Loading judgment…

ACIT, NCRB BUILDING JAIPUR vs MAHIMA REAL ESTATE PVT LTD, JAIPUR | BharatTax

ACIT, NCRB BUILDING JAIPUR vs. MAHIMA REAL ESTATE PVT LTD, JAIPUR

ITA 668/JPR/2024Status: DisposedITAT Jaipur15 October 2024AY 2015-16Bench: SHRI SANDEEP GOSAIN (Judicial Member), SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member)1 pages

AI SummaryDismissed

Facts

During a search operation, the assessee company, engaged in real estate, offered additional income. The Assessing Officer (AO) levied a penalty under section 271AAB of the Income Tax Act, 1961, based on this surrender.

Held

The Tribunal held that for a penalty under Section 271AAB to be leviable, the income must be 'undisclosed income' as defined in the Act, not merely a surrender made by the assessee. The surrender in this case was not substantiated by incriminating material and thus did not qualify as undisclosed income. The penalty was therefore deleted.

Key Issues

Whether the penalty levied under Section 271AAB of the Income Tax Act, 1961 is justified when the 'surrendered' income was not proven to be 'undisclosed income' based on incriminating material.

Sections Cited

271AAB, 132, 143(3), 153(1)(b), 250, 274, 275, 268A, 246A, 69, 69A, 69B, 69C, 44AB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR

Before: HON’BLE SHRI SANDEEP GOSAIN, JM & HON’BLE SHRI RATHOD KAMLESH JAYANTBHAI, AM

For Appellant: Shri S.R. Sharma, CA &, Shri R.K. Bhatra, CA

For Respondent: Shri Arvind Kumar, CIT D/R

Hearing: 08/08/2024Pronounced: 15/10/2024

vkns'k@ ORDER PER: SANDEEP GOSAIN, J.M.

This appeal by the revenue is directed against the order dated 01.02.2024 of ld.

CIT (Appeals)-4, Jaipur passed under section 250 of the Income Tax Act, 1961 for the assessment year 2015-16. The grounds raised in the appeal are reproduced as under :-

1.

Whether on the facts and in the circumstances of the case and in law, the LD. CIT (A) is justified in ignoring the fact that the assessee has disclosed the additional income of Rs. 19.95 cr. as outcome of search action only and constitute undisclosed income of the assessee for the purposes of section 271AAB of the Act as defined in the Explanation to section 271AAB of the Act.

2. Whether on the facts and in the circumstances of the case and in law, the LD. CIT (A) is justified in ignoring the fact that during the search, assessee has surrendered undisclosed income of Rs. 19.95 crores on the basis of incriminating documents found and seized material and the same also being admitted by assessed in his statement during the course of search.

3.

Whether on the facts and in the circumstances of the case and in law, the LD. CIT (A) is justified in ignoring the fact that during the search, assessee has surrendered undisclosed income of Rs. 19.95 crores on the basis of seized material and the same also being admitted by assessee in his statement and that the assessee failed to offer any explanation regarding the Exhibit-6, Annexure-A containing details of out of books advances and construction expenses, both during and after search.

In this connection it is submitted that Section 271AAB starts with the phrase that ‘The Assessing officer may’ thus while “may” permits the assessing officer to give direction to impose penalty or not, the use of word “shall” does not leave any discretion relating to levy of penalty. In this respect reliance is placed on the judgement of Hon'ble Supreme Court in case of CIT Vs Smt. P.K. Noorjahan (1999) 237 ITR 0570 wherein Supreme Court held that word ‘may’ give discretion to A.O. in the matter and said discretion has to be exercised keeping in view the facts and circumstances of the particular case judicially. The fact that the minimum is prescribed does not mean that penalty must necessarily be imposed in every case falling within sub-s (1). Shah, acting CJ said in Hindustan Steel Ltd. v State of Orissa 83 ITR 26. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty. The discretion of the A.O. to levy or not to levy a penalty is still preserved by this section, it must be exercised judicially and on a consideration of all the relevant circumstances. Recently the ITAT Kolkata Bench in case of DCIT Vs. Manish Agarwal (2018) 92 taxmann.com 81 held “We agree with the said contention of Ld. AR because when a similar issue was adjudicated by ITAT Lucknow (the author of this order was a member of the Bench) in Sandeep Chandak v. CIT [2017] 55 ITR (Trib.) 209 (Luck.) while adjudicating a case where penalty was levied under section 271AAB of the Act it was held that the provisions of Sec. 271AAB of the Act are not mandatory, which means that penalty need not be levied in each and every case wherever the assessee has made default as stated in & CO No. 13/JP/2024 Mahima Real Estate Pvt. Ltd., Jaipur. clauses (a), (b) and (c) of the Act. Sub-section (1) of Sec. 271AAB of the Act uses the word “may” not “shall”. “May” cannot be equated with “shall” especially in penalty proceeding. Using the word “may” in our opinion, gives a discretion to the A.O. to levy the penalty or not to levy, even if the assessee has made the default under the said provision.” In case of ACIT Vs. Marval Associates the Visakhapatnam Tribunal (2018) 92 taxman.com 109/ (2018) 170 ITD 353 it was held “Careful reading of section 271AAB of the Act, the words used are ‘A.O. may direct’ and ‘the assessee shall pay by way of penalty’. Similar words are used in section 158BFA (2) of the Act. The word may direct indicates the discretion to the A.O. Further, sub section (3) of section 271AAB of the Act, fortifies this view.

The Ld. A.O. taking the admission of income by assessee as undisclosed income of assessee. “There was no money, bullion, jewellery or valuable article or thing or & CO No. 13/JP/2024 Mahima Real Estate Pvt. Ltd., Jaipur. entry in the books of account or documents transactions were found during the course of search indicating the assets not recorded in the books of account or other documents maintained in the normal course, wholly or partly. In search authorities did not find any undisclosed asset, any other undisclosed income. The Hon'ble ITAT Delhi Bench in the case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee which has not been declared by the assessee. 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, hence we hold that there is no case for imposing penalty u/s 271AB of the Act. The Hon'ble ITAT, Jaipur Bench, Jaipur in case of Padam Chand Pungalia Vs. ACIT CC-I, Jaipur (ITA No.112/JP/18) that in absence of any undisclosed income indicated or discovered on the basis seized material, disclosure made in the statement u/s 132 (4) is not sufficient to levy the penalty u/s 271AAB of the Act. It was further held that even if seized material discloses some outflow of funds from the assessee’s hands the same cannot be necessary be an income of the assessee. Therefore in absence of any other material or evidence to show undisclosed income of assessee, only the entries in seized material which is dumb and deaf document cannot be the basis of levy of penalty u/s 271AAB. In the case of assessee also Ld. A.O. has not established that the income disclosed by assessee in return filed is undisclosed income of assessee within the meaning of Section 271AAB and unless that is established by Ld. A.O. no penalty u/s 271AAB can be imposed on assessee. The Ld. A.O. has not determined it as income from other sources u/s 69 of Income Tax Act in the assessment but accepted as business income of current year. Therefore merely on the basis of surrender made in the search statement, this cannot be held as “Undisclosed Income” for the purpose of levy of penalty u/s 271AAB. Thus it is only by admission of assessee on which the assessee included the said amount in & CO No. 13/JP/2024 Mahima Real Estate Pvt. Ltd., Jaipur. return filed as his income of current year and paid tax thereon. There is no iota of evidence that surrendered income was undisclosed income. Further the department has carried out search and seizure operations on the assessee group and during the course of search the department has not found any evidence, which shows that the assessee was having any undisclosed income. The revenue authorities have exerted undue pressure and obtained the surrender of income from the assessee and the notings in diary appears just to facilitate said surrender of income. As for surrender of Rs. 10 crores as estimated current year income it is submitted that there could be no surrender of estimated current year profits/income as per books of accounts and the same cannot be said to be undisclosed income for which surrender could be made. The current year income/profit stated to be in statement u/s 132 (4) by director of company could only be taken as estimated as the same can be precisely finally determined as per audited accounts and taxable income can be arrived at by making computation of income as per provisions of the Act. The profits of assessee as per books of accounts are little above what was estimated. The Ld. A.O. examined books of accounts and other record as well as computation of income and found them correct and complete without any deficiency, defect and declared results were not disturbed at all but he isolately made an adhoc disallowance of Rs. 36,15,030/- of expenses claimed by assessee company which too has been deleted by CIT (A). The such current year income as per books of accounts by no imagination is undisclosed income it was just a estimated income of current year and no surrender of such income could have been said as having been made in course of search by assessee company.

& CO No. 13/JP/2024 Mahima Real Estate Pvt. Ltd., Jaipur. “2.1 During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs. 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132 (4), Ld. CIT (A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable particle or thing. Whether it can then be said that such undisclosed cash represents income by way of any entry in books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee’s hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus cannotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about “income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132”, what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well- settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statue book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the A.O. has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB & CO No. 13/JP/2024 Mahima Real Estate Pvt. Ltd., Jaipur. provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132 (4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserves to be set-aside.”

“2.1. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs. 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132 (4), Ld. CIT (A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable particle or thing. Whether it can then be said that such undisclosed cash represents income by way of any entry in books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee’s hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about “income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132”, what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statue book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the A.O. has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132 (4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserves to be set-aside.”