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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri T.R. Senthil Kumar
Shri Atman Rajnikantbhai The DCIT, Bhesdadiya Central Circle-1, L/R of Late Shri Vs Rajkot Rajnikant Bhesdaddiya Block No. 201, Rudraksh (Respondent) B-Apartment Vidhya Kunj Main Road, Opp. Shree Colony, Rajkot, Gujarat PAN No: AEOPP1448R (Appellant) Assessee Represented: Shri Mehul Ranpura, A.R. Revenue Represented: Shri Shramdeep Sinha, CIT-DR Date of hearing : 08-11-2023 Date of pronouncement : 20-12-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 27.02.2023 passed by the Commissioner of Income Tax (Appeals)-11, Ahmedabad confirming the levy of penalty under section 271AAB of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2017-18.
Page No 2 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT
The brief facts of the case is that the assessee is an individual deriving remuneration as director in M/s. Sadguru Cotton Pvt. Ltd. and income from other sources and agricultural activities. There was a search operation u/s. 132 of the Act was carried out at the premises of the assessee on 10.08.2016. However the Investigation Wing could not found any incriminating material during the course of search. The assessee filed his Return of Income on 31.03.2018 declaring total income of Rs.9,84,720/- (which includes additional income of Rs.7,50,000/-) and agricultural income of Rs.2,69,043/-. The return was taken for scrutiny assessment and the returned income of Rs.9,84,720/- was fully accepted. However in the agricultural income, wherein an addition of Rs.46,957/- was made by estimating average yield of cotton crops during the year and treated the same as undisclosed cash credit u/s. 68 of the Act.
Aggrieved against the appellate order, the assessee filed an appeal before Commissioner of Income Tax (Appeals) who has confirmed the above addition (estimation). It is thereafter the Assessing Officer issued show cause notice u/s. 274 r.w.s. 271AAB that the assessee has inflated his agricultural income, which would have been otherwise offered under any other head of income. In response, the assessee replied that the addition of Rs.46,957/- was made on account of estimation of yield of cotton crops grown during that period, which by no means can be termed as undisclosed income. There is no nexus between additional income declared by the assessee and seized materials by the department. Thus the additional income declared in the return of income cannot be termed as “undisclosed income”. Therefore the question of levy Page No 3 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT of penalty u/s. 271AAB does not arise and penalty cannot be levied on estimation of income. Therefore requested to drop the penalty proceedings.
3.1. The above reply was considered by the A.O. however not satisfied with the same and levied penalty @ 20% of Rs.7,50,000/- (Rs.1,50,000/-) u/s. 271AAB(1)(b) and Penalty @ 30% of Rs.46,957/- (Rs.14,087/-) u/s. 271AAB(1)(c) of the Act. Thus total penalty of Rs.1,64,087/- was levied.
Aggrieved against the appellate order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). The Ld. CIT(A) confirmed the levy of penalty by a detailed order which reads as follows: “…7.6.1 It is important to mention here that during the course of search action u/s. 132 of the Act, the statement of the appellant Shri Rajnikant L. Bhesdadiya was recorded. In the statement, the appellant could not explain the transactions mentioned in the incriminating documents found in his reply of question no. 6, 7, 8, 11 etc. It is also important to mention here that during the course of search action, some bills/vouchers were found related to the appellant's son marriage and in the statement, the appellant had admitted that some bills/vouchers were not recorded in the books of accounts. Accordingly, keeping in view of discrepancies found during the course of search action and for the intention of justify the same, the appellant had disclosed additional income of Rs.7,50,000/- in the return of income paid the taxes on it on or before the specified date mentioned in the provision of section 271AAB. Thus, it can be concluded that the appellant had disclosed the additional income in the return of income on the basis of incriminating documents. It is also significant to mention here that the appellant was very well aware about the defects noticed by the Department in the statement recorded during the search action, in effect prevented the Department to further investigate/calculate the actual additions/disallowances. Therefore, provisions of section 271AAB would automatically attract in the case of appellant as held by Hon'ble courts cited supra. 7.7 It is also significant to mention here that during the course of assessment proceedings, the AO after considering the details available on record, had made addition of Rs.46,957/- as unexplained cash credit Page No 4 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT
u/s.68 of the Act. Further, the action of the AO was also upheld by the CIT(A)-4, Ahmedabad by confirming the said addition while passing the appellate order. Therefore, as per the provision of section 271AAB, the AO had rightly levied penalty u/s.271AAB(1)(c) of the Act on the said confirmed addition as the said addition amount was neither admitted by the appellant in the statement recorded nor disclosed the same in the return of income filed. 7.8 In view of above discussion and factual matrix of the case, penalty levied by AO u/s.271AAB(1)(b) for Rs.1,50,000/- on additional undisclosed Income of Rs.7,50,000/- and u/s 271AAB(1) (c) for Rs.14,087/- on confirmed addition of Rs.46,957/- is confirmed. Thus, the grounds of appeal no. 2, 3, 4 & 5 are dismissed.”
