SHAKTI STONEX,INDUSTRIAL AREA KISHANGARH vs. DCIT CENTRAL CIRCLE AJMER, JAIPUR ROAD AJMER

Act.

3.1 During the course of search/survey proceedings, physical stock was taken. On verification of physical stock tallied with stock as per books, it was found that the stock was short by Rs. 1,66,21,164/-. During the course of assessment proceedings, the said shortage of stock was considered as undisclosed sales of the assessee and accordingly, GP. Rate @ 14.86% (being declared by the assessee in its revised computation of Total Income) was applied on the undisclosed sales of Rs. 1,66,21,164/-, which comes to Rs.24,69,905/-. Therefore, after making an addition of Rs.24,69,905/- on account of GP assessment proceedings u/s 143(3) of the IT. Act, 1961 were completed at total income of Rs.36,25,245/- vide order dated 29.09.2021. Against the said assessment order, appellant had not preferred an appeal before the ld. CIT(A). Thereafter, the AO proceeded to finalize the pending penalty proceedings and accordingly penalty of Rs. 14,81,943/- was levied u/s. 271AAB(1A) of the Act.

Shakti Stonex vs. DCIT 4. Aggrieved from the order of the assessment, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below :

“Thus in the present case physical stock was verified during the course of search and short stock of Rs 1.66 cr was found which leads to unrecorded sales. The income generated out of such sales has not been recorded in the regular books of accounts directly comes under the purview of definition of undisclosed income as mentioned above. C As per the provision of section 271AAB(1A)(b) penalty of 60% is leviable if the assessee had not furnishes the return of income for the specified previous year declaring such undisclosed income therein and pays the tax, together with interest, if any, in respect of the undisclosed income In the present case the assessee had neither disclosed such unaccounted income in ROI filed nor paid any taxes before filing ROI. Instead of this, the assessee had filed revised computation just before finalisation of the assessment order. The language of this section is very much clear. The law does not allow any exemption from penalty on filing revised computation during assessment proceedings in this section. The exemption up to 30% penalty has provided only if the assessee had offered such undisclosed income in ROI and paid taxes on it. As the assessee had not complied the above conditions, therefore the penalty at the rate of 60% as mentioned in this section is clearly applicable. It is important to mention here that there are specified conditions in the Act for imposing penalty at the rate 30% or 60%. Thus, any liberal view cannot be taken that the revised computation filed during assessment proceedings to be considered as ROI filed before due date D Therefore, I uphold the order of the AO, for imposing the penalty @ 60 percent as per provisions of clause (b) of sub-section (1A) of section 271AAB of the I.T.Act, 1961.

5. As the assessee did not find any relief from the order of the ld. CIT(A) and feeling dissatisfied with the order of the ld. CIT(A) the assessee has preferred the present appeal on the grounds as reiterated here in above. The ld. AR of the assessee submitted that the assessee has already during the pendency of the assessment proceeding filed a revised computation of income and the said income is accepted by the ld. AO. The assessee has paid the tax along with the interest on the said revised computation of income before the ld. AO proved that the assessee really concealed any income. To support this view the ld. AR of the assessee has relied upon the decision of Jaipur bench in the case of M/s. R. P. Wood Products Private Limited in and Shri Ghanshyam Tak in ITA no. 167/JP/2023. Thus, the ld. AR supported the various contentions and grounds so raised by the assessee in the written submission. The written submission reads as;

Most respectfully, the humble appellant submits that the present appeal has been filed against the order dated 07/12/2023 passed by the Ld CIT (A) Jaipur -5 whereby the Ld CIT(A) has dismissed the appeal in Shakti Stonex vs. DCIT toto, summarily rejecting all submissions/contentions of the appellant. Ld CIT(A) confirmed the penalty u/s 271AAB of the Income Tax Act levied by the Ld Assessing Officer at Rs 14,81,943/ Most humbly it is submitted that order of the Ld Assessing Officer levying penalty u/s 271AAB of the Income Tax Act was challenged before the Ld CIT (A) -5 Jaipur specifically raising the following grounds of Appeal in addition to the grounds challenging the order on merit:

“That on the facts and in the circumstances of the case and in law the penalty order passed u/s 271AAB of Income Tax Act. 1961 is wrong, bad in law, invalid and void-ab-initio as the Id. AO initiated the penalty u/s 271AAB of Income Tax Act, 1961 in the assessment order without specifying the limbs of section 271AAB (IA) of the Act whether it is for clause (a) or clause (b) section 271AAB(1A).

