Rajat Jain v. The Dy. CIT Central Circle-1, Ludhiana
[Citation -2019-LL-0919-126]

Citation 2019-LL-0919-126
Appellant Name Rajat Jain
Respondent Name The Dy. CIT Central Circle-1, Ludhiana
Court ITAT-Chandigarh
Relevant Act Income-tax
Date of Order 19/09/2019
Assessment Year 2016-17
Judgment View Judgment
Keyword Tags levy of penalty • search and seizure operation • incriminating material • surrendered income • undisclosed asset
Bot Summary: The Ld. DR, on the other hand, has submitted that the assessee himself had surrendered an amount of Rs. 14,39,99,258/- as its undisclosed income of the year and since the assessee did not substantiate the manner of earning of the said income the Assessing officer rightly imposed the penalty under the 4 provisions of seciton271AAB(c) of the Act. For the sake of ready reference, the relevant provisions of section 271AAB and section 274 of the Income Tax Act are reproduced as under: Penalty where search has been initiated 271AAB: 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, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee in the course of search, in a statement under sub-section of section 132, admits the undisclosed income and specifies the manner in which such income has been derived. From bare perusal of the definition of the word undisclosed income we find that in order to bring a receipt or specie of income within the meaning of the said expression, it is obligatory for the AO to demonstrate and prove that the income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in the course of search u/s 132 and which was not recorded on or before the date of search in the books of accounts or other documents maintained in the normal course relating to such previous year or otherwise not disclosed to the Commissioner before the date of search. From the foregoing findings of the AO, we note that in the assessment order u/s 143(3), the AO had admitted that the assessee had satisfactorily explained the contents of the documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7 and there was no finding in the said assessment order which in any manner even suggested let alone proved that the income of Rs.69 crores offered by the assessee in its return of income was relatable to or represented by the entries made in documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. Applying the definition of undisclosed income to the income of Rs.69 crores, we find that such income was offered in the statement recorded u/s 132(4) of the Act at the time of search. Thereafter the assessee filed its return of income and duly included the surrendered amount in its income for the purpose of taxation. The Assessing officer carried out the assessment proceedings u/s 143(3) of the Act and independently scrutinized and verified the different heads of income and expenditure and computed the additional income of Rs. 33,13,304/- on account of stock found short during search action giving the assessee set off of amount of Rs. 39,99,158/- surrendered under the head profit on stock found short added the balance amount of Rs. 2,58,20,577/- into the income of the assessee on account of stock found short during the search action.


IN INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH (BEFORE SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, JM. ITA No. 920/Chd/2018 Assessment Year 2016-17 Sh. Rajat Jain Dy. CIT 9-A, Aggar Nagar, Central Circle-1, Ludhiana Ludhiana, Punjab Punjab PAN NO ABAPJ4619D Appellant Respondent. ITA No. 922/Chd/2018 Assessment Year 2016-17 Shri Saurav Jain Dy. CIT 9-A, Aggar Nagar Central Circle-1, Kitchlu Nagar Ludhiana Ludhiana, Punjab. PAN NO AETPJ9724P Appellant Respondent Assessee by Shri Ashwani Kumar, CA Revenue by Shri Amit Shukla, Sr. DR & Date of Hearing 16/09/2019 Date of Pronouncement 19/09/2019 Order PER N.K. SAINI, VICE PRESIDENT These two appeals by Assessees are directed against separate orders each dt. 28/05/2018 of Ld. CIT(A)-5, Ludhiana. 2. Since issue involved in appeals is common and both appeals were heard together, so these are being disposed off by this consolidated order for sake of convenience and brevity. 3. Common ground raised in both these appeals read as under: 2 That order passed u/s 250(6) of Income Tax Act, 1961 by Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on file in as much as he was not justified to arbitrarily uphold penalty levied u/s 271AAB at Rs. 8,00,000/-. 4. During course of hearing Ld. Counsel for Assessee submitted that issue under consideration is squarely covered vide order dt. 12/07/2019 of this Bench of Tribunal in cases of Smt. Veena Rani & Others, Ludhiana Vs. DCIT, Central Circle- 1, Ludhiana in ITA Nos. 1238 to 1240/Chd/2018 for A.Y. 2016-17 and in case of M/s R.D. Palace Pvt. Ltd. Ludhiana Vs. DCIT, Central Circle, Ludhiana in ITA No. 1241&1242/Chd2018 for A.Y s 2015-16 & 2016-17. It was stated that assessees also belong to same group to which aforesaid assessees i.e; Smt. Veena Rani & Others belonged and common search took place on 27/08/2015 under section 132 of Income Tax Act, 1961 (hereinafter referred to as Act ). It was pointed out that no incriminating material relating to assessee under consideration was found during course of search as was in cases of Smt. Veena Rani & Others. In support of above contention he furnished chart, copy of which is placed on record. 