Shri Padam Chand Pungliya Vs ACIT (ITAT Jaipur)
Conclusion: Penalty under section 271AAB could not be imposed on assessee as old jewellery found in the locker of assessee and family members could not be treated as undisclosed for the purpose of levying penalty.
Held: Department recovered some jewellery from assessee during the course of search proceedings and brought the same under the head ‘undisclosed income’ by observing that it represented the bullion and valuable articles and in the absence of the same found recorded in the books of account of assessee it was undisclosed income as per the definition provided under section 271AAB. Accordingly, penalty under said provision was levied. It was held once the jewellery was not found to be purchased during the year under consideration, then the same could not be treated as an undisclosed income for the year under consideration which was specified previous year. The jewellery belonged to the family members of assessee and found in the locker 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 was not permissible. Hence when the department had 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 was inherited, then the manner in which the disclosure was obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AABt. Therefore, the personal jewellery of assessee and family members acquired in the past and some part of which was also inherited would not fall in the ambit of undisclosed income. Hence the penalty levied by AO against such disclosure was not sustainable.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against the order dated 22th November, 2017 of ld. CIT (A)-4, Jaipur arising from the penalty order passed under section 271AAB of the IT Act for the assessment year 2014-15. The assessee has raised the following grounds :-
“ 1. That the notice issued by assessing officer for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law not being specifically pointing out the default for which the ld. A.O. sought to impose penalty u/s 271AAB.
2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case the ld. CIT (A) is wrong, unjust and has erred in law in confirming penalty of Rs. 50,16,672/- imposed by the ld. Assessing Officer u/s 271AAB of the IT Act, 1961.
3. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them.”
Ground No. 1 is regarding validity of initiation of penalty proceedings under section 271AAB of the IT Act for want of specifying the default as per clause (a) to (c) of section 271AAB(1) of the IT Act.
2. A search and seizure action under section 132(1) of the I.T. Act was carried out on 4th September, 2013 at various premises of Rambhajo group, Jaipur. The assessee is also one of the members of this group covered by the search and seizure action. During the course of search and seizure action, the assessee disclosed undisclosed income of Rs. 5,01,66,717/- being an additional business income. The said income was surrendered by the assessee on account unexplained expenditure on house construction of Rs. 2,44,63,575/-, undisclosed stock of Rs. 1,91,24,877/-, undisclosed jewellery of Rs. 60,16,265/- and undisclosed debtors/advances of Rs. 5,62,000/- total amounting to Rs. 5,01,66,717/-. The assessee filed his return of income on 28th November, 2014 under section 139(1) declaring total income of Rs. 5,06,89,010/- which included the said additional income of Rs. 5,01,66,717/- offered to tax in the course of search. The assessment under section 143(3) read with section 153B(1)(b) of the IT Act was completed on 30th March, 2016 accepting the returned income. Subsequently, the AO initiated the penalty proceedings under section 271AAB of the Act by issuing show cause notices dated 30th March, 2016 and 16.08.2016. The assessee raised objection against the levy of penalty by filing the reply and written submissions and mainly contended that the additional income was disclosed and offered to tax to buy peace and avoid litigation and, therefore, the penalty cannot be levied under section 271AAB of the Act. The AO did not accept the contention of the assessee and levied the penalty @ 10% of the undisclosed income while passing the order dated 29th September, 2016. The assessee challenged the action of the AO before the ld. CIT (A) and submitted that the provisions of section 271AAB are not applicable in the case of the assessee as it was not undisclosed income but an additional business income. Further, the assessee contended that the said amount was surrendered only to buy peace and not as an actual undisclosed income of the assessee. The assessee referred to the provisions of the Act and submitted that the AO has to decide the levy of penalty after considering the facts of the case and, therefore, it is not a mandatory provision but it is a discretion of the AO. The ld. CIT (A) did not accept this contention of the assessee and held that the levy of penalty under section 271AAB is mandatory in nature. Accordingly, the appeal of the assessee was dismissed.