2, That on the facts and in the circumstances of the case and in law the penalty order passed u/s 271AAB of Income Tax Act, 1961 is wrong, bad in law. Invalid and void-ab-initio as the Id. AO issued notice under section 274 r.w.s. 271AAB (1A) of I. Tax Act without specifying the default of the assessee.”

All the grounds of appeal have been summarily rejected by the Ld CIT(A) without considering various judicial precedents on the issue submitted before him. Moreover, absolutely identical issue decided by the Hon’ble Bench in other group case namely M/s R P Wood Products Pvt Ltd specifically dealing with absolutely identical legal issue has been ignored/ erroneously distinguished by the Ld CIT (A).

Facts of the case have been duly noted by the Ld CIT (A) as under; “Para 3.1 A search and seizure action u/s 132 of the I.T.Act,1961 was carried out on 13.02.2020 at the residential and business premises of assesseee group and his family members i.e. Saini-Gupta-Jain-Somani Group of Ajmer . Various assets along with certain incriminating documents/loose papers/Books of accounts etc. were also found, inventoried and some of them were also seized or impounded at the time of Search/Survey u/s 132/133A of the I.T.Act,1961.

3.2 The assessee was associated with the above Group. In the instant case the assessee firm has filed its original ROI on 01.01.2021 declaring thereon total income of Rs. 11,65,340/-. During the course of assessment preceding the assessee firm has only furnished revised computation of income, but neither and revised ROI was found neither available on system nor furnished by the assessee

3.3 During the course of Search/Survey proceedings, physical stock was taken. On verification of physical stock tallied with stock as per

Shakti Stonex vs. DCIT books, it was found that the stock was short by Rs. 1,66,21,164/-. During the course of assessment proceedings, the said shortage of stock was considered as undisclosed sales of the assessee and accordingly, G.P. rate @ 14.86% (being declared by the assessee in its revised computation of Total Income) was applied on the undisclosed sales of Rs. 1,66,21,164/-, which comes to Rs. 24,69,905/-. Therefore, after making an addition of Rs. 24,69,905/- on account of G.P. assessment proceedings u/s 143(3) of the I.T. Act, 1961 were completed at total income of Rs. 36,25,245/- vide order dated 29.09.2021. Against the said assessment order, appellant had not preferred an appeal before the Ld. CIT (A). Thereafter, the AO proceeded to finalize the pending penalty proceedings. Penalty proceedings u/s 271AAB (1A) of the I.T.Act, 1961 were initiated separately vide notice dated 29.09.2021 which was duly served. Penalty u/s 271AAB (1A) of the I.T.Act, 1961 was imposed @ 60% of undisclosed income (i.e. Rs. 24, 69,905/-) of Rs. 14, 81,943/-.

Aggrieved by the aforesaid penalty, the appellant has preferred the present appeal. So far as the legal challenge made to the order of the Ld Assessing Officer, the Ld CIT (A) rejected the related grounds as under:

“Para 5 Decision (For grounds 1-3) I have considered the facts of the case, gone through the relevant assessment orders, penalty orders and the paper-book & submission of the appellant and the various case laws. All grounds are related to only imposing penalty u/s 271AAB of the I.T.Act, 1961, therefore all of them are taken as together. The contentions/submissions of the appellant are being discussed and decided as under: 5.5 During the course of assessment proceedings, the assessee Firm has furnished only revised computation of total income, but neither any revised ROI was found available on system nor furnished by the assessee 5.6 Penalty u/s 271AAB (1A) of the I.T.Act,1961 was imposed @ 60% of undisclosed income (i.e. Rs. 24,69,905/-) of Rs. 14,81,943/- considering the provisions of section 271AAB(1A) of the I.T.Act,1961, the assessee was liable to pay a sum computed at the rate of Sixty per cent of the undisclosed income of the specified previous year by way of penalty in addition to tax payable by it as the undisclosed income was not declared in the return of income for the A.Y.2020-21.