5. In his rival submissions Ld. CIT DR submitted that assessees themselves surrendered amount during course of search, therefore penalty under section 271AAB of Act was leviable and Ld. CIT(A) was fully justified in confirming penalty levied by A.O. 6. We have considered submissions of both parties and perused material available on record. In present case it is admitted fact that no incriminating material or undisclosed assets relating to assessees under consideration were found during course of search as in cases of Smt. Veena Rani & Others, Shri Sukhdarshan Kumar, Smt. Shweta Jain, Shri Saurav Jain and R.D Place Pvt. Ltd. etc. which is evident from chart furnished by assessee in respect of persons belonging to Maharaja Group of cases on which search took place under section 132 of Act, on 27/08/2015. said chart is reproduced as under: 3 identical issue having similar facts has already been adjudicated in case of Smt. Veena Rani & Others, Aggar Nagar, Ludhiana Vs. DCIT, Central Circle-1, Ludhiana (supra) wherein relevant findings have been given in para 7 to 14 which read as under: 7. We have considered rival submissions. So far as issue of levy of penalty u/s 271AAB of Act whether is mandatory or not is concerned, issue has been dealt with by Coordinate Bench of Tribunal in case of M/s SEL Textiles Ltd. Vs DCIT (supra). Tribunal in above case has relied upon following decisions of Coordinate Benches of Tribunal:- ACIT Vs. Marvel Associates, ITA No. 147/Vizag/2017 order dated 16.3.2018 (ITAT Visakhapatnam Bench) ; DCIT Vs. M/s Rashmi Metal iks Ltd. , ITA No. 1608/Kolkata/2017 dated 1.2.2019; (ITAT Kolkata Bench); DCIT Vs. Rashmi Cement Ltd, ITA No. 1606/Kolkata/2017 order dated 28.2.2019((ITAT Kolkata Bench) 8. Tribunal after analyzing aforesaid decisions, wherein, reliance has been placed on decisions of Hon'ble High Courts has held that levy of penalty u/s 271AAB of Act is not mandatory as provisions of section 274 of Act have been made applicable in relation to penalty referred to section 271AAB of Act. It has been held that penalty u/s 271AAB will not be attracted if surrendered income would not fall in definition of undisclosed income as defined under explanation to section 271AAB of Act. relevant part of order of Tribunal in M/s SEL Textiles Ltd. Vs DCIT dated 18.04.2019(supra) for purpose of ready reference is reproduced as under:- 6. Ld. DR, on other hand, has submitted that assessee himself had surrendered amount of Rs. 14,39,99,258/- as its undisclosed income of year and since assessee did not substantiate manner of earning of said income, hence, Assessing officer rightly imposed penalty under 4 provisions of seciton271AAB (1)(c) of Act. He has further submitted that even otherwise, as per provisions of section 271AAB of Act, levy of penalty is mandatory. However, rate at which penalty is to be levied depends upon certain conditions as enumerated in clause (a), clause (b) and clause (c) respectively to sub section (1) to section 271ABB of Act. He, in this respect has relied upon decision of Hon'ble Allahabad High Court in case of Principal CIT Vs. ShriSandeepChandak and Ors., ITA No. 122 of 2017 order dated 27.11.2017. 7. In rebuttal, Ld. AR has submitted that as per provisions of section 274 of Act which is made applicable in relation to penalty referred to section 271AAB, levy of penalty is not mandatory. He, in this respect has relied upon following decisions of Coordinate Benches :- ACIT Vs. Marvel Associates, ITA No. 147/Vizag/2017 order dated 16.3.2018 (ITAT Visakhapatnam Bench); DCIT Vs. M/s Rashmi Metaliks Ltd., ITA No. 1608/Kolkata/2017 dated 1.2.2019; (ITAT Kolkata Bench); DCIT Vs. Rashmi Cement Ltd, ITA No. 1606/Kolkata/2017 order dated 28.2.2019((ITAT Kolkata Bench). 8. We have considered rival contentions of Ld. Counsel for parties and gone through record also examined relevant provisions of Act and case laws on issue. For sake of ready reference, relevant provisions of section 271AAB and section 274 of Income Tax Act are reproduced as under: Penalty where search has been initiated 271AAB: (1) Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in case where search has been initiated under section 132 on or after 1st day of July, 2012, assessee shall pay by way of penalty, in addition to tax, if any, payable by him (a) sum computed at rate of ten per cent of undisclosed income of specified previous year, if such assessee (i) in course of search, in statement under sub-section (4) of section 132, admits undisclosed income and specifies manner in which such income has been derived. . (ii) Substantiates manner in which undisclosed income was derived; and (iii) On or before specified date (A) pays tax, together with interest, if any, in respect of undisclosed income; and (B) furnishes return of income for specified previous year declaring such undisclosed income therein; (b) sum computed at rate of twenty per cent of undisclosed income of specified previous year, if such assessee 5 (i) in course of search, in statement under sub-section (4) of section 132, does not admit undisclosed income; and (ii) on or before specified date (A) declares such income in return of income furnished for specified previous year; and (B) pays tax, together with interest, if any, in respect of undisclosed income; (c) sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of undisclosed income of specified previous year, if it is not covered by provisions of clauses (a) and (b). (2) No penalty under provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon assessee in respect of undisclosed income referred to in sub-section (1). (3) provisions of section 274 and 275 shall, as far as may be, apply in relation to penalty referred to in this section. Explanation:--- For purpose of this section,__ (a) (b) . (c) "undisclosed income" means (i) any income of specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in books of account or other documents or transactions found in course of