore discovered during the course of search proceedings However the application of the appellant was rejected by Hon'ble ITSC on the grounds of not being true and fair'

(ii) The fact remains that during the course of search proceedings, the appellant disclosed Rs. 8.60 Crores on account of loan and advances given as recorded in Annexure AS Exhibit-4, 5 & 6 and as per the working submitted by the appellant which was confirmed by the appellant in his statement recorded during the course of search. On the basis of the Annexure A prepared by the appellant himself during the course of search, the undisclosed income for different AYrs has been computed, which comes out at Rs. 2,55,00,000/- for the AY 2013-14 in the case of the appellant. Further during the assessment proceedings, the appellant disclosed an amount of Rs 25,00,000/- on account of entries made in Annexure AS. Exhibit-3, page no. 14 and the same was confirmed by the appellant in his statement recorded u/s 132(4) of the Act. The AO observed that the aforesaid amount was undisclosed advance of the appellant which was based on incriminating documents gathered during the search and the fact remains that the appellant failed to point out the duplication of the amount of Rs. 25 Lakhs determined from the aforesaid seized documents. Further such duplication, as contended by the appellant, was neither pointed out by the appellant during the search proceedings in his statement recorded u/a 132(4) nor in the affidavit filed subsequently on 30.07.2012 nor the appellant mentioned about such duplication during the entire settlement proceedings. Accordingly, the amount of R 25,00,000/- was treated an undisclosed advance and interest of Rs 2,53,1257 thereon and also brokerage en interest was worked out by the AO at Rs. 4,250/ and added back accordingly. The Ld. CIT(A) has confirmed the addition on account of the undisclosed advances at Rs. 2,55,00,000/- and Rs. 25,00,000/-respectively and restricted the addition on account of interest on these advances to Rs 53,410/- from Rs. 2,57,375/- since the aforesaid addition was made on the basis of incriminating material alongwith statements recorded during the course of search as well as the affidavits filed by the appellant in this regard.

(iii) Further during the course of search, the appellant has also disclosed Rs 12.41 Lakh on account of entries made in Annexure A-1. Page 1 & 2 found from his residence, being undisclosed loans and advances and the same was confirmed by him in his statement recorded u/s 132(4) of the Act. The AO

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observed that the appellant has failed to point out the duplication of the amount of Rs. 12.41 Lakhs determined from the seized documents at Annexure A-1, Page 1 & 2 with the pocket diaries at AS Exhibit-4, 5 & 6, as contended by the appellant Further, at was observed that such duplication was neither pointed out during the search proceedings and in the statement recorded u/s 132(4) and also in the Affidavit dt. 30.07.2012. The AO further observed that both Annexure A-1 & Annexure AS were separate and unrelated documents which have been separately seized and therefore there was no correlation between the two and the appellant himself failed to point out the alleged correlation. Further during the assessment proceedings, the appellant filed an affidavit dt. 13.09.2017 wherein he requested that the entire undisclosed income detected during the search may be considered in his hands only. Similarly an affidavit was also filed by Sh. R.K. Kandoi on 13.09.2017 stating that any addition pertaining to Rs. 12.41 Lakhs may only be made in the hands of the appellant, Sh. Mangi Lal Kandai. Thus, the AO observed that the appellant has himself admitted that the amount noted in the seized documents are related to advances given by him out of his undisclosed income In view of the above facts the AO held that the appellant on his own has accepted the facts related to his undisclosed income without any force, pressure ut coercion. Accordingly, en amount of Rs. 1,91.200/- pertaining to the current AY 2013-14 was added by the AO to the total income of the appellant. These additions were confirmed by the L CITIA) on the basis of incriminating material alongwith statements recorded during the search. It was further held that the appellant has filed affidavit twice to accept. the fact that these documents contains the details of undisclosed transactions. which completely defies the fact that these are dumb documents

(iv) Further, during the search proceedings, jewellery weighing 7936.779 m gold, 373.62 ct. diamonds and 39.75 Kg silver worth Its, 2.41.672367- was found from the residential premises of the appellant out of which jewellery worth of Rs. 1,03,41,778/- was seized. The AO has observed that the during the course of search, the appellant has himself admitted in his statement that he was unable to explain the source of jewellery found and seized: Out of the aforesaid jewellery, jewellery amounting to Rs. 32,03,735/- was disclosed in the ITR's for the AY 2013 14 and therefore the unaccounted jewellery was worked out at Rs. 2.09,63,501/ and added by the AD to the total income of the appellant. In the appellate proceedings, the above addition was though confirmed by the Ld. CITIA), but wat restricted at Rs. 97,65.444/- from Rs. 2,09,63.501/

(v) Further, the AO observed that the appellant filed an affidavit dt. 14.03.2015 wherein he requested that the entire undisclosed income detected during the search may be considered in his hands only. Subsequently during the assessment proceedings, an affidavit was also filed by the appellant and Sh. R.K. Kandoi on 13.09.2017 stating that any addition pertaining to Rs. 8.6 Crores may only be made in the hands of the appellant, Sh. Mangi Lal Kandoi. The AO observed that the appellant has himself admitted that the amount noted in the

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seized documents are related to advances given by him out of his undisclosed income. In view of the above facts, the AO held that the appellant on his own has accepted the facts related to his undisclosed income without any force, pressure or coercion.

(vi) The aforesaid additions were sustained since the appellant himself has admitted of having earned the income not only once but twice by filing an affidavit in this regard. Thereafter, it is observed that the AO accorded a fresh opportunity of being heard for imposition of penalty u/s 271AAB(1)(c) for above concealment of income and after considering the submissions of the appellant, the AO levied a penalty of Rs. 1.14.03.015/- u/s 271AAB(T)(c) of the Act.

(vii) Before me, the Ld. AR of the appellant contended that the aforesaid documents does not relate to him. It was further contended that the AO has made the additions in the hands of the appellant in view of the affidavit filed by him on 13.09.2017 wherein it has been stated that the additions, if any, in respect of this matter may be made in the hands of the appellant. It was contended that it is a settled position of law that what is otherwise not taxable cannot become taxable because of the admission of the assessee. It was further contended that there is no evidence of credible documents on the basis of which it can be said that the assessee has concealed the income.

(viii) I have considered the arguments of the Ld. AR It is observed that the appellant himself has made the admission during the course of search proceedings in his statement recorded u/s 132(4) as well as by filing an affidavit subsequently on 30.07.2012, 14.03.2015 and 13.09.2017 wherein he has accepted that the amounts noted in the seized documents are related to advances given by him out of his undisclosed income. The aforesaid amount of Rs. 2,55,00,000/- Rs. 25,00,000/- and Rs. 1.91.200/- are the undisclosed advances made by the appellant for A.Y 2013-14 as evident from seized material, which was not only added by the AO in the assessment order but was also confirmed by Ld. CITIAL. It is observed that on further appeal, the Hon'ble ITAT vide their order in ITA No. 1168/JP/2018 dated 07.09.2020 has also confirmed the aforesaid additions in the current year but given the set off of the addition of Rs.78,74,000/- in AY 2013-14 by holding that this amount was available with the appellant for making advance in subsequent years. The Hon ble ITAT has observed that the income surrendered on the basis of above documents ile. Rs. 49.24,000/- and Rs. 4,50,000/- in the AY 2012-13 and Rs. 25.00.000/- in AY 2013-14 works out at Rs. 78,74.000/- which deserves to be set off out of addition of Rs. 2.55 Crores made in the AY 2013-14 on account of surrender for advances: These findings are given in para 68 on page no. 77 & 78 of the order of the Hon'ble ITAT wherein the Hon'ble ITAT has allowed the set off of an amount of Rs. 78,74,000/- an account of alleged undisclosed advances in assessment year 2013-14 and have restricted the addition on account of advances in the A.Y. 2013-14 to Rs.1,76.26,000/- (Rs. 2,55,00,000/- minus Rs.

9 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

78,74,000/-). As regards, the addition made by the AO on account unexplained investon jewellery, it is observed that though the above addition was confirmed, but was restricted at Rs. 97.65,444/- from Rs. 2,09,63 5017- by the ld CIT(A). The aforesaid addition sustained by the Ld CIT(A) has also been confirmed by the Hon'ble ITAT. Thus the case of the appellant is squarely covered under the provisions of sec 27 1AAB(1)(c) of the Act

(ix) It is in this background when the appellant himself admitted the undisclosed. income, that this amount was added by the AO in the quantum proceedings as undisclosed advances and the undisclosed investment in jewellery which was confirmed by the Ld. CIT(A) and subsequently by the Hon'ble ITAT. Jaipur Bench, Jaipur, that the penalty u/s 271AAB(1)ici of the act was levied.

(x) In this respect, it is also worthwhile to mention here that the above discrepancy in respect of which addition has been made was detected only during the course of search proceedings, which otherwise would have escaped assessment and this amounts to concealment of income. From all the above facts observed in the case of the appellant, it is quite apparent that the appellant had concealed the particulars of income for which he also had no valid explanation to offer.