5.7 The AO held that the income so surrendered during the course of assessment proceedings was yet to be recorded in the books of account and therefore was in the nature of “undisclosed income” as defined u/s 271AAB of the Act thus qualifying for levy of penalty under the said section. The AO has clearly mentioned in the notice u/s274 r.w.s 271 and 271AAB of the I.T.Act,1961 that undisclosed income

Shakti Stonex vs. DCIT detected pertains to specified previous year and in the assessment order, the AO had made addition only on account of undisclosed income found during the course of search/survey proceedings. Moreover, the appellant had not made compliance of the provisions of clause (a) of the section 271AAB (1A) of the I.T.Act,1961, hence the AO had imposed the penalty as per the provisions of clause (b) of section 271AAB (1A) of the I.T.Act,1961. Hence the contention of the appellant is not acceptable that the notices were without specifying the default of the assessee and without specifying the clause (a) or (b) of the section 271AAB (1A) of the I.T.Act,1961. ” Thus from the decision of the Ld CIT(A) it is evident that Ld Assessing Officer has not specified the exact charge against the assessee either in the assessment order or in the show cause notice or in the penalty notice. Ld CIT (A) merely inferring the charge from the eventual order passed by the Ld Assessing Officer. However, the route taken by the Ld CIT (A) of inferring the cause from the effect is not a legally permissible route. In penalty proceedings, the Assessing Officer is required to show cause the appellant with the specific charge against him. After levy of penalty, deducing the charge from the penalty imposed by the Ld Assessing Officer does not met the requirement of law. Evidently from the penalty levied by the Ld Assessing Officer @60%, Ld CIT(A) is inferring that penalty has been levied under clause (b) of Section 271AAB(1A) of the Income Tax Act. From the order of the Ld CIT (A) it is undisputed fact that before passing the final order, the assessee was never show caused with the specific charge against him.

The law in this regard is fully settled by numerous decisions of the Hon’ble Bench, decisions of coordinate Benches, various High Courts and Hon’ble Supreme Court. The issue is squarely covered by the decision of the Hon’ble Bench in the case of other group concern namely M/s R. P. Wood Products Private Limited, Naya Bazar, Ajmer Vs.DCIT, Central Circle, Ajmer dated 5.7.2023 wherein the Hon’ble Bench held as under:

“We further note that in the case in hand, the AO in the show cause notices has neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty was proposed to be levied. Thus it is clear that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB(1A) are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon’ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently

Shakti Stonex vs. DCIT upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA’s Emerald Meadows, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate Bench as well as Hon’ble Jurisdictional High Court, this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed.” Ld CIT (A) instead referring to the decision of the Hon’ble Bench in tried to distinguish the factual matrix of the present case from the case decided by the Hon’ble Bench. However, it is submitted that the penalty in ITA No 302/JP/2023 was cancelled by the Hon’ble Bench on merit itself and therefore, did not consider the specific challenge to the jurisdiction of the Assessing Officer in imposing penalty without show causing the assessee with specific charge of Section 271AAB(1A) of the Income Tax Act. However, in ITA No 168/JP/2023, the Hon’ble Bench had an occasion to consider the specific legal challenge to the jurisdiction of the Assessing Officer for levying penalty which has been decided by the Hon’ble Bench in favour of the appellant. The present issue being squarely covered by the decision dated 5.7.2023 of the Hon’ble Bench in ITA No 168/JP/2023; the penalty order may please be cancelled. It is prayed accordingly. Identical issue has also been decided by the Hon’ble Bench in the decision dated 05/07/2023 in ITA No 167/JP/2023 in the case of Sh Ghanshyam Tak Vs DCIT Central Circle, Ajmer. Reliance is also placed on the decision of the Hon’ble Bench dated 08/11/2023 in the case of JCIT Ajmer Vs Vijay Kumar Saini ITA No 371/JP/2023. Submissions of merit – While upholding the levy of penalty on the appellant, the Ld CIT(A) held as under: 5.10 The facts of the above case laws quoted by the assessee, are different from the facts of the instant case. In the present case, during the course of Search/Survey proceedings, physical stock was taken. On verification of physical stock tallied with stock as per books, it was found that the stock was short by Rs. 1,66,21,164/-.

5.11 The AO had accepted the income so offered by the assessee by filing revised computation of income during the course of assessment proceedings considering that the income disclosed by the assessee falls under the definition of the undisclosed income of the assessee and Shakti Stonex vs. DCIT the profit declared by the assessee was based on the G.P. rate of the assessee.