5. Aggrieved against the appellate order, the Assessee is in appeal before us raising the following Revised Grounds of Appeal: 1.0 The grounds of appeal mentioned hereunder are without prejudice to one another. 2.0 The learned Commissioner of Income-tax (Appeals)-2 (hereinafter referred to as the Id. "CIT(A)"] erred on facts as also in law in confirming penalty of Rs.1,50,000/- levied u/s 271AAB(1)(b) of the Act on ad-hoc disclosure of Rs.7,50,000/- and Rs.14,087/- u/s.271AAB(1)(c) on addition confirmed of Rs.46,957/-. The penalty confirmed u/s. 271AAB of the Act is totally unjustified on Tacts as also in law, may kindly be deleted. 3.0 Your Honor's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.
6. Ld. Counsel Shri Mehul Ranpura appearing for the assessee submitted that the penalty proceedings initiated by the A.O. suffers from procedural as well as legal infirmity as the notice does not specify under which limb, penalty u/s. 271AAB had been initiated. Thus Ld. A.O. initiated the penalty proceedings in a mechanical manner by issuing pre-printed draft proforma of notice, the same is bad in law and relied upon various case laws. Further penalty u/s. 271AAB is not mandatory because parliament in its wisdom use the word “may” and not “shall”. Further the additional income Page No 5 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT disclosed in the Return of Income would not ipso facto partake the character of “undisclosed income”.
6.1. As per the Explanation of “undisclosed income” if it is represent by money, bullion, jewellwery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of search. All if any income is represented by any expense found recorded if any documents/books found in the search, then it could be recognized as undisclosed income. The additional income of Rs.7,50,000/- offered by the assessee was not found during the course of search and will not fall under the above definition of “undisclosed income”. Therefore penalty cannot be levied.
6.2. Similarly the disallowance made in the agricultural income is based on the estimation made by the Assessing Officer, in such case of estimation, no penalty could be levied and relied upon various case laws and therefore pleaded to delete the entire penalty.
Per contra, Ld. CIT-DR Shri Shramdeep Sinha appearing for the Revenue supported the orders passed by the Lower Authorities and pleaded to confirm the levy of penalty and requested to dismiss the above appeal filed by the assessee.
We have given our thoughtful consideration and perused the materials available on record including the Paper Book and case laws filed by the assessee. It is an undisputed fact that search was carried out at the premises of the assessee on 10.08.2016 which is the “specified previous year” and the due date for filing Return of Page No 6 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT Income u/s. 139(1) has not expired. The A.O. issued a notice u/s. 142(1) on 28.07.2017 requiring the assessee to file the Return of Income for A.Y. 2017-18. In response, the assessee filed his Return of Income on 31.03.2018 showing total income of Rs.9,84,720/- which is inclusive of additional income of Rs.7,50,000/- offered by the assessee. It is seen from the assessment records that there is no seized material relating to any undisclosed income from the assessee. However during the course of assessment proceedings, the Assessing Officer made estimation on the excess receipt of expenses in relation to agricultural income claimed by the assessee and made estimation of Rs.46,957/- and added as unexplained cash credit u/s. 68 of the Act.
8.1. For adjudicating the levy of penalty is correct in law or otherwise, Section 271AAB is reproduced as follows: Penalty where search has been initiated. 271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 201254[but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; Page No 7 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date— (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum 55[which shall not be less than thirty per cent but which shall not exceed ninety per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). 55a[(1A) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).] (2) No penalty under the provisions of 56[section 270A or] clause (c) of sub- section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) 56a[or sub-section (1A)]. (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "specified date" means the due date of furnishing of return of income under sub- section (1) of section 139 or the date on which the period specified in the notice Page No 8 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT issued 42[under section 148 or under section 153A, as the case may be,] for furnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (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.
8.2. A perusal of the above section its concerning with search cases in respect of “undisclosed income” which is contrast to “concealed income” wherein penalty is levied under normal provisions of Section 271(1)(c) of the Act. Thus the applicability of penalty u/s. 271AAB revolves within the sphere of “undisclosed income”. A plain reading of the explanation and definition of “undisclosed income” clearly shows that the undisclosed income could be represented money, bullion, jewellery or other valuable articles or things or any unrecorded entry as per documents found or any false entry recorded in the books of accounts, etc. There is no such reference of money, bullion, jewellwery or any other items Page No 9 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT mentioned in the above definition of “undisclosed income” were mentioned either in the assessment order or in the penalty order by the A.O. The assessee’s offer of additional income, which does not amount to undisclosed income as per the above definition. The A.O. has not brought on record any material which points to the “undisclosed income” as defined u/s. 271AAB of the Act. Whereas Ld. CIT(A) in his order refers to the questions stated in the statements recorded u/s. 132(4) of the Act, namely assessee’s son marriage expenses. In our considered view, any disclosures made in the course of search and statement recorded u/s. 132(4) itself cannot be construed as “undisclosed income” as per the definition provided in the Act. Further there is no incriminating material found by the Revenue on the alleged additional income offered by the assessee. Thus the levy of penalty u/s. 271AAB is against the provisions and inbuilt definition in the Act. Therefore the same is not sustainable in law.
