Rekha Goyal Vs ACIT (ITAT Jaipur)
Summary: The appeal concerned levy of penalty under section 271AAB of the Income Tax Act, 1961 for AY 2020-21. A search and seizure action under section 132(1) was carried out on 23.01.2019 in the case of the Goyal Group, Neem Ka Thana, to which the Assessee belonged. The Assessee, proprietor of M/s Global Industries, filed her return declaring total income of Rs 7,95,900. During the search, physical stock was inventoried at Rs 5,17,350 against book stock of Rs 17,20,285, resulting in an alleged shortage of Rs 12,02,935. The Assessing Officer treated the shortage as representing unrecorded sales and estimated profit at the gross profit rate of 16.65%, making an addition of Rs 2,00,289 while completing the assessment under section 143(3) read with section 153B(1)(b). Penalty of Rs 1,20,170, being 60% of the estimated profit addition, was subsequently levied under section 271AAB(1A)(b) and confirmed by the CIT(A). Before the Tribunal, the Assessee contended that no money, bullion, jewellery, valuable article or thing, entry, document or transaction evidencing unrecorded sales was found during the search and that the alleged undisclosed income was only an estimate derived from an inferred stock shortage. The Tribunal examined the statutory definition of “undisclosed income” in the Explanation to section 271AAB and held that the definition requires a tangible foundation found during the search to which the income can be traced. A shortage represented the absence of stock shown in the books and was a conclusion drawn from comparison of physical inventory with book stock; it was not an asset or transaction found during the search. The Tribunal further held that the Rs 2,00,289 addition was arrived at by applying the gross profit rate to a figure itself derived from an inference and therefore did not constitute income represented by money, bullion, jewellery, valuable article or thing, entry, document or transaction found in the search. The Tribunal also distinguished between estimation of quantum where undisclosed income is otherwise established and the present case, where the very existence of unrecorded sales rested on an inference. Rejection of the Assessee’s explanation regarding incomplete tally data, purchases and production and non-inventory of plastic bags did not amount to a finding that the explanation was false. The Tribunal further observed that assessment and penalty proceedings are distinct and acceptance of the addition without appeal, having regard to the smallness of the amount, could not by itself be treated as an admission of undisclosed income. Holding that the statutory conditions for penalty had not been established and that section 271AAB, being penal in nature, had to be construed strictly, the Tribunal set aside the CIT(A)’s order and directed deletion of the penalty of Rs 1,20,170. Ground No. 1 was allowed, Ground No. 2 was treated as general and Ground No. 3 seeking costs was rejected. The appeal was partly allowed.