“Para 5.16; In the instant case, during the course of Search/Survey proceedings, physical stock was taken. On verification of physical stock tallied with stock as per books, it was found that the stock was short. This is very clear that there was no any ground for shortage of stock found during the course of search/survey proceedings. There are some transactions which were not recorded in the regular books of accounts. These were the unrecorded sales due to which stock was found short during the search/survey proceedings on physical verification. During the course of assessment proceedings, the said shortage of stock was considered as undisclosed sales of the assessee and accordingly, G.P. rate was applied on the undisclosed sales 5.17 Considering the facts that the penalty cannot be deleted argued by the appellant because the case of the assessee is covered by the definition of undisclosed income as defined in the section 271AAB (1A) of the I.T.Act,1961 itself. In this case, the assessee has not made compliance of the provision as laid down in section 271AAB (1A) of the I.T.Act,1961.

Thus, it is evident that the penalty has been imposed on the income disclosed by the Appellant though through filing revised computation of income. However, it is submitted that there is no difference in disclosure of income in the return or disclosure through filing revised computation before the completion of assessment proceedings. Therefore, the penalty which has been levied only on the returned income as substituted by the revised computation is not leviable even on merits. Reliance in this regard is placed on the following decisions:

Hon’ble High Court of Madya Pradesh in the case of CIT Vs Suresh Chand Mittal 241ITR124 (2000) MP

Supreme Court Judgement in Sir Shadilal Sugar and General Mills Ltd. Vs. CIT, [1987]168 ITR 705

Hon’ble ITAT Delhi Bench in the case of M.G.Contractors Pvt.Ltd. Vs DCIT, Central Circle-1, Faridabad in to 7038/Del/2014

Hon’ble High Court of Gujarat in the case of Cheldas Khushaldas Patel And Ors. vs Commissioner Of Income-Tax 1992, 196 ITR 200 Guj held as under:

“7. The Commissioner, in the case of the firm, refused to waive penalty and interest for the assessment years 1976-77 and 1977-78

Shakti Stonex vs. DCIT only on the ground that the returns filed beyond the prescribed period could not be considered to be returns in the eye of law. As pointed out above, since the returns for the said two assessment years were filed beyond the period prescribed for making assessment, the Income-tax Officer issued notice under section 148 of the Act and at the request of the petitioners treated the returns which were earlier filed as returns filed in response to the notice under section 148. It is urged on behalf of the Revenue that disclosure of income voluntarily and in good faith, as envisaged under sub-clauses (a) and (c) of sub-section (1), could be made only by filing a valid return and, if disclosure was not made by a valid return, such disclosure could not be considered, even if it was made voluntarily and in good faith

Thus, in view of the legal position as to the true import of filing revised computation of income, explained by the Hon’ble High Court of Gujarat, the appellant cannot be held guilty of not furnishing correct particulars of its income. Merely because there is no express provision u/s 153A of the Act for revising the return of income, the revised computation which has the effect of substituting the original computation and particularly in the circumstances when the revised computation has not been tinkered with by the Ld AO in any manner and has been accepted as it is, the assessee should not be visited with a penalty for citing technicalities alone. Evidently, the revised computation of income is in substitution of original computation of income and has to be treated as such. In the circumstances, the appellant cannot be visited with a penalty. Hon’ble Ahmedabad Bench of the Tribunal in decision dated 17th May 2023 in the case of DCIT, Central Circle-1(1), Ahmedabad v. NBM Iron & Steel Trading Pvt. Ltd. [ITA No. 205/Ahd/2022, dated May 17, 2023] held that if an assessee during a survey surrendered his income and later showed that income in his regular income tax return, no penalty can be imposed on the assessee. Delhi Bench of the Hon’ble ITAT in the case of ACIT vs. Ashok Raj Nath [2015-ITR V-ITAT-MUM-129] has held that when the assessee voluntary disclosed additional income in the course of assessment proceedings and paid tax thereon and revenue has not placed any material that assessee want to conceal his income there is no basis arises for imposition of penalty. Hon’ble ITAT Mumbai Bench in the case of ITO vs. Gope M. Rochlani [2013-ITRV-ITAT-MUM-119] has held that undisclosed income offered in belated return filed u/s 139(4) is eligible for immunity from penalty under Explanation 5 to s. 271(1)(c). In the circumstances, it is prayed that the penalty levied by the Ld Assessing Officer and upheld by Ld CIT (A) be cancelled. It is prayed accordingly.”

6. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). She further submitted that Shakti Stonex vs. DCIT the assessment is pursuant to the search, merely filling the revised computation does not escape the penal provision of the Act. The case law relied upon by the assessee has been distinguished by the ld. CIT(A).

The ld. AO considered this addition of Rs. 24,69,905/- on account of G.P. as undisclosed income of the assessee and based on that assessment proceedings u/s 143(3) of the I.T. Act, 1961 were completed at total income of Rs. 36,25,245/- vide order dated

Shakti Stonex vs. DCIT 29.09.2021. Against the said assessment order, appellant had not preferred an appeal before Ld. CIT (A). Since there was no appeal pursuant to the assessment the ld. proceeded to finalize the pending penalty proceedings based on the provision of section 271AAB (1A) of the I.T.Act, 1961. Penalty u/s 271AAB (1A) of the I.T.Act, 1961 was imposed @ 60% of undisclosed income (i.e. Rs. 24, 69,905/-) of Rs. 14,81,943/-. The levy of the penalty was challenged before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee by observing that ;

In the present case the assessee had neither disclosed such unaccounted income in ROI filed nor paid any taxes before filing ROI. Instead of this, the assessee had filed revised computation just before finalisation of the assessment order. The language of this section is very much clear. The law does not allow any exemption from penalty on filing revised computation during assessment proceedings in this section. The exemption up to 30% penalty has provided only if the assessee had offered such undisclosed income in ROI and paid taxes on it. As the assessee had not complied the above conditions, therefore the penalty at the rate of 60% as mentioned in this section is clearly applicable. It is important to mention here that there are specified conditions in the Act for imposing penalty at the rate 30% or 60%. Thus, any liberal view cannot be taken that the revised computation filed during assessment proceedings to be considered as ROI filed before due date D Therefore, I uphold the order of the AO, for imposing the penalty @ 60 percent as per provisions of clause (b) of sub-section (1A) of section 271AAB of the I.T.Act, 1961.

8. The bench noted that in the present case the profit is estimated on amount of stock which was found short by Rs.

Shakti Stonex vs. DCIT 1,66,21,164/-. The said shortage of stock was considered as undisclosed sales of the assessee and accordingly, G.P. rate @ 14.86% (being declared by the assessee in its revised computation of Total Income) was applied on the undisclosed sales of Rs. 1,66,21,164/-, which comes to Rs. 24,69,905/-. The assessee filed the revised computation of income and offered the said income.

The ld. AO considered this addition of Rs. 24,69,905/- on account of G.P. as undisclosed income of the assessee and based on that assessment proceedings u/s 143(3) of the I.T. Act, 1961 were completed at total income of Rs. 36,25,245/- vide order dated 29.09.2021. Thus, the bench noted the disclosure of additional income in the computation of income itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls within the definition of undisclosed income defined in the explanation to section 271AAB(1A) of the Act. Therefore, the question whether the income offered in the revised computation of income by estimating the gross profit is undisclosed income as per the definition of undisclosed income or not. It is not disputed that the income disclosed is based on the estimation of profit. That profit amount

Shakti Stonex vs. DCIT disclosed on estimation of profit is not represented either wholly or in part 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. Here in the present set of facts the stock found in short, and on that short stock profit offered as income estimating the percentage of profit. Based on these facts the ld. AO has levied the penalty under section 271AAB of the Act in respect of the income surrendered by the assessee on estimation of profit. The question arises whether the surrender made by the assessee in the computation of income on the stock found shortage will be regarded as undisclosed income without testing the same with the definition as provided under clause (c) of Explanation to section 271AAB of the Act. There is no dispute that during the course of search stock to the extent of Rs. 1,66,21,164 was found short, the assessee has disclosed the income on profit estimation by 14.86 % which was confirmed by the ld. AO.

However, for the purpose of levying the penalty under section 271AAB, the primary condition is that the assessee shall pay the penalty equivalent to 10 percent, 20 percent or 30 percent of undisclosed income of specified previous year depending upon the Shakti Stonex vs. DCIT ‘satisfaction’ of the condition as provided under section 271AAB.

The term "undisclosed income" has been defined in clause (c) of the Explanation to section 271AAB and, therefore, the penalty under the said provision has to be levied only when the income surrendered by the assessee falls in the ambit of ‘undisclosed income’ as defined under this section. Therefore, it is imperative to peruse the said definition, and it 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 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.

AO and sustained by the ld. CIT (A) is deleted. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 19/01/2024.