Mukesh Kumar Ranka Vs ACIT (ITAT Indore)
The Tribunal examined the rival submissions and case records, focusing on the scope and applicability of penalty under section 271AAB of the Income-tax Act. The Bench first referred to two key judicial precedents to outline the legal position on the interpretation of “undisclosed income” and the mandatory or discretionary nature of penalty under the provision. In the Jaipur Bench decision in Rajendra Agarwal v. DCIT, authored by the same Judicial Member, it was held that penalty under section 271AAB cannot be imposed unless the income disclosed during a search satisfies the statutory definition of “undisclosed income,” which requires that the income represent money, valuables, or book entries found during the search that were not recorded in the regular books on the date of search. It was emphasized that a mere statement under section 132(4) does not convert recorded income into undisclosed income, and that where seized documents are not incriminating or already form part of regular records, the conditions for penalty are not fulfilled. The Tribunal reaffirmed from earlier rulings, including Ravi Mathur, that section 271AAB is neither automatic nor mandatory. The Assessing Officer must issue a proper show-cause notice, examine the assessee’s explanation, and evaluate whether the surrendered amount meets the statutory test of “undisclosed income.” The Assessing Officer must also decide which clause—10%, 20%, or 30%—is applicable based on the nature of default. The Tribunal concluded that disclosure under section 132(4) alone does not trigger penalty, especially where diary entries relate to periods other than the search year or where the seized documents do not show unrecorded income.
The Tribunal evaluated the decisions cited by the Department and held that they provided no assistance for sustaining penalty. The judgment in Pr. CIT v. Sandeep Chandak dealt only with curable defects in penalty notices under section 292BB and did not address the substantive requirements of section 271AAB. The decision in DCIT v. Amit Agarwal, relied upon by the Revenue, had been recalled and therefore had no existence. The Tribunal then considered whether penalty under section 271AAB is mandatory or discretionary and referred to the Visakhapatnam Bench decision in ACIT v. Marvel Associates, which held that the phrase “may direct” and the incorporation of sections 274 and 275 make the penalty discretionary and subject to evaluation of the assessee’s explanation. The Tribunal highlighted that a valid notice must clearly specify the default and the particular limb under section 271AAB(1). A vague or omnibus notice violates natural justice, consistent with the decisions of the Karnataka High Court in SSA’s Emerald Meadows and Manjunatha Cotton & Ginning Factory. The Tribunal stressed that the Assessing Officer must independently verify whether the income disclosed during search satisfies the statutory definition in the Explanation to section 271AAB, which requires that the income be unrecorded in books or documents maintained in the normal course. In the case under consideration, the assessee was not required to maintain books, and the investment entries appeared in a diary that constituted a document maintained in the normal course. Therefore, such entries did not fall within the definition of “undisclosed income.” The Tribunal found that the Assessing Officer failed to specify the charge, record findings, or evaluate the assessee’s explanation, making the penalty order unsustainable.
The Tribunal then examined the second precedent—Aeswarya Jain v. DCIT, Central Circle Kota, also authored by the same Judicial Member. It was held that penalty under section 271AAB requires a considered decision by the Assessing Officer after reviewing the assessee’s explanation and seized material. The levy of penalty is not mandatory but discretionary. The Assessing Officer must determine whether the surrendered income is represented by any money, bullion, valuable article, book entry, or document found during search and unrecorded in regular books or documents before the search. Applying this statutory test, the Tribunal observed that the seized documents in that case consisted only of maps and electrical plans of a residential house in the name of the assessee’s wife. These documents did not reveal undisclosed income or unaccounted expenditure, nor did they indicate whether construction was undertaken. There was no reference in the search materials or statements regarding unaccounted expenditure. The alleged unrecorded expenditure was not supported by any documentary evidence or physical verification. As the surrendered amount was not represented by any of the categories stated in the definition of undisclosed income, it could not attract penalty under section 271AAB. The penalty in that case had therefore been deleted.
Based on these precedents, the Tribunal held that mere surrender during search does not constitute incriminating material. Penalty under section 271AAB can be imposed only if there is undisclosed income in the form of money, valuables, book entries, or false expense entries found during search. In the present case, the Assessing Officer had recorded an office note confirming that the seized material had been examined and contained nothing incriminating, and that the bank account examination warranted no adverse view. Since no material falling within the statutory definition of undisclosed income was found, the Tribunal concluded that penalty under section 271AAB(1A) was not imposable. Accordingly, the penalties were deleted, all grounds were allowed in favour of the assessees, and all appeals were allowed. Ground No. 8 required no adjudication as penalties had already been deleted. The order was pronounced on 21.03.2024.
FULL TEXT OF THE ORDER OF ITAT INDORE