search under section 132, which has (A) not been recorded on or before date of search in books of account or other documents maintained in normal course relating to such previous year; or (B) otherwise not been disclosed to Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before date of search; or (ii) any income of specified previous year represented, either wholly or partly, by any entry in respect of expense recorded in books of account or other documents maintained in normal course relating to specified previous year which is found to be false and would not have been found to be so had search not been conducted. Section 274 Procedure 274 (1) No order imposing penalty under this Chapter shall be made unless assessee has been heard, or has been given reasonable opportunity of being heard. (2) No order imposing penalty under this Chapter shall be made- (a) by Income- tax Officer, where penalty exceeds ten thousand rupees; (b) by Assistant Commissioner, where penalty exceeds twenty thousand rupees, except with prior approval of Deputy Commissioner.] 6 (3) income- tax authority on making order under this Chapter imposing penalty, unless he is himself Assessing Officer, shall forthwith send copy of such order to Assessing Officer. 9. It is pertinent to mention here that Co-ordinate Kolkata Bench of Tribunal in case of M/s. Rashmi Metaliks Ltd. (supra) has extensively analyzed aforesaid provisions of section 217AAB while further relying upon decision of Visakhapatnam Bench of ITAT in case of ACIT Vs. Marvel Associates (supra) and other case laws. relevant part of said order of Kolkata Bench is reproduced as under: At outset we note that it has been submission of AO as well as Ld. DR that levy of penalty under Section 271AAB is mandatory and automatic and therefore in matter of levy of penalty AO had no discretion once assessee admits of any undisclosed income in his statement u/s 132(4) of Act. Such view goes against words used in section 271AAB and section 274 of Act. For saying so we note that if intention of Legislature to levy penalty was mandatory and automatic then right of appeal u/s 246A would not have been provided for by Legislature against order of penalty passed u/s 271AAB of Act. We also note that while enacting Section 271AAB Legislature has consciously used word may in contradistinction to word shall in opening words of Section 271AAB of Act. choice of expression may and not shall in opening Section of 271AAB shows that Legislature did not intend to make levy of penalty statutory, automatic and binding on AO but AO was given discretion in matter of levy of penalty. Our foregoing view finds support in decision of coordinate Bench of Tribunal at Vishakhapatnam in case of ACIT Vs Marvel Associates (170 ITD 353) which in turn relied on Hon ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (infra). following observations of Tribunal in said decision are relevant in this regard: 6. Careful reading of section 271AAB of Act, words used are 'AO may direct' and 'the assessee shall pay by way of penalty'. Similar words are used section 158BFA(2) of Act. word may direct indicates discretion to AO. Further, sub section (3) of section 271AAB of Act, fortifies this view. . . 7. legislature has included provisions of section 274 and section 275 of Act in 271AAB of Act with clear intention to consider imposition of penalty judicially. Section 274 deals with procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless assessee has been heard or has been given reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of Act, it is evident that penalty cannot be imposed unless assessee is given reasonable opportunity and assessee is being heard. Once opportunity is given to assessee, penalty cannot be mandatory and it is on basis of facts and merits placed before A.O. Once A.O. is bound by Act to hear assessee and to give reasonable opportunity to explain his case, there is no mandatory requirement of imposing penalty, because opportunity of being heard and reasonable opportunity is not mere formality but it is to adhere to principles of natural justice. Hon'ble A.P. High Court in case of RadhakrishnaVihar in ITTA No.740/2011 while dealing with penalty u/s 158BFA held that 'we are of opinion that while words shall be liable under sub section (1) of section 158BFA of Act that are entitled to be mandatory, words may direct in sub section 2 there of intended to directory'. In other words, while payment of interest is mandatory levy of penalty is discretionary. It is trite position of law that discretion is vested and authority has to be exercised in reasonable and rational manner depending upon facts and circumstances of 7 each case. Plain reading of section 271AAB and 274 of Act indicates that imposition of penalty u/s 271AAB of Act is not mandatory but directory. Accordingly we hold that penalty u/s 271AAB is not mandatory but to be imposed on merits of each case. 9. As far as to judgment of Hon ble Allahabad High Court in case of Pr. CIT Vs Sandeep Chandak (supra) is concerned, we note that facts of present case are distinguishable from facts involved in that judgment. In Sandeep Chandak (supra) assessee had not only made disclosure/surrender of amount but also had specified manner in which such income has been derived i.e. from trading of F&O and derivatives and was advanced for purchase of land. That is not case in present appeal; there is no explanation by assessee manner of deriving surrender made during search. As discussed in foregoing, it is matter of record that in course of search no undisclosed asset or thing was found nor any incriminating material was found from which any undisclosed income or unexplained expenditure could be inferred. In circumstances bald offer made by assessee to pay tax on additional income in statement u/s 132(4) cannot be considered to be undisclosed income within meaning of sec. 271AAB of Act. So rigors of Section 271AAB of Act is not attracted. Having regard to these material facts judgment of Hon ble Allahabad High Court relied upon by Ld. DR, has no application in facts of instant case. .. .. 