(xi) Further, as regards to the contention of the appellant that the addition finally sustained by the Hon'ble ITAT is based on acceptance by the assessee to purchase peace of mind and avoid prolonged litigations, it is mentioned that the Hon'ble Supreme Court in its decision dated 30.10.2013 in Civil appeal No. 9772 of 2013 in the case of MAK Data P. Ltd. V. CIT-11 (2013) 38 taxmann.com 448 (SC) have held as under:

1) Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden then shift on the assessee to show otherwise, by cogent and reliable evidence; 2) When the initial onus placed by the Explanation, has been discharged by assessee, the onus shifts on the revenue to show that the amount in question constituted the come and not otherwise;

3) The Assessing Officer shall not be carried away by the plea of the assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement', etc., to explain its conduct;

4) Assessee had only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with

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the income-tax department. Statute does not recognize those types of defences under the Explanation 1 to section 271(1)(c); 5) is trite fair that the voluntary disclosure does not free the assessee from the mischief of penal proceedings under section 271(1). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty;

6) The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in set of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee;

7) The Assessing Officer had to satisfy whether the penalty proceedings were initiated or not dunng the course of the assessment proceedings and the Assessing Officer was not required to record has satisfaction in a particular manner or reduce it into writing. Thus, there was no illegality in action of department in initiating penalty proceedings Accordingly the contentions of voluntary surrender to buy peace and avoid litigation etc cannot be considered as defence for non-levy of penalty under section 271AAB 1c) of the Act.

(xii) Therefore, in view of the above facts, it is absolutely clear that the appellant has not substantiated his claim with cogent evidences and that the appellant has failed to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him in the return of income so filed. Rather the addition has been made by the AO on the basis of evidences gathered during the course of search and are based on the seized material which has not only been confirmed by the Ld. CIT(A) but also by the Hon'ble ITAT.

(xiii) The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection made by the Investigation Team during the course of search proceedings. In the present facts and circumstances of the case, the appellant has not been able to substantiate the explanation that was offered by him. Further the appellant during the course of search proceedings and subsequently vide his affidavit has himself agreed to consider the undisclosed advances in his hands. Under such facts and circumstances of the case, penalty u/s 271AAB(1)(c) is clearly attracted. Accordingly, the contentions of voluntary surrender to buy peace and avoid litigation etc cannot be considered as defense for non levy of penalty under section 271AAB(1)(c) of the Act.

(xiv) In the case of Rakesh Suri 41 DTR ARR 175 it has been held that COPY surrender made after the concealed income was detected by the Department

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cannot be held to be voluntary or bonafide but under compulsion, and in that case, the Assessee cannot be absolved from levying penalty because he agreed to the addition at the time of assessment By offering the income in assessment proceedings, it is clear that the assessee himself admits that the same was taxable income

(xv) At this juncture, it would be better to refer to the definition of undisclosed income given in the section u/s 271AAB. Same reads as under; 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 any entry in the books of account or other documents or transactions found in the course of a seorch under section 132, which h

(A) not been recorded on or before the care of search in the books of account or other documents maintained in the normal course relating to surs previous veer of (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or] Commationer before the date of search, on

(ii) any income of the specified previous year represented, either wholly or partly, by ony entry in respect of on expense recorded in the books of account or offer documents maintained in the normal course relating to the specified previous year which is found to be faise and would not have been found to be so had the search not been conducted]

(Emphasis supplied)

Perusal of definition shows that undisclosed income which includes jewellery 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 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 would attract penalty under varying rate as provided in the section.

(xvi) The Hon'ble ITAT Bench, Jaipur in the case of Grass Field Farms & Resorts (P.) Ltd. v. DCIT [(2016) 70 taxmann.com 176 (Jaipur - Trib.)(TM)] held that where pursuant to survey proceedings, assessee company filed revised return declaring additional income in form of unexplained investment in purchase of agricultural land, penalty order passed under Section 271(1)(c) in respect of said addition was to be confirmed which was also confirmed by the jurisdictional Hon'ble Rajasthan High Court in Appeal No. Grass Field Farms & Resorts (P.)

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Ltd. v. DCIT (2017) 79 taxmann.com 426 [Raj. HC]]. It was held that levy of penalty u/s 271[1](e) was justified where it was only when faced with statements as also unrecorded/recorded documents found at business premises of assessce during survey, that assessee came with a surrender and even in penalty proceedings it did not establish its bonafides.

(xvii) The Hon'ble Rajasthan High Court in CIT v. Dr. R.C. Gupta and Co. [1980] 122 ITR 567 (Raj] held that once the assessee admits that certain amount represents his income. no further evidence would be necessary to show that it was the amount which represented his income or that it represented his concealed income. Further, it has been held by the Hon'ble Bombay High Court in the case of Western Automobiles (India) v. CIT (1978) 112 ITR 1048 (Bom) that where the assessee has agreed to the inclusion of certain amounts which were discovered from accounts, levy of penalty was held justified.

(xviii) it is observed that the disclosure in the instant case of the appellant has been made during the course of search on the basis of incriminating documents found and seized, as mentioned supra. Further the fact also remains that these entries/transactions reveal the undisclosed advances made by the appellant from his undisclosed income and since the appellant could not explain the source of same, the AO made the aforesaid additions as his undisclosed income. The fact remains that the appellant has categorically admitted in his statements recorded u/s 13214) of the Act that the aforesaid amount of undisclosed advances are from his undisclosed income.

(xix) Infact, the case of the appellant clearly falls within the purview of undisclosed income as per the provisions of section 271AAB which is mentioned in the assessment order while recording satisfaction as well as in the penalty order as the appellant disclosed the said amount in his statements recorded under 132(4) and also vide the subsequent affidavits filed in this regard after the search proceedings. The unaccounted investment in jewellery as well as these entries/transactions have 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 and therefore these would attract penalty as per the provisions of section 271AAB of the Act. It is also observed that the AO had issued show eatine notice before levy of penalty and therefore it cannot be considered that no opportunity was provided by the AO. Further, the Hon'ble Supreme Court in the case of Sandeep Chandak (Supra) has held that "the proutsors of section 271AA are fully applicatite as of the conditions so stignlated or attracts search has been initiated under section 132 and during the course of search the statement of the assessee has been ended under section 132(4), in which the assessees admit undiclosed income and specifies the manner in which such income has been derived”.

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(xx) The penalty provision u/s 271AAB was introduced for search and seizure conducted on or after 01-07-2012 to strengthen the penal provisions. It was proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It was also proposed to insert a new provision in the Act section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that

(i) if undisclosed income is admitted during the course of search, the taxpayer will beliable for penalty of the rate of 10% of undisclosed income subject to the fulfillment ofcertain conditions (ii) if undisclosed income is not admitted during the course of search but disclosed in the return of income filed ofter the search, the taxpayer will be liable for penalty at therote of 20% of undisclosed income subject to the fulfillment of certain conditions. (iii) In a case not covered under (i) and (i) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income. (xxi) In view of the above discussion and the decision of Hon'ble Supreme Court in the case of Sandeep Chandak (supra), it is clear from the provisions of the section 271AAB are fully applicable on the conditions so stipulated as a search has been initiated under section 132 and during the course of search, the statement of the appellant has been recorded under section 132(4), in which the appellant has admitted the undisclosed income which has been reiterated vide the subsequent affidavits filed in this regard. In view of the facts and circumstances of the case and discussion here in above, the contentions and submissions of the appellant are not found to be acceptable and therefore they are rejected. However, after the order of the Hon'ble ITAT, it is observed that the total addition of Rs. 2,73,91,444/- has been sustained as against Rs 3,80,10,054/- sustained by the Ld. CIT(A). The Ld AO has imposed the penalty of Rs. 1,14,03,016/- u/s 271AAB(1)(c) of the Act on the addition sustained by the Ld. CIT(A) or in other concealed income of Rs 3.80.10.054/-. But, after considering the order of Hon’ble ITAT, whereby the total income has been reduced at Rs. 2,73,91,444/-, the penalty is also required to be sustained at the final assessed income of Rs. 2,73,91,444/ which implies that the appellant failed to explain the source of undisclosed income at Rs. 2,73,91,444/-. The penalty imposed by the AO u/s 271AAB(1)(c) is though confirmed but the AO is directed to work out the penalty u/s 271AAB(1)(c) of the Act on the total undisclosed income at Rs. 2,73,91,444/-. Accordingly, the amended Ground of Appeal No. 3 is treated as partly allowed.

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CIT(A), has filed an appeal before this tribunal. In this appellant proceeding

the ld. AR of the assessee submitted following written submission to

support the various grounds raised before us. The written submission filed

by the assessee is reiterated here in below : “BRIEF FACTS OF THE CASE The assessee is an individual and derived income from salary and other sources during the year under consideration. A search was conducted on 18.07.2012 in the case of the assessee group. Return was e-filed on 30.12.2013 declaring total income at Rs. 10,55,520/-. The Learned Assessing Officer has completed the assessment u/s 143(3) r.w.s. 153B(b)(1) & r.w.s. 245HA of Income Tax Act, 1961 on 15.09.2017 determining total income at Rs. 11,03,13,509/- inter-alia making the following additions: - (i) Addition of Rs. 15,00,000/- on account of income surrendered by the assessee before ITSC on account of scrap business. (ii) Addition of Rs. 2,55,00,000/- on account of undisclosed advances and interest of Rs. 1,18,12,662/- totaling to Rs. 3,73,12,662/- as per annexure 'A' got prepared by the assessee at the time of search itself on the basis of annexure AS-1 to AS-4. (iii) Addition of Rs. 25,00,000/- on account of undisclosed advances and interest of Rs. 2,53,125/- thereon as per annexure 'A-3' page no. 14 and Rs. 4250/- on account of brokerage earned @ 10% made by the assessee on presumption basis. (iv) Addition of Rs. 6,87,175/-on account of interest earned on undisclosed advances of Rs. 49,24,00,000/- addition made in earlier years on presumption basis with reference to annexure A-1 page 5. (v) Addition of Rs. 3,97,457/- (Rs. 1,91,200/- on account of undisclosed advances and Rs. on account of interest of Rs. 2,06,257/- on presumption basis on such advances with reference to annexure A-1 page 2.) (vi) Addition of Rs. 4,00,00,000/- with reference to annexure AS-3 and AS-7.