The above view of ours is supported by Co-ordinate Bench of this Tribunal in the case of Shri Jasubhai Arjabhai Vaghasia and Ors. vide order dated 17.05.2018 in and Shri Jitendra Aghara and two Others in IT(SS)A Nos. 1 to 3/Rjt/2017 vide order dated 01.06.2018 wherein it is held as follows: “…..8.3 A perusal of special provisions of section 271AAA, concerning search cases show that it is applicable in respect of “undisclosed income” in contrast to “concealed income” relevant for the purposes of penalty proceedings under normal provisions of section 271(1)(c) of the Act. The applicability of penalty under section 271AAA thus revolves within the sphere of “undisclosed income”. 8.4. A plane reading of the aforesaid definition of ‘undisclosed income’ clearly shows that the undisclosed income should be represented by money, bullion jewellery or other valuable articles or things or any Page No 10 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT unrecorded entry as per documents found or any false entry recorded in the books of account etc. No such reference or nexus of disclosure to such specified items were made in the assessment order or in the penalty order. In view of the statutory definition of undisclosed income, a disclosure made merely to buy peace does not tantamount to ‘undisclosed income’ per se. The applicability of section 271AAA is dependent upon the income falling within the sweet of clear and express definition of expression “undisclosed income”. An ad-hoc and lumsum declaration as a consequent of search without any reference made by A.O towards any money, bullion, jewellery or other valuable articles or thing or any entry in the books of account etc. cannot be deemed to be automatically an undisclosed income for the purposes of imposition of penalty under section 271AAA of the Act. The onus is on A.O to bring on record material which points to ‘undisclosed income’ as defined under section 271AAA of the Act. As noted, no reference to underlying material is found in the orders of lower authorities. A simple disclosure made in the course of search under section 132(4) in itself cannot be deemed to be ‘undisclosed income’ in view of the limitations placed in the definition thereof.
9. Therefore we are of the considered view that in the absence of any incriminating material referred for the purposes of assessing alleged undisclosed income, the imposition of penalty under section 271AAA is without any legal foundation and thus not permissible.
In view of the aforesaid discussion, we do not consider it necessary to advert to the alternative plea of the assessee for imposition of penalty with reference to ad-hoc amount of declaration alone.
11. The order of the Assessing Officer towards imposition of penalty under section 271AAA is therefore set aside and the Assessing Officer is directed to delete the penalty so imposed.
In the result appeal of the assessee is allowed. 11.3 As noted above, the Co-ordinate Bench has dealt with identical issue and held that in the absence of any reference to tangible material, mere act of acquiesce of ad-hoc income under section 132(4) of the Act cannot be covered within the sweep of “undisclosed income” for the purposes of imposition of penalty under section 271AAB of the Act. In the present case, the penalty has been imposed in terms of the amended provision for imposition of penalty under section 271AAB of the Act. However, the definition of “undisclosed income” under erstwhile section 271AAA and section 271AAB are identical. Therefore, the plea of the assessee that in the absence of reference to any incriminating material, imposition of penalty under section 271AAB is without any legal foundation, gets support from the decision of Co-ordinate Bench.
Page No 11 Shri Atman Rajnikant Bhesdadiya. Vs. DCIT 11.4 It is also pertinent to state that the AO imposed penalty in a nonchalant manner and has probably mis-understood the imposition of penalty as an automatic consequence. The income offered has neither been related to specified previous year nor the reference was made any document etc. to cover the declaration within the sphere of ‘undisclosed income’. Such summary action of the Assessing Officer functioning in quasi judicial capacity cannot be endorsed. The penalty order is thus vitiated due to non application of mind also. The order of the Assessing Officer dated 16.07.2015 towards imposition of penalty under section 271AAB is therefore set aside and consequently, the Assessing Officer is directed to delete the penalty so imposed.
12. In the result, appeal of the assessee in is allowed in part.”
10. Respectfully following the above decisions of the Co-ordinate benches, we hereby delete the levy of penalty of Rs.1,50,000/- levied u/s. 271AAB(1)(b) of the Act.
It is well settled principle of law that penalty cannot be levied against estimation as held by the Jurisdictional High Court in the case of Jumabhai Premchand (HUF) Vs. CIT 243 ITR 812. Therefore the penalty of Rs.14,087/- levied u/s. 271AAB(1)(c) is also hereby deleted.
12. In the result, the appeal filed by the Assesse is allowed.