3. Before us, the ld. A/R of the assessee has submitted that the AO while issuing the show cause notice under section 274 read with section 271AAB has not specified the default of the assessee in terms of clause (a) to (c) of section 27 1AAB of the Act. Therefore, the initiation of penalty proceedings is illegal due to show cause notice is defective. Therefore, the notices were issued in routine manner without mentioning under which clause of section 271AAB(1) of the Act the assessee is liable for penalty. He has referred to the provisions of section 271AAB(1) and submitted that there are three clauses (a) to (c) and each clause of sub-section (1) provides the circumstances and violation attracting the penalty @ 10%, 20% and 30% of undisclosed income of the specified previous year. The assessee should know the grounds which he has to meet specifically otherwise the principles of natural justice are violated. Even in the assessment order the AO has not specified under which clause the penalty is liable to be imposed but the AO has mentioned that the penalty proceedings under section 271AAB of the Act are being initiated. There is no application of mind at the time of issuing the show cause notices as the AO has not specified the undisclosed income on which the assessee is required to show cause. Even the AO has not given any ground for levy of penalty for which the assessee could put his defence. Thus in the absence of specific charge against the assessee, the assessee was not given the proper opportunity to counter the show cause notice issued by the AO as well as to file the cogent reply to the same. In the absence of any grounds specified in the show cause notice as well as any amount to be treated as undisclosed income of the assessee for the purpose of levy of penalty under section 271AAB, the initiation of penalty is not valid and, therefore, the consequential order passed under section 271AAB of the Act is also liable to be quashed. In support of his contention, he has relied upon the following decisions :-
CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karnataka)
Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka)
CIT vs. SSA’s Emerald Meadows 73 taxmann.com 248 (SC)
Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018.
Apart from the above decisions, the ld. A/R has also referred to a series of decisions on this point that penalty proceedings under section 271AAB is not mandatory but discretionary and the AO has to take a decision by considering the reply and explanation of the assessee and giving a finding whether the income disclosed by the assessee during the search and seizure action is undisclosed income as per the definition provided in the explanation to section 271AAB of the IT Act.
4. On the other hand, the ld. D/R has submitted that the levy of penalty under section 271AAB is mandatory in nature and, therefore, the AO is not required to specify the clause as per sub-section (1) of section 271AAB of the Act in the show cause. He has referred to the explanatory note of Finance Bill, 2012 whereby the provisions of section 271AAB is inserted in the Statute and submitted that the legislature has made it clear that the penalty under section 271AAB is mandatory in nature. The ld. D/R has submitted that the assessee was very well aware about the default and the nature of income he has disclosed and surrendered during the statement recorded under section 132(4) of the IT Act. The surrender in question was made because the assessee was unable to explain the source of the investment in question. It is a clear case of undisclosed income detected during the course of search and seizure action and, therefore, the surrender made by the assessee himself is self-explanatory to the nature of income surrendered by the assessee. The ld. D/R has contended that the assessee has participated in the penalty proceedings and has not raised any objection or has demanded before the AO about his unawareness of the nature of default attracting the levy of penalty under section 271AAB. It is not the case of the assessee that the disclosure was taken under coercion and further the assessee has offered the said amount to tax in the return of income which rules out the scope of any pressure or coercion by the search team for taking disclosure from the assessee. Thus the objection raised by the assessee that the AO has not specified the clause under section 271AAB(1) of the Act has no merit when the assessee himself has explained the nature of income disclosed and surrendered and also paid the tax on the same. The ld. D/R has submitted that as per the explanatory note of Finance Bill, 2012, the provisions of section 271AAB are mandatory in nature and the AO has no discretion but the assessee shall pay the penalty in addition to the tax on the undisclosed income surrendered under section 132(4) of the Act. He has relied upon the orders of the authorities below.
4.1. The ld. D/R has also relied upon the decision of Hon’ble Allahabad High Court in case of Principal CIT vs. Sandeep Chandak and Others dated 27th November, 2017 in I.T. Appeal No. 122, 128 and 129 of 2017 and submitted that even otherwise if the show cause notice does not mention the section correctly it will not be invalid as the AO will get the benefit of section 292BB of the Act. The ld. D/R has also relied upon the decision of Kolkata Bench of the Tribunal in the case of DCIT vs. Amit Agarwal, 88 taxmann.com 288.
5. We have considered the rival submissions as well as the relevant material on record. During the course of search and seizure action under section 132 conducted on 4th September, 2013, the assessee disclosed income of Rs. 5,01,66,717/- in his statement made under section 132(4) of the Act. The said disclosure was made in pursuant to the entries in the seized documents. The details of the undisclosed income surrendered by the assessee are as under :-