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(vii) Addition of Rs. 2,09,63,501/-on account of unexplained jewellery. (viii) Addition of Rs. 56,39,819/-on account of unexplained cash.

Aggrieved with the order of the learned Assessing Officer the assessee preferred appeal before the Learned CIT(A) who has unfortunately confirmed the following addition without considering the submission of the assessee – (i) Addition of Rs. 2,55,00,000/- on account of alleged undisclosed advances made by the assessee on the basis seized documents. – 7874000/- old years (ii) Addition of Rs. 25,00,000/- on account of alleged undisclosed advances made by the assessee on the basis seized documents. (iii) Addition of Rs. 49,160/- on account of interest income earned on advance of Rs. 25,00,000/- on presumption basis. (iv) Addition of Rs. 1,91,200/- as undisclosed advance. (v) Addition of Rs. 97,65,444/- out of total addition of Rs. 2,09,63,520/- for jewellery found during the course of search by treating the same as unexplained. On further appeal the Hon'ble ITAT vide their order in ITA No. 1306/JP/2018 dated 07.09.2020 has confirmed the following additions – (i) Addition of Rs. 2,55,00,000/- on account of alleged undisclosed advances made by the assessee on the basis seized documents but allowed set off of Rs. 78,74,000/- for additions made in earlier years. So the addition remain sustained only for Rs. 1,76,26,000/-. (ii) Addition of Rs. 97,65,444/- out of total addition of Rs. 2,09,63,520/- for jewellery found during the course of search by treating the same as unexplained. So, the total addition sustained after the order of the ITAT is Rs. 2,73,91,444/- on which penalty should be levied @ 30% Rs. 82,17,433/-. Hence the penalty should automatically reduced upto the extent of addition sustained and the penalty should be Rs. 82,17,433/- as per AO’s finding. The Ld AO has imposed the penalty of Rs. 1,14,03,0316/- u/s 271AAB(1)(c) of the Income Tax Act, 1961 on the addition sustained by the Learned CIT(A).

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Aggrieved with the order of the Learned Assessing Officer the assessee preferred appeal before the learned CIT(A) has sustained the penalty u/271AAB(1)(c) of the Income Tax Act, 1961 on sustained addition of Rs. 2,73,91,444/- which comes to Rs. 83,75,376/- as against Rs. 1,14,03,016/-.

Aggrieved with the order of the Learned Assessing Officer the assessee has preferred appeal before your honour. With this background the individual grounds taken are as under: -

Ground No. 1 to 5:-

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“Penalty proceedings u/s 271AAB of the Income Tax Act, 1961 have been initiated for undisclosed income by issue u/s 274 r.w.s. 271AAB of the Income Tax Act, 1961." After plain reading of above para apparently the initiation of penalty proceedings is baffling because the limb was not specified as well as the undisclosed income was not defined and described.

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The perusal of the aforesaid notice reveals that the same has been issued u/s 274 read with section 271AAB of the Income Tax Act, 1961. When the imitation of penalty proceedings is for 271AAB has three limbs (a), (b) & (c), the Learned Assessing Officer was precluded in imposing penalty u/s 271AAB. The settled position of law is that Learned Assessing Officer has to afford opportunity to the assessee for the correct limb of the section under which the Learned Assessing Officer intends to levy penalty. Meaning thereby if penalty was to be imposed u/s 271AAB then Learned Assessing Officer should have issued show cause notice for 271AAB without mentioning the limb of the section 271AAB. Issuing notice without mentioning the specific charge and imposing penalty for uncertain charge in unlawful and illegal. The same is settled as per the decision Manjunatha Cotton & Ginning Factory 259 ITR 565. Further it is submitted that so far as mentioning of section 271AAB is concerned in the assessment order the same is also faulty. Section 271AAB has three different limbs for levy of penalty at three different rates (i) 10% u/s 271AAB(1)(a), (ii) 20% u/s 271AAB(1)(b) and (iii) 30% u/s 271AAB(1)(c). It is the submission of the assessee that a duty was cast upon the Learned Assessing Officer to initiate penalty proceedings specifically and seek reply of the assessee accordingly. But nothing was done of this sort. The show cause notice issued along with the assessment order is also silent regarding the applicability of the specific section for levy of penalty. In the absence of this the assessee was precluded in submitting a cogent reply. The Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory 259 ITR 565 has held penalty not leviable in similar circumstances. In view of this it is submitted that this being a legal lacuna, penalty levied may kindly be deleted. In the aforesaid discussion it clearly brings out that the Learned Assessing Officer was very careless in initiating penalty proceedings, in issuing show cause notice before levy of penalty He has taken the penalty proceeding in a very light and trivial manner. Although penalty imposed is of a substantial amount of Rs. 1,14,03,016/-. Even levying of penalty such a huge amount the Learned Assessing Officer has disclosed total non-seriousness. The case is fully covered by the ratio of Karnataka High Court decision in the case of Manjunatha Cotton & Ginning Factory 259 ITR 565. It is submitted that this decision has been followed by the Hon'ble ITAT in the case of Mradula Agarwal vs. Income Tax Officer in ITA No. 176/JP/2016 dated 16.09.2016. Besides ITAT Bangalore Bench in the case of H. Laxmi Narayan (2015) 41 ITR 465 and Mumbai ITAT Bench in the case of Sandhya Gadkari Sharma vs. DCIT (2016) 142 DTR 129 have also followed the decision. All these decision imposed a duty upon the Learned Assessing Officer for following the due procedure in the course of levy of penalty by issuing correct

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and relevant show cause notices. These decisions have laid importance to the fact that levy of penalty should not be taken lightly. The following case law is quoted in support: -

SANDEEP CHANDAK vs. ASSISTANT COMMISSIONER OF INCOME TAX (ITAT, LUCKNOW 'B' BENCH) (2017) 55 ITR_Trib (Trib) 209 (Lucknow) Penalty under s. 271AAB—Validity—Absence of proper show-cause notice— Show cause notice was issued to the assessee under s. 271(1)(c) and not under s. 271AAB—Issuing the notice under s. 271(1)(c) will not automatically deem that the AO has initiated the proceedings for imposition of penalty under s. 271AAB— Since the said notice did not relate to the provision of s. 271AAB, it cannot be held that the same was valid for initiation of proceedings under s. 271AAB—Also, no penalty proceedings either under s. 271(1)(c) or 271AAB has been initiated during the course of assessment proceedings—AO should record satisfaction before initiating the proceedings under s. 271AAB—Notice should be issued and it must be specific and unambiguous so that proper compliance can be made by the assessee—Any order passed by the assessing authority without giving notice is violative of the principles of natural justice—In this case the notice under s. 274 r/w s. 271(1)(c) was issued on 23rd Sept., 2015 requiring the assessee to appear before the AO on 28th Sept., 2015 which was received by the assessee on 24th Sept., 2015—Next two days were Saturday and Sunday—Thus, assessee was given only two working days to reply the notice—Such a short period cannot be regarded as proper opportunity of being heard—AO did not even grant the adjournment sought by the assessee and went on to levy the penalty—Moreover, opportunity of being heard has been given to the assessee only in respect of the proceedings initiated under s. 271(1)(c)—AO has not even specified in the notice the specific clause of s. 271AAB under which the penalty was sought to be levied—Word 'may' gives a discretion to the AO to levy the penalty, even if the assessee has made the default under the said provision—Impugned penalty was not sustainable. 2. Addition of Rs. 2,55,00,000/- The aforesaid addition of Rs. 2,55,00,000/- has been made by the Learned Assessing Officer with reference to annexure 'A' page 1 & 2 got prepared by the assessee during the course of search itself considering annexures AS-1 to AS-4 found and seized during the course of search. The relevant page 1 and 2 of annexure 'A' are scanned below: -

21 ITA No. 322/JP/2022 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

22 ITA No. 322/JP/2022 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

23 ITA No. 322/JP/2022 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

papers do not have the signature of the assessee. In view of this it was wrong on papers do not have the signature of the assessee. In view of this it was wrong on papers do not have the signature of the assessee. In view of this it was wrong on the part of the Learned Assessing Officer to have made addition with reference to the Learned Assessing Officer to have made addition with reference to the Learned Assessing Officer to have made addition with reference to these papers.