11. So for reasons as aforerstated and relying on Hon ble Andhra Pradesh High Court ratio in Radha Krishna Vihar (supra), we cannot agree with Revenue that levy of penalty under Section 271AAB was mandatory and automatic. We further note that penalty leviable under Section 271AAB must have necessary and proximate nexus with discovery of undisclosed income in course or as result of search. expression undisclosed income for purposes of levy of penalty u/s 271AAB has definite and specific meaning and said word or expression does not have any loose or colloquial meaning. Unless and until income offered to tax by assessee comes within mischief of undisclosed income and that too of specified previous year it is not open for AO to invoke provisions of Section 271AAB of Act. . 12. From foregoing definition of undisclosed income we find that this expression is given definite and specific meaning and word has not been described in inclusive manner so as to enable tax authorities to give wider or elastic meaning which enables them to bring within its ambit species of income not specifically covered by definition. From bare perusal of definition of word undisclosed income we find that in order to bring receipt or specie of income within meaning of said expression, it is obligatory for AO to demonstrate and prove that income is represented either wholly or partly by any money, bullion, jewellery or other valuable article or thing found in course of search u/s 132 and which was not recorded on or before date of search in books of accounts or other documents maintained in normal course relating to such previous year or otherwise not disclosed to Commissioner before date of search. From bare perusal of assessment order and penalty order, we note that assessee had voluntarily included Rs.69 crores as its income for AY 2013-14. We however find that nothing has been brought on record by AO which in any manner even suggested let alone proved with cogent material that said income was actually represented either wholly or partly by any sum of money, bullion, jewellery or other valuable article or thing and which was found in course of search. Since no sum of money, bullion, valuable or article equivalent to Rs.69 crores was discovered by Revenue in course of search, additional requirement of same being found not recorded in books or other documents was redundant. We therefore find that conditions prescribed in first limb of clause 8 (i) of clause (c) of Explanation were not satisfied. 13. second limb of sub-clause (i) provides that undisclosed income shall mean any income represented either wholly or partly by any entry in books of accounts or other documents or transactions found in course of search under Section 132 but which were not recorded on or before date of search in books of accounts or other documents maintained in normal course relating to such previous year or otherwise not been disclosed to Commissioner before date of search. We find that even in respect of second limb no material or evidence has been brought on record by AO which showed that income of Rs.69 crores was represented by any entry in books of accounts or other documents or transactions found in course of search. .. .. 14. From foregoing findings recorded by AO in Para 7 of assessment order, we find that save & except making reference to voluntary offer made through joint declaration petition dated 18.04.2013, AO had not brought on record any incriminating material found in course of search from which one could infer that income of Rs.69 crores was represented in part or whole by any entry made in books of accounts or other documents or transactions found in course of search . . 15. From foregoing findings of AO, we note that in assessment order u/s 143(3), AO had admitted that assessee had satisfactorily explained contents of documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7 and there was no finding in said assessment order which in any manner even suggested let alone proved that income of Rs.69 crores offered by assessee in its return of income was relatable to or represented by entries made in documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. In course of appellate hearing foregoing submission of Ld. AR went un-rebutted from Ld. DR who could not bring to our attention any specific noting in said documents from which it could be construed that income disclosed was relatable to documents seized in course of search. .. ..16. From foregoing discussion and material on record, we find that applying both limbs contained in clause (c) of Explanation to Section 271AAB, additional income of Rs.69 crores offered by assessee through its joint declaration was neither represented by any assets found in course of search nor represented by any entry made in books of accounts or other documents or transactions found in course of search. We therefore find that income voluntarily offered by assessee did not come within ambit and scope of expression undisclosed income as defined for purposes of Section 271AAB of Act. 17. From plain reading of Section 271AAB we find that levy of penalty is permissible if and only if there exists undisclosed income . Finding or unearthing of undisclosed