RATANLAL MARADIA,MUMBAI vs. DCIT CEN CIR 20, MUMBAI

In this appeal, the short point involved relates to penalty of Rs.1,16,392/- imposed by the Assessing Officer u/s 271AAA of the Act.

In brief, the relevant facts are that the assessee is an individual belonging to Nissan Copper group which was covered under search action u/s 132(1) of the Act. In an assessment finalised u/s 143(3) r.w.s. 153B(1)(b) of the Act dated 31.12.2010, two additions were made to the returned income; firstly, unexplained jewellery – Rs.7,63,920/-; and secondly, unexplained cash – Rs.4,00,000/-. Subsequently, the Assessing Officer levied penalty u/s 271AAA of the Act on the aforesaid two additions equivalent to 10% thereof, which came to Rs.1,16,392/-. The said penalty has since been affirmed by the CIT(A), against which assessee is in appeal before us.

Before us, the only issue raised by the assessee is with regard to the penalty imposed on an addition of Rs.7,63,920/- made as unexplained investment in jewellery. The learned representative for the assessee vehemently pointed out that though the addition has been made as unexplained investment in jewellery, but considering the status of assessee, financial capacity and size of family, etc., it cannot be said that the amount of jewellery in question was unreasonable. It was pointed out that though the assessee has accepted the addition, but there was no justification for treating the same as ‘undisclosed income’ for the purpose of levy of penalty u/s 271AAA of the Act.

On the other hand, the Ld. DR appearing for the Revenue pointed out that penalty has been levied by the Assessing Officer as the impugned sum has been assessed as undisclosed income in the assessment finalised u/s 143(3) r.w.s. 153B(1)(b) of the Act.

Sec. 271AAA of the Act prescribes for levy of penalty @ 10% of the ‘undisclosed income’ pertaining to the specified previous year. ‘Undisclosed income’ in the context of Sec. 271AAA of the Act means any income represented by money, bullion, jewellery or other valuable article or thing which was found in the course of search and not found to be recorded in the books or other documents maintained in the normal course or it has not been otherwise disclosed to the Department before the date of search. Essentially, undisclosed income would mean an amount which should have been disclosed by the assessee but the same was not disclosed prior to the date of search. In the present case, as per the Revenue the addition of Rs.7,63,920/- on account of unexplained investment in jewellery reflects such an undisclosed income and, therefore, Sec. 271AAA of the Act is attracted. The case set-up by the assessee before us is that though such an amount has been assessed as unexplained jewellery, but the same cannot be construed as an ‘undisclosed income’ for the purpose of Sec. 271AAA of the Act considering the background of the assessee. It has been pointed out that assessee is a Director of M/s. Nissan Copper Ltd., the main concern of the group, and his family consists of himself, his wife and two male children. It was also explained that assessee has been married for almost 20 years and the jewellery found at the time of search was acquired by way of purchase, on the occasion of marriage, birth of children from parents as well as from the in-laws, etc. In this context, we have also perused the assessment order passed u/s 143 r.w.s. 153B(1)(b) of the Act and find that the amount of Rs. 7,63,920/- has been computed as ‘unexplained investment’ on an estimate basis. Notably, the total jewellery found was to the tune of Rs.36,98,920/- and after giving set-off of the amount admitted by the assessee, Assessing Officer gave further credit of upto 500 gms. of jewellery for married ladies and 100 gms. for male members of the family. After considering such estimation, the balance of Rs.7,63,920/- has been held to be unexplained. In our view, the manner in which the addition has been computed, it cannot be clinchingly said to be an ‘undisclosed income’ within the meaning of Sec. 271AAA of the Act. Notably, Sec. 271AAA of the Act seeks to consider undisclosed income to be an income which is not recorded in the books or other documents maintained in the regular course or otherwise not disclosed before the date of search. No doubt, the income of Rs.7,63,920/- has been assessed on valid ground, so however, in order to attract the levy of penalty u/s 271AAA of the Act it is also necessary to establish that such income ought to have been recorded by the assessee in the books or other documents maintained in the regular course or otherwise disclosed to the Department before the date of search. The moot point is as to whether an addition, which is made on an estimate basis, can be construed to be an income which ought to have been recorded in the books or other documents or disclosed to the Department by the assessee? The answer, in our view, is NO. In our considered opinion, if the matter is considered in the said light, the impugned addition of Rs.7,63,920/- would not fall within the expression ‘undisclosed income’ so far as it is defined for the purposes of levy of penalty u/s 271AAA of the Act. Thus, in our view, the impugned addition made during the assessment proceedings cannot be ipso facto understood as ‘undisclosed income’ as defined in Sec. 271AAA of the Act. Therefore, on this count itself, we find merit in the plea of the assessee and it is directed that the penalty imposed u/s 271AAA of the Act with respect to the amount of unexplained jewellery of Rs.7,63,920/- be deleted.

Insofar as the penalty imposed with respect to the unexplained cash of Rs. 4,00,000/- is concerned, the learned counsel for the assessee conceded the position and in this view of the matter, the same is hereby affirmed.

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