The aforesaid facts established that these pages are rough and dump. No The aforesaid facts established that these pages are rough and dump. No The aforesaid facts established that these pages are rough and dump. No addition is warranted on the basis of these papers. But the assessee agreed to addition is warranted on the basis of these papers. But the assessee agreed to addition is warranted on the basis of these papers. But the assessee agreed to pay tax to avoid prolonged litigation and purchase peace of mind. But under such rolonged litigation and purchase peace of mind. But under such rolonged litigation and purchase peace of mind. But under such circumstances penalty is not leviable because there are hundred other reasons circumstances penalty is not leviable because there are hundred other reasons circumstances penalty is not leviable because there are hundred other reasons for payment of taxes even the transaction was not related to the assessee. for payment of taxes even the transaction was not related to the assessee. for payment of taxes even the transaction was not related to the assessee. Therefore on such addition penalty canno Therefore on such addition penalty cannot be imposed where the transactions t be imposed where the transactions are not related to the assessee and there is no positive evidences that the entries are not related to the assessee and there is no positive evidences that the entries are not related to the assessee and there is no positive evidences that the entries recorded in seized diary are undisclosed income of the assessee. recorded in seized diary are undisclosed income of the assessee. recorded in seized diary are undisclosed income of the assessee. 4. Addition of Rs. 25,00,000/ Addition of Rs. 25,00,000/- , Addition of Rs. 49,160/-, And Additio , And Addition of Rs. 1,91,200/- During the course of search annexure AS During the course of search annexure AS-Exhibit-3 page no. 14 was found and 3 page no. 14 was found and seized from. On page 14 of this annexure there were certain details on the basis seized from. On page 14 of this annexure there were certain details on the basis seized from. On page 14 of this annexure there were certain details on the basis of this page addition has been made. The page is scanned below of this page addition has been made. The page is scanned below of this page addition has been made. The page is scanned below-

It was with respect to the above pages and detail thereon that the respect to the above pages and detail thereon that the assessee assessee assessee was was was examined examined examined in in in question question question no. no. no. 20 20 20 u/s u/s u/s 132(4) 132(4) 132(4) on on on 18.07.2012/20.07.2012. The reply of the assessee is scanned below: 18.07.2012/20.07.2012. The reply of the assessee is scanned below: 18.07.2012/20.07.2012. The reply of the assessee is scanned below: -

24 ITA No. 322/JP/2022 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

In his reply which was given by the assessee under pressure, the entry In his reply which was given by the assessee under pressure, the entry In his reply which was given by the assessee under pressure, the entry dated 12.07.2017 was admitted as advance of Rs. 25,00,000/ 12.07.2017 was admitted as advance of Rs. 25,00,000/- which was received bank on 13.07.2012. The assessee agreed to pay taxes on such advance of Rs. bank on 13.07.2012. The assessee agreed to pay taxes on such advance of Rs. bank on 13.07.2012. The assessee agreed to pay taxes on such advance of Rs. 25,00,000/- treating the same as income. treating the same as income. It is submitted that the addition made in totally unlawful It is submitted that the addition made in totally unlawful, illegal and unjustified. , illegal and unjustified. Firstly the page 14 scanned above is totally a dump paper. Secondly addition Firstly the page 14 scanned above is totally a dump paper. Secondly addition Firstly the page 14 scanned above is totally a dump paper. Secondly addition cannot be made simply on the basis of confessional statement of the assessee. cannot be made simply on the basis of confessional statement of the assessee. cannot be made simply on the basis of confessional statement of the assessee. Thirdly the entire addition is based not on any material or on any enquiry Thirdly the entire addition is based not on any material or on any enquiry Thirdly the entire addition is based not on any material or on any enquiry but solely on the confessional statement of the assessee. It is established position of solely on the confessional statement of the assessee. It is established position of solely on the confessional statement of the assessee. It is established position of law that no addition can be made simply and simply on the basis confessional law that no addition can be made simply and simply on the basis confessional law that no addition can be made simply and simply on the basis confessional statement. Such statements are directly in violation of board circulars. Such statement. Such statements are directly in violation of board circulars. Such statement. Such statements are directly in violation of board circulars. Such additions are not liable for levy of penalty u/s 271AAB. e not liable for levy of penalty u/s 271AAB. It is further submitted that from the perusal of the page scanned above reveals It is further submitted that from the perusal of the page scanned above reveals It is further submitted that from the perusal of the page scanned above reveals that it is a dump paper on account of the following deficiencies that it is a dump paper on account of the following deficiencies that it is a dump paper on account of the following deficiencies –

(i) In the statement u/s 132(4) the assessee during the course of In the statement u/s 132(4) the assessee during the course of In the statement u/s 132(4) the assessee during the course of search admitted the entry as his own income. The statement was recorded under duress admitted the entry as his own income. The statement was recorded under duress admitted the entry as his own income. The statement was recorded under duress and pressure, otherwise the entry is not linked with the affairs of the assesee. and pressure, otherwise the entry is not linked with the affairs of the assesee. and pressure, otherwise the entry is not linked with the affairs of the assesee. The Learned Assessing Officer has not made any post search enquiries so as to The Learned Assessing Officer has not made any post search enquiries so as to The Learned Assessing Officer has not made any post search enquiries so as to link the entry with the business of the assessee. No effort was made even to ry with the business of the assessee. No effort was made even to ry with the business of the assessee. No effort was made even to examine the person who had taken the loan from the assessee nor any action examine the person who had taken the loan from the assessee nor any action examine the person who had taken the loan from the assessee nor any action considered in his hands. considered in his hands.

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(ii) It has no narration so as to indicate that it pertains to the business/affairs of the assessee. Even the name of the loanee is not available.

(iii) Name of the assessee is not available as such it could not be considered in his hands.

(iv) Signature of the assesssee are not available on this page as such it does not pertain to the assessee.

In view of this it was wrong on the part of the Learned Assessing Officer to have made addition with reference to these papers. The aforesaid facts established that these pages are rough and dump. The penalty cannot be imposed on such additions which has no legs to stand on the basis of facts and were made only for the sake of additions. The main trust of argument of the assesee was that the paper i.e. page no. 1 and 2 of annexure A-1 on the basis of which addition was made did not pertain to the assessee. Hence there was no occasion for making addition in the hands of the assessee. The assessee had further pleaded that the addition was made by the Learned Assessing Officer in the hands of the assessee despite the fact that in statement u/s 132(4) it was brought on record that these papers pertain to Shri Anand Singhal and were admittedly in his handwriting and as such deserved to be considered in his hands. The Learned CIT(A) has not at all considered the submissions of the assessee. The addition have been confirmed by the Learned CIT(A) observing that "Rs. 1,91,200/- is based on the same seized material on the basis of which addition has been made in Assessment Year 2012-13 of Rs. 4,50,000/-." The Learned CIT(A) has not perused the seized papers nor has gone through the statement of the assessee recorded u/s 132(4) as quoted below. The assessee had very clearly stated that the amount of Rs. 191200/- was undisclosed income of Shri Anand Singhal who was present at the time of statement and admitted that the income of Rs. 191200/- pertained to him. The statement u/s 132(4) is on oath and carries evidentiary value. It cannot be superseded by a subsequent affidavit of the assessee that income of anybody may be assessed in his hand. In these circumstances the addition was wrongly been made in the hands of the assessee and the Learned CIT(A) has also erred in confirming the same. Beside this main ground it was also pleaded before the Learned CIT(A) that the paper i.e. page 2 of annexure A-1 was a dump paper and required to be ignored. Moreover additions on account of advances to various persons found noted here and there on various papers deserved to be segregated and peak amount required to be added. No such exercise was done by the Learned

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Assessing Officer nor an opportunity was allowed to the assessee for working out the same. It is settled principle of law that in such cases where the capital revolves many times in a year in giving advances time and again additions required to be made only on capital amount and not on multifold revolving of the same. A capital may revolve four to five times in a year in giving advances and receiving then back and giving the same again and again. In such circumstances it is the one time capital that requires to be considered and not the total of all the transactions. Here in the case of the assessee Learned Assessing Officer has made addition again and again on the basis of notings on various papers without working out the peak of the same. These papers are the deaf and dumb papers. Hence no penalty can be Levied on such additions 5. Addition of Rs. 97,65,444/- The Learned Assessing Officer made addition of Rs. 2,09,63,501/- on account of unexplained gold jewellery, diamond and silver items. The total jewellery found was of Rs. 2,41,67,236/-. The Learned Assessing Officer considering the jewellery disclosed in the balance sheet of the various family members of Rs. 32,03,735/- made addition of the balance jewellery etc of Rs. 2,09,63,501/-. Against the addition made by the Learned Assessing Officer the assessee had made a detailed submission which is produced below. After considering the detailed submission of the assessee the Learned CIT(A) gave the following findings: - (i) The CBDT instruction no. 1916 dated 11.05.94 regarding seizure of jewellery needs to the applied for purposes of assessment also. In the words of the Learned CIT(A) what is not to be seized as per the instruction deserves to be treated as explained. While holding so the Learned CIT(A) has followed the decision of the jurisdictional high court of Rajasthan in the case of Satya Narayan Patni 40 taxman 440. (ii) Following the instruction quoted above the Learned CIT(A) has given credit of jewellery disclosed in the wealth tax return, although not disclosed in the balance sheet filed along with the return of income. The Learned CIT(A) has held that the CBDT instruction does not require jewellery to be disclosed in the regular books of accounts or in the balance sheet. It is enough if the jewellery is disclosed in the wealth tax return, then credit has to be given accordingly. The Learned CIT(A) has further held that credit of jewellery disclosed in the balance sheet or in the balance sheet has to be given with reference to weight and not value. In view of this the Learned CIT(A) gave credit of 3421.779 grams gold jewelery, 189.62 carats of diamonds and 16.75 kg of silverware as disclosed by the assessee group in the wealth tax return or balance sheet.