income in course or as result of search conducted u/s 132 of Act is sine qua non for invoking penal provisions of Section 271AAB of Act. Discovery and consequent assessment of undisclosed income is condition precedent for levy of penalty under Section 271AAB of Act. It has to be borne in mind that every offer of assessee to pay tax on his or her income in course of recording of statement u/s 132 does not amount to finding of undisclosed income . mere offer or disclosure by assessee to pay tax on some additional amount with view to avoid protracted litigation cannot and does not amount to discovery of undisclosed income for purposes of levy penalty u/s 271AAB of Act. Legislature has all along been conscious in 9 providing for levy of penalty only in respect of undisclosed income . We find that in all penal provisions such as Explanation 5A of Section 271(1)(c), Section 271AAA & Section 271AAB, Legislature has restricted scope of penal provision only to undisclosed income and not assessed total income. Moreover term/expression undisclosed income has been defined by Legislature in all such penal provisions in specific and restricted manner and not in inclusive manner. For that reason definition of undisclosed income nowhere provides that said expression shall include all and every species of income but word used is undisclosed income means . conscious use of expression means in contradistinction to use of word includes indicate that Legislature intended to restrict scope of penal provisions only to income which came within ken of said expression and not beyond. Applying definition of undisclosed income to income of Rs.69 crores, we find that such income was offered in statement recorded u/s 132(4) of Act at time of search. However only for said reason, it could not be brought within ambit of undisclosed income particularly when such income was not represented by any valuable asset or entry in books of accounts or which was not found as result of search not recorded in books. We therefore find much force in Ld. AR s arguments that since sum of Rs.69 crores voluntarily offered to tax was not in nature of undisclosed income, levy of penalty u/s 271AAB was unsustainable. 18. In this regard we rely on decision of coordinate Bench of Tribunal in case of ACIT Vs Kanwar Sain Gupta in ITA No.538/Kol/2017 dated 29.06.2018 involving similar set of facts and circumstances. In instant case also assessee had voluntarily offered sum of Rs.1,00,00,000/- to tax in his statement u/s 132(4) without any proof of concealment. AO assessed such sum to tax solely based on assessee s disclosure petition and there was no material brought on record to indicate that it was represented by any valuable asset or any entry found in any books or other documents seized in course of search. AO thereafter also levied penalty u/s 271AAB @ 10% which was deleted by Ld. CIT(A). On appeal this Tribunal upheld order of Ld. CIT(A) by observing as under: 4. Learned Departmental Representative argued that Assessing Officer had rightly imposed impugned penalty in assessee s case @10% of his undisclosed income of Rs.1 crore coming Rs.10,00,000 in question. We find no substance in Revenue s instant arguments. We first of all make it clear that section 271AAB of Act applies in relation to impugned penalty @10% of undisclosed income as stood defined in Explanation (c) thereto. There is no material in case file to indicate that assessee s undisclosed income represents any money, bullion, jewellery or valuable article or any entry in books or other documents therein. We make it clear that we are dealing with penalty provision in tax statute which is to be strictly interpreted. We therefore are of opinion that CIT(A) has rightly deleted impugned penalty as assesee s search statement nowhere indicated corresponding undisclosed income as per specific requirement in Act. CIT(A) s findings under challenge deleting penalty in question are accordingly confirmed. 19. We also rely on decision of this coordinate Bench of Tribunal in case of DCIT Vs Liladhar Agarwal in ITA No. 1605/Kol/2017 dated 26.12.2018 wherein identical issue had come up for consideration and Tribunal upheld CIT(A) s order deleting levy of penalty since there was no material to suggest that income offered to tax was consequence of any valuable asset or any entry found in any books or other documents seized in course of search. . 20. We may also refer to decision of coordinate Bench of Tribunal at Vishakhapatnam in case of ACIT Vs Marvel Associates (supra) wherein it was 10 held as follows: 9. Penalty u/s 271AAB attracts on undisclosed income but not on admission made by assessee u/s 132(4). AO must establish that there is undisclosed income on basis of incriminating material. In instant case loose sheet was found according to A.O., it was incriminating material evidencing undisclosed income. In penalty order AO observed that loose sheet shows cost per square feet is Rs.3571/- per sft. and assessee stated to have submitted in sworn statement cost per sq. feet at Rs.2200/- to Rs.2300/- per sq. feet. However neither AO nor Ld.CIT(A) has verified cost of construction with books and projections found at time of search. counsel argued that it was mere projection but not actuals. write up heading also mentioned that summary of projected profitability statement. There is no evidence to establish that projections reflected in loose sheet is real. No other material was found during course of search indicating undisclosed income. There was no money, bullion, jewellery or valuable article or thing or entry in books of accounts or documents transactions were found during course of