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(iii) The Learned CIT(A) further allowed relief in respect of savitri kandoi and sneh kandoi of gold jewellery 500 grams and 112 grams being covered fully under the CBDT instruction.

(iv) The assessee disclosed 1500 grams of gold jewellery in the hands of six male/female children @ 250 grams whereas only 100 grams was allowable as per CBDT instruction. The Learned CIT(A) considering the status of the family and traditions has allowed 200 grams for children and thus benefit has been given of 200 grams of gold and remaining 300 grams has been treated as unexplained of the value of Rs. 8,85,000/-.

(v) The assessee has disclosed 189.620 carats of gold in wealth tax and IT returns as against 373.620 grams found during search. Thus 184 grams remained to be explained. The assessee had pleaded that considering the status of family, number of family members, traditions in the traditional marwadi family more credit required to be given of the diamond found during search. In view of the submission of the assessee the Learned CIT(A) has given credit of 25% of 184 carats of diamond which remained unexplained. Thus 46 carat of diamond has further been treated as explained and balance 138 carats of diamond of the value of Rs. 37,13,994/- was treated as unexplained.

(vi) The silver weighing 39 kg has been treated as explained by the Learned CIT(A) with respect to the status of the family and traditions.

In view of the aforesaid facts the Learned CIT(A) has sustained addition of Rs. 97,65,444/- (885000+3713994+5166450 [surrendered by the assessee]) totaling to Rs. 97,65,444/-. The submissions of the assessee and the relevant extract of the appellant order granting relief is reproduced below. The additions deleted by the Learned CIT(A) are quite reasoned Further relief is required against additions sustained by him. The Learned CIT(A) has sustained addition purely on the basis of estimate. He has not given any ground that why only 25% of the diamond was considered as explained. Total diamond found is only 373.620 out of which 189.620 stood disclosed in the wealth tax returns and income tax returns of the persons of the group and only 184 carat was found unrecorded. It is submitted that it’s a big family consisting of around 16 members all having good sources of income. Further the group is a traditional marwadi family where there is tendency to invest

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petty savings in gold, jewelley and diamond. This is particularly so with the ladies of the family. On all festive occasions and occasions of merry making new diamond rings, earrings etc. are purchased and these are thus accumulated. It is out of this tradition that 184 carats of diamonds were found unrecorded. The Learned CIT(A) has not justified to treat only 25% of the same as explained instead of the full. It has also not been established that the addition sustained was undisclosed income of the year under consideration. There is no evidence that the jewellery found for which addition was sustained was acquired during the year under consideration. It is only valuation difference which cannot be in any circumstances be treated as undisclosed income of the assessee, which is liable for penalty U/S 271AAB of the income tax act 1961.

The position of law being so no addition could have been made in the hands of the assessee and in penalty proceedings the lenient view should be taken. The learned AO has initiated the penalty u/s 271AAB of the IT Act in the assessment order but he has not mentioned that under which clause of section 271AAB(a) to (c) the penalty has been initiated.

The learned AO has also not recorded his satisfaction that how the above addition made on the basis of deaf and dump papers falls in the definition of undisclosed income as provided in the provisions of section 271AAB of the Income Tax Act, 1961. The above additions are also not backed by any assets/cash/other valuables or expenditure incurred by the assessee. No assets or unaccounted expenditure was found corresponding to the income for which addition was made by the learned AO. In case of jewellery it was only valuation difference.

With regard to the jewellery found during the course of search no incriminating material was found during the course of search. No any evidence was found which suggests that jewellery found was purchased by the assessee during the year under consideration out of undisclosed income. The disclosure was taken only on the basis of the valuation of jewellery at current market price instead of the actual cost of acquisition of the jewellery because the jewellery was very old and some of the jewellery was acquired at the time of marriage of the various family members and some jewellery was inherited. Considering the over all facts including status of the assessee’s family and the number of family members, the jwellery found during the course of search is not abnormal and it was acquired in the long back and in duration of last 10-15 years. The jewellery was even not purchased but inherited

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from the forefathers and in-laws of various family members. Hence the disclosure obtained on account of the jewellery would not constitute undisclosed income of the assessee for the purpose of levy of penalty and penalty levied on unexplained jewellery deserves to be deleted.

This issue is also covered by the decision of of Shri Gopal Das Sokhiya in ITA No. 306/JP/2018 dated 11.04.2019 wherein it has been held that “We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other material to establish that the entire jewellery found at the time of search and seizure action was only acquired by the assessee and belong to the assessee alone. We find that in the Indian family most of the jewellery belong to the women of the family. It is also customary in Indian society that the women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of

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undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted.” (page no. 35 to 37 of order) The facts of the assessee’s case shows that there was no undisclosed income found during the course of search and no incriminating material was found, therefore the penalty levied by the Learned Assessing Officer deserves to be deleted.

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the course of search which suggest or prove that the entries recorded in loose sheets are undisclosed income of the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and other documents. The Hon’ble ITAT Rajkot Bench in the case of Shri Karamashi Bhai G Aghara in ITA No. 159/RJKT/17 has held that “in the absence of any incriminating documents, no corroboration of income declared under s.132(4) per se is available. Thus, such additional income on the basis of standalone statement under s.132(4) of the Act would not fall within the sweep of expression ‘undisclosed income’ contemplated for the purposes of section 271AAB of the Act” and thereafter the Hon’ble Bench has deleted the penalty levied u/s 271AAB of the Income Tax Act, 1961 on the basis of surrendered made by the assessee and disclosed in the return of income but not backed by any incriminating documents and no corroboration of income declared u/s 132(4) of the Income Tax Act, 1961. The instant case the facts are same. Therefore the surrender was without any incriminating material and the surrender did not constitute any undisclosed income which is on estimated basis and without any documents or evidences found during the course of search.

The facts of the assessee’s case shows that there was no undisclosed income found during the course of search and no incriminating material was found, therefore the penalty levied by the Learned Assessing Officer deserves to be deleted. It is clear that the assessee has surrendered the income during the course of search on the basis doubts. Nothing incriminating was found. The surrender was only to cover up the irregularities found during the course of search. The assessee was forced to surrender the income on account of various discrepancies and doubtful entries recorded in the loose sheets/ impounded papers which are deaf and dump papers. Therefore without bringing any adverse material on record to prove that the income disclosed during the year is undisclosed income, no penalty can be levied u/s 271AAB of the Income Tax Act, 1961. 7. Scheme of the previous counsel: - It is further submitted that the disclosures of income on the basis of annexure A-1 page no. 3, 4, 5 was part of the scheme of the counsel engaged by the assessee for purposes of appearance before the Settlement Commission. Actually the annexure A-1 page no. 3, 4, & 5 contains the details of receipt of loan which the assessee has taken from the various parties in cash for his business requirements. But due to technical difficulties these unsecured loans taken by the assessee has

32 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

been shown as loan given by the assessee. Actually these are not income or assets of the assessee but these are the liabilities of the assessee on which the assessee has paid taxes to over come with the technical and legal difficulties and purchase peace of mind and avoid unnecessary prolonged litigation. The counsel has been changed as the assessee did not find favour with the scheme of the counsel. The previous counsel had also wrongly pleaded before the Settlement Commission regarding the other papers that these indicated loans advanced by the assessee whereas these are the loan taken by the assessee. The position being so it is submitted that assessee may not be punished for the wrong doing of the counsel because he has already paid the taxes and penalty should not be levied in such circumstances. The observations of the Learned Assessing Officer are totally uncalled, unjust and irrelevant. The addition is totally on estimate basis and has been made in lump sum manner. The penalty has been levied only with reference to the statement of the assessee. No independent enquiries have been made while levying the penalty nor any such material has been brought on record which establishes that assessee concealed any income. The submission of the assessee is that the penalty has been levied with respect to an addition which has been made purely on guess work and conjectures and surmises.

The learned AO has initiated the penalty u/s 271AAB in the assessment order by mentioning that “penalty proceedings u/s 271AAB of the Income Tax Act 1961 have been initiated by issue of notice”. But there is no evidence or credible documents on the basis of which it can be said that the assessee has undisclosed income. Therefore no penalty is leviable without bringing any evidence on record that there is actually undisclosed income earned by the assessee.

33 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

to justify the penalty and it has been levied in a mechanical manner. It was argued that since there was no specific finding for levy of penalty in the quantum proceedings in the penalty order no penalty should have been levied. It was also argued that penalty proceedings and assessment proceedings are separate and distinct and simply because the addition has been made penalty cannot be imposed. Reliance was placed upon the following judgments:- (i) CIT vs Jalaram Oil Mills (2001) 171 CTR (GUj) 426 (ii) Vishwakarma Industries vs CIT (1982) 29 CTR (P&H) 243 (FB) 135 ITR 652 (P&H): TC 50R 98,. (iii) CIT vs Ravail Sincjh & Co. (2002) 173 CTR (P&H) 429. (iv) Laxmi Platers vs ACIT ITAT, Ahmedabad 'B' Third Member Bench (2001 73 TTJ (Ahd) 171. (v) CIT vs Bengal Galvanising Works (1987) 165 ITR 249 (Cal) (vi) Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26 (SC)

34 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

It is submitted that it is established position of law that the Learned Assessing Officer was required to record his satisfaction for initiating penalty proceedings by stating the fact of undisclosed income. The Learned Assessing Officer cursorily has mentioned initiation of penalty proceedings without specifying the undisclosed income. Further there is absolutely no mention that how the provisions of section 271AAB are applicable. In view of this it is a case where penalty could not be levied in the absence of proper satisfaction in the assessment order. The penalty notice issued by the Learned Assessing Officer initiating the penalty proceeding is silent regarding the default of the assessee. It is submitted that in the assessment order the Learned Assessing Officer has not recorded his satisfaction that in what manner provisions of section 271AAB are applicable or specifically which sub-section 271AAB(1)(a), 271AAB(1)(b) or 271AAB(1)(c) is applicable. The learned AO has acted most carelessly and totally in defiance of law. There is no proper satisfaction in initiating the penalty proceeding on the contrary contradictory position has been taken by the Learned Assessing Officer in initiating the penalty proceedings u/s 271AAB of the Income Tax Act, 1961. The entire process being unlawful, penalty levied deserves to be deleted. The following case laws are being quoted n support: - (i) CIT Vs. M.G. Motors SLP (C) No. 1336 of 2009 (SC) Dismissed the departmental special leave. No satisfaction contemplated u/s 271(1)(c) had been recorded by the Assessing Officer while completing the assessment u/s 143(3) of the Income Tax Act, 1961 therefore no penalty could be levied. (ii) Poonam Mable Pvt Ltd. vs. Deputy Commissioner of Income Tax (2013) 157 TTJ 59 (Jodh) (iIi) CIT Vs. Haryana Warehousing Corporation (2009) 314 ITR 215 (P&H) (iv) CIT Vs Sangur Vanaspati Mills Ltd (2008) 303 ITR 53 (P & H) (v) CIT Vs Jagabandhu Prasanna Kumar Ruplal Sen Poddar (1982) 133 ITR 156 (Cal.) (vi) CIT vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Kar)

35 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

The show cause notice was issued for 271AAB The relevant provisions of section 271AAB are quoted below - Sec 271AAB (1) reads as under” 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 1st day of july, 2012, the assessee shall pay byway of penalty, in addition to tax, if any, payable by him,- (a) A sum computed at the rate of 10% 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, abmits the indisclosed 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:"

The Learned Assessing Officer has avoided mentioning these major conditions which are required to be satisfied before levy of penalty. In the penalty order there is no discussion of the statement of the assessee recorded u/s 132(4). In the penalty order there is no discussion regarding the admission of the undisclosed income and the manner in which such income was derived not to speak of substantiating the same. These major conditions have remained unfulfilled before levy of penalty. In these circumstances there was no case for levy of penalty: - The penalty u/s 271AAB is leviable with reference to undisclosed income. The undisclosed income has been defined specifically under explanation (c) to the provisions of section 271AAB(3), the same is quoted below: - (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—

36 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

(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 Principal Chief Commissioner, 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.

It is submitted that in the penalty order the Learned Assessing Officer has not brought on record in what manner there was undisclosed income for which penalty has been levied The statement of the assessee has not been referred to or quoted. There is no discussion regarding money, bullion etc. found during the course of search which were not recorded in the books of accounts. In view of this levy of penalty deserves to be deleted. 12. Confessional statement u/s 132(4) being under pressure is volatile of Board circular: - It is submitted that in the case of the assessee during the course of search no undisclosed income was found as defied u/s 271AAB(3) explanation (c). But as is usual the revenue authorities exerted undue, uncalled for and unwarranted pressure and obtained surrender of income. Otherwise there was no undisclosed income in the hands of the assessee. It is submitted that such confessional statement violates board's circular quoted below: - (i) F. No. 286/2/2003-IT (Inv) dated 10.03.2003

No confessional statement in the course of search, seizure and survey. March 10th, 2003 Confession of additional Income during the course of search &seizure and survey operation GOVERNMENT OF INDIA MINISTRY OF FINANCE &COMPANY AFFAIRS

37 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

DEPARTMENT OF Revenue CENTRAL BOARD OF DIRECT TAXES Room No. 254/North Block, New Delhi, the 10th March, 2003 To All Chief Commissioners of Income Tax, (Cadre Contra) & All Directors General of Income Tax Inv.

Sir

Subject : Confession of additional Income during the course of search &seizure and survey operation -regarding

Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search &seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search &seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders

Yours faithfully,

Sd/- (S. R. Mahapatra] Under Secretary (Inv. II)

(ii) F.No. 286/98/2013-IT (Inv.II) dated 18.12.2014 Admissions of Undisclosed Income under coercion/pressure during Search/Survey

38 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Dated- 18th December, 2014 To 1. All Principal Chief Commissioners of Income Tax 2. All Chief Commissioners of Income Tax 3. All Directors General of Income Tax (Inv.) 4. Director General of Income Tax (I & CI), New Delhi Subject: Admissions of Undisclosed Income under coercion/pressure during Search/Survey – reg. Ref: 1) CBDT letter F.No. 286/57/2002-IT(Inv.II) dt. 03-07- 2002 2) CBDT letter F.No. 286/2/2003-IT(Inv.11) dt. 10-03-2003 3) CBDT letter F.No. 286/98/2013-IT(Inv.11) dt. 09-01-2014 Sir/Madam, Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light. 2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence. 3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T.Act,1961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion shall be viewed by the Board adversely. 4. These guidelines may be brought to the notice of all concerned in your Region for strict compliance. 5. I have been further directed to request you to closely observe/oversee the actions of the officers functioning under you in this regard. 6. This issues with approval of the Chairperson, CBDT (K. Ravi Ramchandran) Director (Inv.)-II, CBDT - It is the submission of the assessee that in this case there was no undisclosed income in the case of the assessee. The assessee did not have any such income from scrap business as disclosed before the Settlement Commission. The income was so disclosed by the previous counsel of the assessee just and just to get the application admitted by hook or by crook. The scheme of the previous counsel failed, the Settlement Commission did not accept the income from scrap business and rejected the application. The facts and circumstances being so that there is no

39 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

case for the Learned Assessing Officer to assess such income in the assessment order. The Learned Assessing Officer has made addition of this income solely and solely on the ground of disclosure of such in the application made before the Settlement Commission. Since the Settlement Commission itself did not admit such income, the Learned Assessing Officer has got no case to make the basis of application before the settlement commission for making the addition. Otherwise the learned A.O. has not brought any material on record establishing such income in the hands of the assessee. Search material or post search inquiries have also not shown any such income in the hands of the assessee. In the circumstances no penalty is called for u/s 271AAB of the Income Tax Act, 1961. 13. The Learned Assessing Officer has levied the penalty by assuming that the penalty u/s 271AAB is mandatory penalty and there is no discretion with the income tax authorities in view of the above penalty was imposed by the Assessing Officer. In this regard our submission is that in section 271AAB the word 'may' is used instead of 'shall' so it is not mandatory but it is discretionary. Secondly the intention of the legislature is clear by making the order passed u/s 271AAB as appealable order by amending sub clause (B) of clause (hb) of section 246A w.e.f. 01.07.2012 that it is discretionary and not mandatory to give relief to the assessee where the authorities has not used their discretion to provide relief to the assessee. It is settled position of law that penalties are not compulsory, not mandatory but are always discretionary considering the overall facts and circumstances of the case. In imposition of penalty mens-rea also plays a vital role before imposing the penalty it is always compulsory to prove the mens-rea of the assessee as malafide for concealment of income or for avoidance of any provision of law in force intentionally. 14. Provisions of section 271AAB and provisions of 158BFA(2) are parimateria - It is clear from the provisions of section 271AAB of the Income Tax Act, 1961 that penalty under this section is not mandatory but discretionary because provisions of both the sections are parimateria.

40 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

41 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

Careful reading of section 271AAB of the Act, the words used are ‘AO may direct’ and ‘the assessee shall pay by way of penalty’. Similar words are used section 158BFA(2) of the Act. The word may direct indicates the discretion to the AO. Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAB: The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. The legislature has included the provisions of section 274 and section 275 of the Act in 271AAB of the Act with clear intention to consider the imposition of penalty judicially. Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the A.O. Once the A.O. is bound by the Act to hear the assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because the opportunity of being

42 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

heard and reasonable opportunity is not a mere formality but it is to adhere to the principles of natural justice. Hon’ble A.P. High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 158BFA held that ‘we are of the opinion that while the words shall be liable under sub section (1) of section 158BFA of the Act that are entitled to be mandatory, the words may direct in sub section 2 there of intended to directory’. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in a reasonable and rational manner depending upon the facts and circumstances of the each case. Plain reading of section 271AAB and 274 of the Act indicates that the imposition of penalty u/s 271AAB of the Act is not mandatory but directory. Therefore, the finding of the Learned CIT(A) is not correct. 15. Conclusion - In view of the aforesaid discussion and various case laws cited above it is humbly requested that penalty in this case may not be levied because of the following facts: - (i) There is no valid ground given in the assessment order for initiating penalty proceedings.

(ii) The initiation of penalty is statutorily defective.

(iii) The assessee has surrendered the income only to purchase peace of mind and avoid prolonged litigation. The documents on the basis of which surrender was made were deaf and dump paper.

(iv) If at all there is any default it is technical. There is no undisclosed income as no assets was found. No particulars of income have been filed inaccurately.