search indicating assets not recorded in books of accounts or other documents maintained in normal course, wholly or partly. revenue did not find any undisclosed asset, any other undisclosed income or inflation of expenditure during search/ assessment proceedings. Though loose sheet of page No.107 of Annexure A/GS/MA/1 was found that does not indicate any suppression of income but it is only projection of profit statement. amount of Rs.3571/- mentioned in projections refers to cost and profit which is approximate sale price but not cost as stated by AO in penalty order. cost of construction in projections projected at Rs.2177/- which is in synch with statement given by assessee. AO was happy with disclosure given by assessee and did not verify factual position with books of accounts and projections and bring evidence to unearth undisclosed income. Neither A.O. nor investigation wing linked cost of profit or cost of asset to entries in books of accounts or to sales conducted by assessee to sale deeds. Therefore, we are unable to accept contention of revenue that loose sheet found during course of search indicates any undisclosed income or asset or inflation of expenditure. Hon'ble ITAT Delhi Bench in case of Ajay Sharma v. Dy. CIT [2013] 30 taxmann.com 109 held that with respect to addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by assessee has not been declared by assessee. addition has been made on basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by assessee. Hence penalty u/s 158BFA (2) of Act is not leviable. facts of assessee's case shows that there was no undisclosed income found during course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of Act, accordingly, we set aside order of lower authorities and cancel penalty u/s 271AAB of Act. 10. In result, appeal filed by revenue is dismissed. 21. Useful reference in this regard may also be made to decision of coordinate Bench of this Tribunal at Jaipur in case of Shri Dinesh Kumar Agarwal vs. ACIT in ITA No. 855 & 856/JP/2017 dated 24/07/2018 wherein it was held as follows: 18. We have considered rival submissions as well as relevant material on 11 record. At outset, we note that surrender of Rs. 1,65,38,920/- was made by assessee during course of search and Seizure proceedings and offered to tax for year under consideration. details of surrendered income pertains to year under consideration are as under:- On account of debtors (advances given) Rs. 80,00,000/- Unexplained cash found Rs. 10,00,000/- Accrued interest on debtors Rs. 20,00,000/- Excess stock found during search Rs. 55,38,920/- Total Rs. 1,65,38,920/- We find that out of these four items of surrenders only advances of Rs. 80,00,000/- is based on incriminating material and all other items are not based on seized material. interest on advances/ debtors is only estimated amount disclosed during year but no record or any document was found during search and seizure action. As regards excess stock we find from record as produced before us by ld. DR that valuation report is based on market price of gold Jewellery prevailing on date of search as against cost or realization wherever is less. Therefore, computation of excess stock based on market price of stock cannot be considered as undisclosed income of assessee as it is subject matter of regular assessment and cannot be regarded as undisclosed income based on incriminating material. There is no such fact either recorded during search and seizure proceeding or in assessment order or in penalty proceeding to show that there was discrepancy in stock as recorded in books of account and found at time of search. In absence of any discrepancy in quantity of stock valuation of stock is purely question of assessment and cannot be held as undisclosed income detected during course of search and seizure proceeding. Therefore, to extent of excess stock based on valuation report disclosure of income by assessee would not fall in category of undisclosed income as per explanation to Section 271AAB of Act. It is not case of Revenue that any stock of jewellery was found which is not recorded in books of account but value of stock is computed based on valuation report of departmental valuer. Once difference in value of stock is only due to market price as against cost of said stock, same will not fall in ambit of undisclosed income as defined under clause-(c) of explanation -1 of section 271AAB of Act. 19. Similarly accrued interest of Rs. 20,00,000/- is also only estimated and not based on any incriminating documents. This amount was estimated as there were advances as per entries of seized material. Even otherwise accrued interest is dependent on outcome of levy of penalty in respect of advances given by assessee. We have considered issue of advances for assessment year 2013-14 and accordingly in view of our finding on said issue penalty U/s 271AAB of Act is not sustainable in respect of surrender amount of Rs. 1,65,38,920/-. 22. We also rely on decision of coordinate Bench at Ranchi in case of Rinku Agarwal in ITA No. 262/Ran/2017 dated 30.11.2018. In instant case as well in course of search operations conducted at Mica Mod Group on 21.11.2012, assessee had admitted additional income of Rs.5,00,000/- u/s 132(4) which she had offered to tax in her return of income. AO levied penalty 12 u/s 271AAB on such additional income offered to tax. Tribunal noted that neither Investigation Wing in post search nor during course of assessment proceedings, Assessing Officer found any incriminating evidence of undisclosed income otherwise declaration of assessee for making addition. Following decision rendered in case of ACIT VsKanwarSain Gupta (supra), Tribunal deleted penalty levied u/s 271AAB of Act. 23. Respectfully following decisions in foregoing and having regard to our finding that income of Rs.69 crores voluntarily offered to tax was not in nature of undisclosed income defined in clause (c) of Explanation to Section 271AAB, we hold that Ld. CIT(A) was justified in cancelling penalty levied u/s 271AAB of Act. Accordingly order of Ld. CIT(A) is upheld for reasons discussed above and Revenue s appeal stands rejected. 10. Now coming to facts of case before us, assessee in this case has surrendered as total income of Rs. 14,39,99,158/- during search action carried out at his premises u/s 132 of Act, out of which Rs. 14 crores was surrendered to cover any disallowance of expenses/additions, whereas, remaining amount of Rs. 39,99,158/- was surrendered representing profit earned on stock found short. Thereafter assessee filed its return of income and duly included surrendered amount in its income for purpose of taxation. Assessing officer carried out assessment proceedings u/s 143(3) of Act and independently scrutinized and verified different heads of income and expenditure and computed additional income of Rs. 33,13,304/- on account of stock found short during search action, however, giving assessee set off of amount of Rs. 39,99,158/- surrendered under head profit on stock found short added balance amount of Rs. 2,58,20,577/- into income of assessee on account of stock found short during search action. Apart from that, Assessing officer had made additional disallowance of Rs.2,83,98,545/- under section 14A of Act which was in addition to suomotu disallowance of Rs. 3,45,49,868/- returned by assessee in this respect in his Income tax return. Assessing officer also made addition of Rs.2,25,54,011/- u/s 36 (1)(iii) of Act. Though assessee during assessment proceedings submitted that set off of Rs.14 crores declared on account of disallowance by assessee of expenses/additions be given to assessee, however, Assessing officer rejected above contention of assessee since assessee had not given any bifurcation of any surrendered income of Rs. 14 crores. Apart from that, Assessing officer has made addition of Rs. 9,23,231/- u/s 36(1) (v) of Income Tax act and assessed total income at loss of Rs. 33,73,75,950/- as against loss declared / returned by assessee at Rs. 41,50,72,313/-. 11. relevant fact in this case is that though Assessing officer examined individually each and every item of income and expenditure and made separate disallowances, however, Assessing officer did not point out any excess or wrong expenditure claimed so far as surrender of Rs. 14 crores on account of disallowance of expenditure / addition was concerned. Even Assessing officer did not allow telescopic benefit / set off of amount surrendered as against disallowance made by Assessing officer under provisions of section 40A, 36 (1)(iii) and 36 (1)(v) of Act. There is no mention in assessment order that assessee had claimed any extra or inadmissible expenditure in respect of any other item. It also apparent from facts on file that even during search action, no incriminating material in respect of excessive or inadmissible expenditure was found during search action. assessee simply surrendered amount of Rs. 14,39,99,158/- and in bifurcation offered Rs. 39.99 lacs towards profits of stock found short and remaining amount or Rs. 14 crores was surrendered on account of disallowance of expenses/addition. However, neither during search action nor during assessment proceedings, no such 13 disallowance of expenditure and consequent addition has been made except as discussed above. However, Assessing officer has added aforesaid disallowance made by him separately into income of assessee. So far as disallowance u/s 14A is concerned, assessee had taken plea before Assessing officer that it did not earn any tax-exempt income during year. Furthermore, that investments were made out of its own / interest free funds available with assessee and that no disallowance u/s 14A of Act was warranted. Similar plea was also taken by assessee in respect of disallowance made u/s 36(1)(iii) of Act that advances/investments were made by assessee out of its own/interest free funds available with it. plea was also taken that advances were given out of commercial expediency. So far as disallowance u/s 36(1)(v) was concerned, plea was taken that contribution to Employees Provident Fund was made within stipulated period and that no disallowance was attracted. 12. Considering nature of disallowance made by Assessing officer and plea of assessee, it is quite apparent that issue of disallowance of expenditure on aforesaid three issues was debatable one and in fact in light of various decisions of Hon'ble High Courts, assessee has fair case on merits and that it cannot be said that there was any intentional act on part of assessee to claim any inadmissible expenditure, rather, assessee had put bonafide claim of allowance/expenditure on these issues. What we wish to convey through aforesaid discussion is that even despite certain disallowances made by Assessing officer, as discussed above, it cannot be said that assessee had claimed any inadmissible expenditure which would fall within definition of undisclosed income as defined under provisions of section 271AAB of Act. Except aforesaid disallowance made by Assessing officer on debatable issues, there is no case of Department in respect of any inadmissible expenditure claimed by assessee which would cover surrendered income of Rs. 14 cores. From facts on file, it is established that aforesaid surrender of Rs. 14 crores was based on mere statement of assessee and nothing incriminating material which would constitute undisclosed income as per provisions of section 271AAB of Act was detected or found during search action. In view of various case laws as discussed above, aforesaid amount for Rs.14 cores would not fall in definition of undisclosed income as defined under section 271AAB of Act and, hence, penalty is not leviable on said amount under provisions of section 271AAB of Act. 13. So far as reliance of Ld. DR on decision in case of Hon'ble Allahabad High Court in case of Principal CIT Vs. Shri Sandeep Chandak and Ors. (supra) is concerned, as discussed in aforesaid decision of Coordinate Bench of Tribunal in DCIT Vs. Rashmi Cement Ltd, (supra) facts in case of Principal CIT Vs. Shri Sandeep Chandak and Ors (supra) are distinguishable and do not apply to facts and circumstances of case in hand in light of discussion made in above referred to decision of Kolkata Bench of Tribunal. 14. However, so far as surrendered amount of Rs. 39.99 lacs is concerned, same was offered on account of profits on stock found short during search action. Admittedly, stock was found short during search action. In fact, Assessing officer apart from above surrender of Rs. 39.99 lacs has made further addition of Rs. 2.58 cores on this issue. It is apparent that aforesaid profit on short stock were not accounted for by assessee but was only detected during search action. However, assessee has substantiated manner of earning of said income which include surrender income of Rs. 39.99 lacs, 14 hence, penalty @ 10% is leviable on aforesaid amount as per provisions of section 271AAB (1)(a) of I.T. Act. 14. In view of this, penalty in this case is restricted to 10% of surrendered income of Rs. 39,99,158/- on account of stock found short as per provisions of section 271AAB (1)(a) of Act. However, remaining part of penalty is ordered to be deleted. 9. From perusal of above decision, it can be noticed that Tribunal has categorically held that if no incriminating material is found during search action and surrendered income does not fall in definition of undisclosed income as defined u/s 271AAB of Act, penalty is not warranted. Coordinate Bench of Tribunal has also discussed proposition of law laid down by Hon'ble Allahabad High Court in Principal CIT vs Sandeep Chandak and Ors. (supra) and has held that facts of said case are distinguishable and do not apply to facts of case in which no incriminating material is found during search action. 10. However,, Ld. Counsel for assessee has been fair enough to admit that it is not in all cases that no incriminating material was found. That certain items of jewellery of silver were found / noticed during search action, source of income from which as held by Assessing Officer also stood explained and also manner of earning of income was also substantiated. He, therefore, has been fair enough to admit that penalty under provisions of section 271AAB (1)(a) of Act was liable to be confirmed to extent of property /material found during search action. He, in this respect has given chart, which for sake of ready reference, is reproduced as under- S.No. Particulars Sukhdarshan Rama Rani Venna Rani R.D. Place Kumar Private Limited 1 Jewellery 0 133 54.23 0 2 Silver 0 0 8.40 0 3 Income 230 67 27.37 300 Declared Total 230 200 190 300 11. In case of Mrs. Rama Rani, (ITA No. 1240/Chd/2018) for assessment year 2016- 17, as noted from above chart, jewellery worth Rs. 1.33 crores was found, whereas, income surrendered by her during search action was of Rs. 2crores. In view of discussion made above, penalty us 271AAB(1)(a) of Act is restricted to value of jewellery found during search action i.e. Rs. 1.33 crores, 10% of which comes to Rs. 13.30lacs, hence, penalty in case of Mrs. Rama Rani is restricted to Rs. 13.30lacs as against Rs. 20lacs imposed by Assessing Officer. 12. Similarly, in case of Mrs. Veena Rani (ITA No. 1238/Chd/2018) for assessment year 2016-17, total income surrendered was ofRs. 1.90 crores, whereas, jewellery found during search action was of value of Rs. 54.23 lacs and silver found of Rs. 8.40lac.Hence, penalty leviable on aforesaid gross amount of 6.263 lacs(Rs. 54.23 lcs + Rs. 8.40 lacs), which is calculated @ 10% at Rs. 6.263 lacs. Hence, penalty is calculated and restricted to Rs. 6.263 lacs in this case. 13. In case of Sudkharan Kumar in ITA No. 1239/Chd/2018 for assessment year 2016-17, neither any incriminating material nor valued property was found, hence, no 15 penalty in this case under provisions of section 271AAB (1)(a) of Act is exigible. penalty in this case is ordered to be deleted. 14. Now coming to cases of M/s R.D. Palace Pvt. Ltd, Ludhiana in ITA Nos. 1241& 1242/Chd/2018 for assessment years 2015-16 and 2016-17, since, no incriminating material or valued property was found in these cases and further no unaccounted property was found during search action, hence, penalty is not leviable in these cases and same is accordingly ordered to be deleted. 7. Since facts of present cases are identical to facts involved in aforesaid referred to cases, so respectfully following earlier order dt. 12/07/2019, impugned penalties levied by A.O. and sustained by Ld. CIT(A) under section 271AAB of Act are deleted. 8. In result, both above appeals of Assessees are allowed. (Order pronounced in open Court on 19/09/2019) Sd/- Sd/- (SANJAY GARG ) ( N.K. SAINI) & (Judicial Member VICE PRESIDENT AG Date 19/09/2019 Copy of order forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, CHANDIGARH 6. Guard File Rajat Jain v. Dy. CIT Central Circle-1, Ludhiana
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