(v) The penalty u/s 271AAB is not mandatory and it is discretionary.

(vi) There is no undisclosed income as per definition given in section 271AAB of the Income Tax Act of the assessee.

43 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

(iii) Suresh Chand Mittal – ITA No. – 931/JPR/2017 (iv) Ritesh Agarwal – ITA No. – 418/JPR/2018 (v) Dinesh Kumar Agarwal – ITA No. – 855 & 856/JPR/2017 (vi) Silver and Art Palace – ITA No. 236/JP/2018 (vii) Padam Chadn Pungliya – ITA No. 112/JP/2018 (viii) Vimal Chand Surana – ITA No. 304/JP/2018 (ix) Rajendra Kumar Jain – ITA No. 708/JP/2019 dated 14.09.20

Therefore relying on the above decisions the penalty deserves to be deleted. 17. Finding the of learned CIT(A) – It is submitted that the learned CIT(A) has confirmed the penalty imposed by the Learned AO on the basis of that in the quantum proceedings the Hon’ble ITAT sustained the addition on account of income surrendered by the assessee during the course of search. The learned CIT(A) has also mentioned on page 13 of the appellate order that the surrender of income was not voluntary and the income was offered by affidavit agreed to consider in the hands of the assessee. The Learned CIT(A) further relied upon certain case laws. In this regard our submission is that – (i) The paper on the basis of which addition has been made is totally a dump paper. (ii) In the statement recorded u/s 132(4), the assessee stated that the amount required to be considered in the hands of Shri Anand Singhal but for no reason later on an affidavit is furnished and the assessee has agreed to pay tax on the entries which were not related to him for the family dispute reasons. (iii) That no enquiry was made and no any material was brought on record to substantiate or prove that the income accepted by the assessee was his concealed income. There may be hundred other reasons for acceptance of payment of tax. (iv) Since the entire addition was based on confessional statement. Such statements are directly in violation of board circular. Therefore, on such addition penalty u/s 271AAB cannot be levied. (v) The documents have no dates and it cannot be considered in any period unless it is linked with the affairs of the assessee.

44 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

(vi) It has no narration so as to indicate that it pertains to the business/personal affairs of the assessee. (vii) Name of the assessee is not available as such it could not be considered in his hand. (viii) Signature of the assessee are not available on this page nor it was not in his hand writing. (ix) The jewellery found was not undisclosed income of the assessee as it was ancestral jewellery and not acquired during the year under consideration. It is only market value which has been taxed. No documents or any evidence was found which suggest that the jewellery was acquired during the year under consideration. Therefore, it is clear that the surrender was made to buy the mental peace and avoid further litigation. The due taxes have also been deposited by the asseseee. The assessee has also quoted many laws of Hon’ble Courts and Apex Court of the country which is favorable to the assessee. But the Learned CIT(A) has not considered the same. It is settled position of law that the law that quantum and penalty proceedings stand on different footing and each and every disallowance/addition in the former does not ipso facto attract the latter penal provision. The Learned CIT(A) has not given any new finding. He has just repeated the plea taken by the Learned AO which has been controverted by the assessee before the Learned CIT(A). Merely because the assessee has surrendered an amount, which was seized from him after initial explanation, that it belonged to his son/relative, penalty cannot be avoided, since the initial explanation was prima facie unbelievable, so that the surrender of such income can only be treated as involuntary. In view of the Explanation deeming concealment, the assessee has a duty to offer an explanation. But where an explanation was offered and found to be unreliable, penalty becomes exigible. [CIT v Mohd. Mohtram Farooqui (2003) 259 ITR 132 (Raj)]. Therefore, your honour is requested to delete the penalty imposed by the learned AO and confirmed by the Learned CIT(A). Ground No. 5 – The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing. Not pressed.

45 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur Your Honor is requested to decide the appeal in favour of the assessee by considering the above submission and oblige.”

of the assessee submitted that the settlement application was rejected

merely on the ground that assessee could not make any sound basis for

explaining the manner of earning such undisclosed income and working out

such income. Thus, it may please be appreciated that the addition

confirmed in this case one for the family jewellery and the another on

account of the figure of the loan given. The penalty cannot be levied on the

amount of loan taken and jewellery of the family member on which the

assessee owned the assets and accepted the addition to buy the peace

with the department. The ld. AO has not made any enquiry to confirm the

fact that whether assessee has given the loan or taken the loan. Thus, on

both the addition sustained there is no element of income and thus the levy

of penalty is not sustainable. The ld. AR also drawn our attention to the

notice of penalty issued by the ld. AO where in he has not specified the limb

of section 271AAB to levy the penalty and thereby the order of levying the

penalty is against the principles of natural justice. The ld. AR of the

assessee relying on the various judgement cited in his written submission

submitted that when there is no income which is corroborated with the

46 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur relevant asset found in the search proceeding merely the assessee has

surrendered the amount the levy of the penalty is not justified. The decision

relied upon by ld. CIT(A) all are on different facts and therefore, the facts of

the case relied upon and the facts of the assessee’s case are different the

ratio of the decision relied upon are not applicable in the present case. It is

not disputed by the revenue that the assessee’s son has taken the loan

account of the financial crisis which the assessee has owned up to buy the

peace with the department and once the loan is taken cannot be considered

as undisclosed income relying the provision of law as defined under the

various sections the levy of the penalty is bad in law as well as on fact and

thus same is required to be deleted.

authorities and vehemently argued that the assessee has not shown the

income in the return of income filed. The Hon’ble ITAT has confirmed the

addition after hearing the merits of the assessee’s case and thus the levy of

the penalty on the sustained addition is automatic and it falls under the

meaning of the undisclosed income and the information is unearthed during

the searched proceedings and if no search is conducted this income

remained undisclosed. Thus, he has supported the findings of the ld.

47 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur CIT(A). The ld. DR further relied on the judgement of Sundarm Finance

Limited 99 Taxmann.com 152 (SC) where in the apex court has held that

even the claim of depreciation wrongly claimed is subject to levy of penalty

u/s. 271(1)(c) of the Act. The ld. DR further argued that as regards the

mentioning of the limb of penalty u/s. 271AAB by the AO he drawn our

attention to the findings of the ld. CIT(A) recorded in the para 4.2(vi) at page

9 where in the relying the apex court decision he submitted that the notice

issued in the case is read with the assessment order make the charge of

penalty amply clear and the same is very well reflected in the assessment

order so the contention of the assessee is not tenable.

available on record and also gone through the findings of the lower

authorities recorded in their respective orders. We have also gone through

the various judicial ruling placed before us by both the parties to drive home

to their contentions. The ld. AR of the assessee has not pressed the ground

no.6 therefore, the same is dismissed. The bench noted that ground no. 1,

3 & 5 are on merits and ground no. 2 & 4 are technical ground. On technical

ground the ld. AR of the assessee argued that while issuing the notice the

ld. AO has not mentioned the limb of section 271AAB for which he intend

48 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur to levy the penalty but in the assessment order the ld. AO has specifically

dealt for levy of penalty and considering the decision of apex court in the

case of PCIT Vs. Sandeep Chandak there is no force in the arguments

advanced by the ld. AR of the assessee on this technical ground. Thus, the

ground no. 2& 4 raised by assessee is dismissed.

ld. CIT(A) has sustained the penalty u/s. 271AAB(1)(c) on Rs. 2,73,91,944/-

which comprises of addition of Rs. 1,76,26,000/- being the amount of

alleged undisclosed advances and Rs. 97,65,444 being the amount of

jewellery found in the course of search.

account of the alleged loan given which is in fact the loan taken as

submitted by the assessee, the assessee has in his affidavit dated

13.09.2017 merely submitted that the addition if any are required to be

made the same may be made in the hands of the assessee to avoid the

dispute which is not controverted fact by both the parties. Since, the

assessee has merely even though the amount is related to the other

assessee. He has accepted based on this affidavit only and there is no

49 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur other evidence placed on record by the Revenue also. Therefore, the ld.

AR of the assessee as regards the addition made on account of

undisclosed advances submitted that all these four annexures do not

contain name of the assessee. The papers could not be linked with the

business of the assessee. Further these papers do not have the signature

of the assessee. In view of this it not correct on the part of the Learned

Assessing Officer to make any addition with reference to these papers and

even if made the same is not liable for any penalty as it not undisclosed

income of the assessee. The aforesaid facts established that these pages

are rough and dump. No addition is warranted on the basis of these papers.

But the assessee agreed to pay tax to avoid prolonged litigation and

purchase peace of mind. Therefore, on such addition penalty cannot be

imposed where the transactions are not related to the assessee and there

is no positive evidences that the entries recorded in seized diary are

undisclosed income of the assessee. The ld. DR appearing on the behalf of

the revenue did not controvert the arguments of the ld. AR of the assessee

and merely stated the income is confessed in the statement u/s 132(4) the

assessee during the course of search admitted the entry as his own

income. On the other hand the ld. AR of the assessee submitted that the

statement was recorded under duress and pressure, otherwise the entry is

50 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur not linked with the affairs of the assessee. The ld. AR Vehemently argued

that the Learned Assessing Officer has not made any post search enquiries

so as to link the entry with the business of the assessee. No effort was

made even to examine the person who had taken the loan from the

assessee nor any action considered in his hands this parties were initiated,

all these suggest that the revenue is taking the benefit of the voluntary

surrender made by the assesseeand ld. AO acted having one sided

approach. The relied upon papers has no narration so as to indicate that it

pertains to the business/affairs of the assessee. Even the name of the

loanee is not available. Name of the assessee is not available as such it

could not be considered in his hands. Signature of the assessee are not

available on this page as such it does not pertain to the assessee. Based

on this findings even the addition made and sustained cannot lead to levy of

penalty because the papers relied upon are merely the loose paper it self

has not leg to stand and it cannot be considered as undisclosed income of

the assessee as the revenue did not match with the source and particular

assets based upon which this can be considered as assets, as revenue has

not taken any action against those persons which suggest that the advance

cannot be termed as an undisclosed assets earned from undisclosed

Income. Not only that in the statement u/s. 132(4) it was brought on record

51 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur that these papers pertain to Shri Anand Singhal and were admittedly in his

handwriting and as such deserves to be considered in his hands. The main

trust of argument of the assessee was that the paper i.e. page no. 1 and 2

of annexure A-1 on the basis of which addition was made did not pertain to

the assessee. Hence there was no occasion for making addition in the

hands of the assessee. The assessee had further pleaded that the addition

was made by the Learned Assessing Officer in the hands of the assessee

despite the fact that in statement u/s 132(4) it was brought on record that

these papers pertain to Shri Anand Singhal and were admittedly in his

handwriting and as such deserved to be considered in his hands. The

Learned CIT(A) has not at all considered the submissions of the assessee.

The additions have been confirmed by the Learned CIT(A) observing that

"Rs. 1,91,200/- is based on the same seized material on the basis of which

addition has been made in Assessment Year 2012-13 of Rs. 4,50,000/-."

The Learned CIT(A) has not perused the seized papers nor has gone

through the statement of the assessee recorded u/s 132(4). The assessee

had very clearly stated that the amount of Rs. 1,91,200/- was undisclosed

income of Shri Anand Singhal who was present at the time of statement

and admitted that the income of Rs. 1,91,200/- pertained to him. The

statement u/s 132(4) is on oath and carries evidentiary value. It cannot be

52 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur superseded by a subsequent affidavit of the assessee that income of

anybody may be assessed in his hand. In these circumstances the addition

was wrongly been made in the hands of the assessee and the Learned

CIT(A) has also erred in confirming the same. Beside this main ground it

was also pleaded before the Learned CIT(A) that the paper i.e. page 2 of

annexure A-1 was a dump paper and required to be ignored.

Moreover,additions on account of advances to various persons found noted

here and there on various papers deserved to be segregated and peak

amount required to be added. No such exercise was done by the Learned

Assessing Officer nor an opportunity was allowed to the assessee for

working out the same. It is settled principle of law that in such cases where

the capital revolves many times in a year in giving advances time and again

additions required to be made only on capital amount and not on multifold

revolving of the same. A capital may revolve four to five times in a year in

giving advances and receiving then back and giving the same again and

again. In such circumstances it is the one time capital that requires to be

considered and not the total of all the transactions. Here in the case of the

assessee Learned Assessing Officer has made addition again and again on

the basis of noting on various papers without working out the peak of the

same. These papers are the deaf and dumb papers and when there is

53 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur undisclosed income supported by any asset no penalty can be Levied on

such additions. The penalty proceeding are separate proceeding and the

findings given in the assessment proceeding may not always be correct in

the penalty proceeding and this proceeding all the aspect is required to be

seen as the penalty proceedings are quasi criminal proceedings and the

ultimate finding of assessment is required to be tested in the ultimate aim of

levy of penalty. In the light of these facts let us examine the applicability of

levy of penalty in this case. The ld. AO has invoked the provision of section

271AAB(1)(c) and levied the penalty @ 30 % of the amount added in the

same section the undisclosed income upon which the penalty can be levied

is defined and the same is reiterated here in below:

"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 Principal 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.

54 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur On conjoint reading of the provision of law for levy of penalty and the

definition of undisclosed income and the facts as narrated here in above

that ld.AO has not proved that whether the advance in question are in fact

taken or given by the assessee or Mr. Anand Singhal. Not only that the

revenue has not done any exercise to confirm with any of the party that

whether the money in question is related to the person named in or not? .

Since, the assets being the advances it self is not tested and statement

recorded at the time search where in the assessee has categorically

submitted that the money in fact taken and not given and the same is not

pertain to the assessee. In the assessment proceeding this very basic fact

is not establish and in the absence of the this fact being not confirmed we

are of the considered view that in light of these facts being not clear the levy

of the penalty under section 271AAB is not justified on the addition of Rs.

1,76,26,000/- [ in original assessment it was made to the extent of Rs.

2,55,00,000 ] and therefore, the same is required to be deleted.

jewellery found during the search belonging to the family member and

added in the hands of the assessee, in the assessment order first addition

was made was for Rs. 2,09,63,501/- and ultimately was reduced to Rs.

55 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur 97,65,444/-. The ld. AR submitted that the addition sustained by the ld.

CIT(A) is purely on the basis of estimate. He has not given any ground that

why only 25% of the diamond was considered as explained. Total diamond

found is only 373.620 out of which 189.620 stood disclosed in the wealth

tax returns and income tax returns of the persons of the group and only 184

carat was found unrecorded. It is submitted that it’s a big family

consisting of around 16 members all having good sources of income.

Further the assessee belongs to a group is a traditional marwadi family

where there is tendency to invest petty savings in gold, jewelley and

diamond. This is particularly so with the ladies of the family. On all festive

occasions and occasions of marriage making new diamond rings, earrings

etc. are purchased and these are thus accumulated this fact is not disputed.

Not loose paper or bill which is found and not recorded in the books of the

family members and there is no finding of the ld. AO in this regard. It is out

of this tradition that 184 carats of diamonds were found unrecorded. The

Learned CIT(A) has not justified to treat only 25% of the same as explained

instead of the full. It has also not been established that the addition

sustained was undisclosed income of the year under consideration. There

is no evidence that the jewellery found for which addition was sustained

was acquired during the year under consideration. It is only valuation

56 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur difference which cannot be in any circumstances be treated as undisclosed

income of the assessee, which is liable for penalty U/S 271AAB of the

income tax act 1961.During the course of search no incriminating material

was found, no any evidence was found which suggests that jewellery found

was purchased by the assessee during the year under consideration out of

undisclosed income. The disclosure was taken only on the basis of the

valuation of jewellery at current market price instead of the actual cost of

acquisition of the jewellery because the jewellery was very old and some of

the jewellery was acquired at the time of marriage of the various family

members and some jewellery was inherited. Considering the overall facts

including status of the assessee’s family and the number of family

members, the jewellery found during the course of search is not abnormal

and it was acquired in the long back and in duration of last 10-15 years. The

jewellery was even not purchased but inherited from the forefathers and in-

laws of various family members. Hence the disclosure obtained/addition

made on account of the jewellery would not constitute undisclosed income

of the assessee for the purpose of levy of penalty and penalty levied on

unexplained jewellery deserves to be deleted. The view is fortified from the

decision in the case of Shri Gopal Das Sokhiya in ITA No. 306/JP/2018

dated 11.04.2019 wherein it has been held that :

57 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur

“We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other material to establish that the entire jewellery found at the time of search and seizure action was only acquired by the assessee and belong to the assessee alone. We find that in the Indian family most of the jewellery belong to the women of the family. It is also customary in Indian society that the women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted.” (page no. 35 to 37 of order)

Respectfully, following the judgement of the coordinate bench we are of the

considered view that the addition made pure on the basis of the difference

58 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur of valuation and estimate does not warrant levy of penalty and the same is

required to be deleted.

various decision cited by the ld. AR of the in case of National Textiles vs

CIT 249 ITR 125 (Guj.) “It is not enough for the purpose of penalty that the

amount in question has been assessed as income”, in the case of S.P.Goel

vs DCIT 82 ITD 85 (Bom) “Mere entry on a loose sheet of paper does not

indicate undisclosed income unless circumstantial evidence in the form of

extra cash, jewellery or investment outside books is found”, in the case of

Ashwini Kumar vs ITO 39 ITD 183 (Del) “ In the case of dumb document,

revenue should collect necessary evidence that the figures represent

incomes earned by the assessee.” In the case of JCIT vs West Bengal

Trading Agency, IT(SS) NO.49(Cal) of 2001 “There has to be direct or

circumstantial material to establish that the intention expressed in the

seized document/books has actually been implemented (vide para 8), and

in the case of P.R.Patel v. Dy.CIT 78 ITD 51 (TBOM) “No addition can be

made on the basis of a seized documents which do not bear the name of

assessee.” Based on judicial precedent and the detailed discussion made

here in abovethe penalty levied on the sustained two addition is deleted and

59 ITA No. 322/JP/2022 Mangi Lal Kandoi, Jaipur vs. ACIT, Jaipur in terms of these observations ground no. 1, 3 & 5 raised by the assessee

is allowed.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 13/10/2022

Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (Dr. S. Seethalakshmi) (RATHOD KAMLESH JAYANTBHAI) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/10/2022 *Ganesh Kumar/ Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Mangi Lal Kandoi, Jaipur izR;FkhZ@ The Respondent- ACIT, Central Circle-02, Jaipur 2. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 322/JP/2022) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत