AI Insights
The case involves M/s. Future Gaming and Hotel Services Private Limited, which appealed against the penalty of Rs. 342 Lacs imposed under Section 271AAB for the Assessment Year 2019-20. The penalty was confirmed by the Commissioner of Income Tax (Appeals), Chennai, following an assessment order that treated certain admitted incomes as undisclosed. The Tribunal examined whether the admitted income constituted 'undisclosed income' as defined under Section 271AAB(c) and found that it did not, leading to the decision to delete the penalty. The Tribunal's decision was supported by various precedents and the specific circumstances of the case, including the nature of the transactions and the lack of incriminating material found during the search.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 46047 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-02-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2019-2020
Judgement Text
"1 आयकर अपीलीय अिधकरण “सी” \u000eा यपीठ चे\u0013ई म\u0016। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, CHENNAI मा ननीय \u0019ी एबी टी. वक\u001f, \u000eा ियक सद\" एवं माननीय \u0019ी मनोज क ुमार अ'वाल ,लेखा सद\" क े सम)। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ ITA No.950/Chny/2024 (िनधा*रणवष* / Assessment Year: 2019-20) M/s. Future Gaming and Hotel Services Private Limited 54, Mettupalayam Road, GN Mills Post, Coimbatore-641 029. बनाम/ Vs. ACIT Central Circle-2, Coimbatore. \u0002थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCM-9751-G (अपीलाथ\u001c/Appellant) : (\u001f थ\u001c / Respondent) अपीलाथ\u001cकीओरसे/ Appellant by : S/Shri S. Sridhar & N. Arjun Raj (Advocate) - Ld. ARs \u001f थ\u001cकीओरसे/Respondent by : Shri R. Clement Ramesh Kumar (CIT) -Ld. CIT-DR a/w Ms. Anitha (Addl. CIT) – Ld. Sr. DR सुनवाई की तारीख/Date of Hearing : 10-01-2025 घोषणा की तारीख /Date of Pronouncement : 03-02-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 Aggrieved by confirmation of penalty u/s 271AAB for Rs.342 Lacs for Assessment Year (AY) 2019-20, the assessee is in further appeal before us. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), Chennai-20 [CIT(A)] on 18-03- 2024 in the matter of impugned penalty levied by Ld. Assessing Officer [AO] u/s. 271AAB of the Act vide order dated 16-02-2022. In the penalty order, Ld. AO levied penalty invoking the provisions of 271AAB(1A)(b) @ 2 60% of Rs.570.00 Lacs in respect of undisclosed income found during the course of search. 1.2 The grounds taken by the assessee read as under: - 1. The order of the CIT (Appeals) - 20, Chennai dated 18.03.2024 vide DIN & Order No. ITBA/APL/S/250/2023-24/1062864147(1) for the above-mentioned Assessment Year is contrary to law, fact and in circumstances of the case. 2. The CIT (Appeals) - 20, Chennai erred in confirming the levy of penalty to the tune of Rs.3,42,00,000/- in terms of Section 271AAB of the Act relating to the additional income offered/accepted by the Appellant during the course of search/ search assessment proceedings forming part of the computation of the taxable total income in the search assessment order dated 17.07.2021 and further ought to have appreciated that the levy of penalty under Section 271AAB of the Act on various facets was wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 3. The CIT (Appeals)-20, Chennai failed to appreciate that penalty order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 4. The CIT (Appeals) -20, Chennai failed to appreciate that the penalty provisions under consideration should not be construed as automatic and further ought to have appreciated that having not exercised the discretion vested in their office in passing or not passing the impugned order, the mechanical approach in passing the impugned order by the original authority should be reckoned as bad in law. 5. The CIT (Appeals)-20 failed to appreciate that the additional sum assessed at Rs.5,70,00,000/- was based on loose sheets recovered during search without any substantiating evidence and further failed to appreciate that the penalty initiated u/s 271AAB in consequence to the erroneous order passed u/s 153A was wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 6. The CIT (Appeals)- 20, Chennai failed to appreciate that the rejection of explanation of the Appellant would not lead to the automatic application of the penalty provisions under consideration, there by vitiating the impugned order imposing penalty and in this regard ought to have appreciated that the rejection of the bonafide explanation offered for the cash received from BS Enterprises would constitute reasonable cause in substantiating the plea of the appellant for use of discretion vested in their office to drop the proposal to levy of penalty despite the jurisdictional error committed in initiating such proceedings. 7. The CIT (Appeals) - 20, Chennai erred in dismissing the explanation of the appellant and further erred in treating the Market Adjustment as undisclosed income of the appellant by relying on the inadmissible loose sheets. 8. The CIT (Appeals) - 20 further failed to appreciate that the levy of penalty at 60% of the quantum addition by invoking the provisions u/s 271AAB(1A)(b) had no application to the facts of the present case. 9. The CIT (Appeals) - 20, Chennai failed to appreciate that the objections filed were erroneously rejected and ought to have appreciated that the provisions of section 271AAB had no application to the facts of the present case. 10. The CIT (Appeals)-20, Chennai failed to appreciate that there was no scope for confirming the levy of penalty under Section 271AAB of the Act in consequence to incorrect assumption of jurisdiction to the appellant in terms of Section 153A of the Act, thereby vitiating the decision to confirm the levy of penalty under Section 271AAB of the Act. 3 11. The CIT (Appeals) - 20, Chennai failed to appreciate that that the findings in para no. 7 of the impugned order were wrong, incorrect, invalid, erroneous, unjustified and not sustainable both on facts and in law. 12. The CIT (Appeals) - 20, Chennai failed to appreciate that the assessment order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 13. The CIT (Appeals) - 20, Chennai failed to appreciate that having not examined the concept of Market Adjustment independently in the present proceedings and further ought to have appreciated that the explanation of the said concept being accepted in the connected proceedings before IBS-2 at New Delhi recently, consequential assessment of the market adjustment as income of the appellant would defy the principles of fairness in taxation. 14. The CIT (Appeals) - 20, Chennai failed to appreciate that the lack of precise charge in the SCN issued in the present penalty proceedings would vitiate the consequential penalty order passed by the original authority, 1.3 The Ld. AR advanced arguments on legal grounds as well as on merits. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. AR stated that levy of penalty is not automatic. The Ld. AR also submitted that though the quantum additions were accepted by the assessee, however, the same would not constitute undisclosed income and the same does not justify imposition of penalty. The Ld. CIT-DR also advanced arguments and controverted the arguments made by Ld. AR. The case was put up for clarification which was duly been responded to by both the sides. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee was subjected to search u/s 132 on 30-04-2019 based on which an assessment was framed u/s 153A on 17-07-2021. Proceedings before lower authorities 2.1 In response to notice u/s 153A, the assessee filed return of income admitting income of Rs.120.68 Crores which was the same as income admitted in return of income filed u/s 139(1). However, during the course of assessment proceedings, the assessee admitted additional income of 4 Rs.570 Lacs to cover up details of cash receipt as mentioned on loose sheets as found during search in the premises of Shri Vijay Antonysamy. These sheets contained detailed of cash receipts from Shri Mahendra Bhai of B.S. Enterprises, Mumbai. As per loose sheets, amount of Rs.300 Lacs was received for the period 01-04-2018 to 19-08-2018 whereas amount of Rs.270 Lacs was received for the period 18-10-2018 to 31-10-2018. The assessee submitted that the payments relate to cash receipt on account of ‘market adjustment’ with stockists and it was not in the nature of income of the assessee. 2.2 The ‘market adjustment’ was explained by the assessee as under: - Market Adjustment: Say, a Stockist 'A' has made sale of Rs.5 Lakhs worth of lottery tickets and there is prize winnings of Rs.2 Lakhs out of his sale of lottery and Stockist 'B' has made sale of Rs.10 Lakhs worth of lottery tickets and there in prize winnings of Rs. 6 Lakhs in such sale. If the customers of Stockist 'A' claim and Stockist 'B' claim their prize winnings from their respective sellers, then there will be no need for adjustment. However, there are many instances where customers of Stockist 'B' may go to Stockist 'A' and claim their winnings. In such situation Stockist 'A' will face severe cash shortage. Temporary market adjustment is done by collecting money from Stockist 'B' and paying to Stockist 'A'. This is done through the area distributor Future Trade Solution LLP for the sake of transparency and guarantee. No Particulars Stockist A Stockist B 1 Sale of Lottery Tickets 5,00,000 10,00,000 2 Prize Winnings as per Sales 2,00,000 6,00,000 3 Actual Prize Winnings disbursed on claim from Public 7,00,000 1,00,000 4 Disbursed Prize Claim -5,00,000 5,00,000 Situation 1: (Where the Prize is claimed from outlet where it was sold) S.No Particulars Stockist A Stockist B 1 Payments due to Distributor 5,00,000 10,00,000 2 Less: Prize Winnings as per Sales 7,00,000 6,00,000 3 Balance Payable to Distributor 3,00,000 4,00,000 Situation II: (Where Prize is claimed from other outlets) S.No Particulars Stockist A Stockist B 1 Payments due to Distributor 5,00,000 10,00,000 2 Less: Prize Winnings as per Sales 7,00,000 1,00,000 3 Balance Payable to Distributor (2,00,000) 9,00,000 5 Temporary Market Adjustment is done to offset the shortage in liquidity faced by Stockists. Excess disbursement of Prize Winnings to be made goods Rs.5,00,000 Amount collected towards Market Adjustment from Stockists 'B' and Adjustment paid to Stockist \"A\" Rs. 5,00,000 2.3 In support of the same, the assessee furnished a letter dated 30- 06-2021 from Shri Vijay Antony Samy clarifying the nature of transaction. It was submitted that the stockists who disbursed excess prize-winning money compared to their sale will face cash liquidity problem. On the other hand, the stockists who have disbursed less price-winning money compared to their sale will have excess cash. In such a situation, the distributor would act as an intermediary between the stockists who have excess cash and give it to stockists who are short in cash. Therefore, such payments are neither income or expense for the assessee rather it is a temporary adjustment done by the assessee to offset the liquidity problems faces by its stockists. Nevertheless, to avoid protracted litigation, the assessee admitted income of Rs.570 Lacs and paid due taxes on the same. The assessee requested not to initiate penalty proceedings since the admitted income would not fall within the definition of \"undisclosed income\" as per explanation (c) to Section 271AAB. It was only market adjustment between stockists. Reliance was placed on the decision of Vizag Tribunal in the case of ACIT vs. deccan Jewellers Pvt Ltd. as well as the decision of Patna Tribunal in the case of Bhagwan Gupta vs. ACIT to support its case on penalty. 2.4 The Ld. AO noted that the sheet contained details of cash received from M/s B.S. Enterprises. When the same was confronted to Shri Vijay Anthony Samy, it was deposed that cash was received from Shri Mahendra Bhai of B.S. Enterprises for Kolkata. It was also deposed that, for the cash received, credit note of corresponding amount was issued to 6 Shri Mahendra Bhai and the sheet containing these details was prepared by Shri Arokia Raja Durai of Coimbatore Office. The relevant portion of sworn statement of Shri Vijay Anthony Samy was extracted in the assessment order. 2.5 The Ld. AO also noted M/s B.S. Enterprises acted as area distributor of lottery tickets for the assessee and the transactions pertain to payment for lottery business. The working in the sheet clearly show that the receivable was worked out based on lottery draws and prize- winning against which the money was received in cash and in RTGS. Accordingly, the amount of Rs.570 Lacs was treated as unaccounted income of the assessee. Consequently, penalty u/s 271AAB (1A) was initiated in the assessment order and the assessee was show-caused vide notice dated 23-08-2021. 2.6 During penalty proceedings, the assessee stated that the addition was accepted only to avoid protracted litigation and the addition do not fall within the definition of \"Undisclosed Income\". The penalty u/s 271AAB was discretionary and would depend on the merits of each case. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB of the Act. Every offer of the assessee to pay tax on his income in the course of recording of statement u/s 132 does not amount to finding of 'undisclosed income'. A mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid litigation cannot amount to discovery of undisclosed income for the purposes of levy of penalty under section 271AAB of the Act. The stated penalty could be levied only in respect of the ‘undisclosed income' as 7 defined in Explanation (c) to the said Section 271AAB which read as under: (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). 2.7 It was thus stated by the assessee that the income so surrendered has to qualify as undisclosed income as defined above which means that it should be represented either by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search in the books of account or not disclosed to the Principal Chief Commissioner of Income Tax before the date of search. In the present case, during search, some loose sheets were recovered and seized. The same merely contain information of ‘market adjustments’ made by the assessee with their stockists and the same is not in the nature of income. However, the assessee agreed for the addition and paid tax due thereon in order to buy peace with the department. Nevertheless, the addition does not fall within the definition of undisclosed income and the provisions of Sec. 271AAB are not attracted. The assessee also pleaded that there was no undisclosed income found during the course of search and no incriminating material was found therein except some loose sheets which is recorded in the 8 books of accounts. The assessee relied on various decisions of Tribunal as follows: - i) Kolkata Tribunal in ACIT v Kanwar Sain Gupta (ITA No.538/Kol/2017; 29.06.2018) ii) Vizag Tribunal in ACIT v. M/s. Marvel Associates, (2018) 166 DTR 409 iii) Delhi Tribunal in Ajay Sharma v. DCIT [2013] iv) Ranchi Tribunal in Rinku Agarwal in ITA No.262/Ran/2017 dated 30.11.2018. v) Chandigarh Tribunal in SEL Textiles Ltd v. DCIT (ITA No.695/Chd/2018; 18-4-2019). vi) Jaipur Tribunal in Om Prakash Modi v. DCIT (ITA No.196/JP/2018 dt.18-3-2021). vii) Jaipur Tribunal in Anil Ghatiwala v. DCIT (ITA No.845/JP/2018 dt.11-1-2021) viii) Ahmedabad Tribunal in Lajwantiben M.Manglani vs. DCIT (IT(SS)A. No. 260/Ahd/2017 dt.18-2-2020) 2.8 However, Ld. AO held that had the search not taken place, the assessee would not have admitted the said amount. There was undisclosed income which was found only after verification of the seized material as found during the course of search. The assessee agreed for addition and therefore, the assessee had concealed income by not offering the entire undisclosed income which would attract penalty u/s 271AAB(1A) of the Act. Since the assessee did not pay the taxes before filing of return of income, higher penalty of 60% would apply as per Sec. 271AAB(1A)(b). Finally. Ld. AO levied impugned penalty of Rs.342 Lacs. 2.9 The assessee reiterated its submissions during appellate proceedings. However, Ld. CIT(A) observed that the assessee failed to file evidences that the amount received from M/s B.S. Enterprises was collected towards 'market adjustment'. The other distributor to whom the funds have been transferred had not been identified. The cash receipts were found recorded in the loose sheets which were not recorded in the books which lead to a conclusion that there was unaccounted income in hands of assessee as per Explanation (C) (i) (A). Accordingly, the penalty was confirmed against which the assessee is in further appeal before us. 9 Our findings and Adjudication 3. From the facts, it emerges that a loose sheet has been found during search proceedings u/s 132. The same contained details of cash receipt by the assessee for Rs.570 Lacs from M/s B.S. Enterprises who acted as lottery tickets stockists for the assessee. It was explained by the assessee that the receipts were on account of ‘market adjustments’ and the same do not partake the character of income for the assessee. The ‘market adjustment’ was stated to be a methodology to square-off the accounts of various stockists acting for assessee. The stockists would sell the lottery tickets. The prize-winner could claim prize money from any of the distributors which would necessitate adjustments of accounts of stockists inter-se. This methodology is prevalent in this line of trade. The same is also evident from settlement application filed by assessee’s sister concern M/s Future Trade Solutions LLP for AYs 2016- 17 to 2020-21 before Hon’ble Interim Board for Settlement Bench-II, New Delhi (IBS). A copy of the same is on record. The issue of ‘market adjustments’ has been elaborated in the order of Hon’ble IBS on Page Nos. 165 to 169 of Paper book, Volume-I. The Hon’ble IBS, in para 11.5.3.3 has accepted the issue of ‘market adjustments’ in assessee’s favor and held that this item could not form part of income of the assessee. Thus, it is quite evident that this practice of ‘market adjustment’ is quite prevalent in assessee’s line of business. 4. Proceeding further, during search proceedings, it was deposed by Shri Vijay Anthony Samy that cash was received from Shri Mahendra Bhai of B.S. Enterprises. It was also deposed that, for the cash received, credit note of corresponding amount was issued to Shri Mahendra Bhai. The fact of issuance of subsequent credit note bolsters the aforesaid 10 claim of the assessee that this transaction was not in the nature of income but in the nature of ‘market adjustments’ only. During assessment proceedings also, the assessee also furnished a letter dated 30-06-2021 from Shri Vijay Antony Samy clarifying the nature of transaction. It was submitted that the stockists who disbursed excess prize-winning money compared to their sale will face cash liquidity problem. On the other hand, the stockists who have disbursed less price- winning money compared to their sale will have excess cash. In such a situation, the distributor would act as an intermediary between the stockists who have excess cash and give it to stockists who are short in cash. Therefore, such payments are neither income nor expense for the assessee rather it is a temporary adjustment done by the assessee to offset the liquidity problems faced by the stockists. The aforesaid facts have not been controverted and there is no adverse finding by Ld. AO, in this regard. The Ld. CIT(A) has rejected the same on the ground that this fact could not be well evidenced by the assessee. Nevertheless, the adverse adjudication confirming the penalty stem from the fact that the assessee has offered this income and paid due taxes on the same during the course of assessment proceedings The same has been done to avoid protracted litigation on the issue. 5. Pertinently, no incriminating material has been unearthed during search which substantiate the fact that the assessee do not have undisclosed income which is represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search in the books of account or not disclosed to the Principal Chief Commissioner of 11 Income Tax before the date of search. We concur with the submissions that penalty u/s 271AAB was discretionary and would depend on the merits of each case. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB of the Act. Every offer of the assessee to pay tax on his income in the course of recording of statement u/s 132 does not amount to finding of 'undisclosed income'. A mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid litigation cannot amount to discovery of undisclosed income for the purposes of levy of penalty under section 271AAB of the Act. The stated penalty could be levied only in respect of the ‘undisclosed income' as defined in Explanation (c) to the said Section 271AAB. In the present case, we arrive at a conclusion that there aforesaid notings were nothing but ‘market adjustments’ as pleaded by the assessee and the same would not fall within the expression ‘undisclosed income’ as defined in Explanation (c) to the said Section 271AAB since the same is not represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search. In such a case, the levy of penalty could not be upheld. 6. Our view duly find support from the decision of Chennai Tribunal in the case of ACIT vs. Shri Ghisulal Kothari (ITA No.2534/Chny/2018 dated 13-07-2022). On identical facts, considering various other decisions of Tribunal, the bench held as under: - 12 10. At this juncture, it would be useful to take note of statutory provisions of Sec.271AAB. As per the provisions, the assesseing officer may direct the assessee to pay, by way of penalty, a sum computed at specified rates of 10%, 20% or 30% of undisclosed income. The undisclosed income has been defined in explanation (c) as under: - (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 the 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 courses 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 have been found to be so had the search not been conducted. Upon perusal, it could be seen that ‘undisclosed income’ in the explanation would mean any income which is represented wholly or partly by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or the other documents or transactions found in the course of a search under section 132 which has remained unrecorded or otherwise not disclosed to the specified revenue authorities. Thus, there is a clear and direct association between the income on one hand and assets / documents on the other hand found during the course of search. A logical deduction could be made that the ‘undisclosed income’ has to be necessarily represented by any money, bullion, jewellery or other valuable article or thing or any book entry or transactions found in the course of a search u/s 132 which has remained unrecorded or otherwise not disclosed to the specified revenue authorities. If the ‘undisclosed income’ is not represented as aforesaid, the same could not be considered as ‘undisclosed income’ within the meaning of this Section. Applying the same to the facts of the present case, it could be concluded that voluntary admission which is so unrepresented could not be held to be ‘undisclosed income’ for the purpose of imposition of penalty u/s 271AAB. 11. We are also of the considered opinion that imposition of penalty is not automatic but it would apply on peculiar facts and circumstances of each case. Merely because the voluntary admission has been made by the assessee which is not represented by any incriminating material found during the course of search action, the same would not justify the imposition of penalty. The same is also evident from Clause (3) of Sec.271AAB which provide that the provisions of Section 274 and 275 would apply in relation to the penalty referred to in this Section. As per the provisions of Sec.274, no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The logic is simple. The principle of natural justice would demand that the aggrieved party is given an opportunity of hearing to defend its case. It is only after the defense of the accused has been considered, the authorities could proceed with penal consequences. Had the imposition of penalty been automatic, such an opportunity would have no relevance and no opportunity would be required to be given to 13 the assessee. It is only after the assessee has been heard and Ld. AO finds it a fit case for imposition of penalty, the penalty could be levied on the assessee. 12. Our aforesaid views find support from the decision of co-ordinate bench of Nagpur Tribunal in Chandra Suresh Kothari V/s DCIT (135 Taxmann.com 275; 20.12.2021) which held as under: - 16. On a perusal of the provisions of section 271AAB, it is evident that the section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the penal provision can be attracted are self-explanatory. It can be noticed that the Co-ordinate Benches of the Tribunal have categorically held that the expression 'undisclosed income' is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of \"undisclosed income\" as defined u/s. 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged 'undisclosed income' maybe relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self-contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each and every case of levy of penalty pursuant to search action. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed and we direct to delete the penalty levied u/s. 271AAB of Rs. 10,87,500/-. 13. Similar is the decision of Patna Tribunal in Shiv Bhagwan Gupta V/s ACIT (125 Taxmann.com 306; 11.02.2021) which, after considering catena of decisions on the issue, held as under: - 8. So far as issue of levy of penalty u/s 271AAB of the Act whether is mandatory or not is concerned, the issue has been dealt with by the Co-ordinate Chandigarh Bench of the Tribunal in the case of SEL Textiles Ltd. v. Dy. CIT [IT Appeal No. 695 (Chd.) of 2018, dated 18-4-2019]. The Tribunal in the above case has relied upon the decisions of the Coordinate Benches of the Tribunal in the cases of Asstt. CIT v. Marvel Associates [2018] 92 taxmann.com 109/170 ITD 353 (Visakhapatnam); Dy. CIT v. Rashmi Metaliks Ltd. [IT Appeal No. 1608 (Kol.) of 2017, dated 1-2-2019]; Dy. CIT v. Rashmi Cement Ltd. [IT Appeal No. 1606 (Kol.) of 2017, dated 28-2-2019]. The co-ordinate Chandigarh bench of the Tribunal (supra) after analyzing the aforesaid decisions, wherein, reliance has also been placed on the decisions of the Hon'ble High Courts has held that levy of penalty u/s 271AAB of 14 the Act is not mandatory. It has also been noted that the Legislature has consciously used the word 'may' in contradistinction to the word 'shall' in the opening words of section 271AAB of the Act. That the choice of the expression 'may' and not 'shall' in the opening section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the Assessing Officer but the Assessing Officer has been given discretion in the matter of levy of penalty. Further that as per sub section (3) of section 271AAB of the Act, the provisions of sections 274 and 275 of the Act have been made applicable in relation to the penalty referred to section 271AAB of the Act. It has been further observed that section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the competent authority. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of 'undisclosed income' as defined under explanation to section 271AAB of the Act. 9. On a perusal of the provisions of section 271AAB, it is evident that the Section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the penal provision can be attracted are self-explanatory. It can be noticed that the Co-ordinate Benches of the Tribunal have categorically held that the expression 'undisclosed income' is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of \"undisclosed income\" as defined u/s 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged 'undisclosed income' may be relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each every case of levy of penalty pursuant to search action. There is no bar to the assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act even in cases involving search actions if in the facts and circumstances of the case, it is so warranted. The only bar is that no penalty under the provisions of section 270A or section 271(1)(c) of the Act shall be imposed in respect of the undisclosed income, as defined u/s 271AAB of the Act, unearthed during the search action carried out u/s 132 of the Act. It is to be noted that the provisions of section 271AAB and section 271(1)(c) of the Act simultaneously existed and were operational till the provisions of section 271AAC become effective from 1-4-2017. 15 10. The Assessing Officer has levied penalty @ 10% of the alleged undisclosed income, however, it is a matter of record in this case that the assessee has not made any surrender of any undisclosed income during the search action. The assessing officer has not initiated the penalty proceedings u/s 271AAB of the Act on the basis of or in consequence of the said search action, rather the assessing officer, has initiated the penalty proceedings during the assessment proceedings solely on the ground that the assessee has disclosed certain income from undisclosed sources in the return of income and paid due taxes thereupon. The relevant part of the assessment order in this respect is reproduced as under: \"The assessee has filed return u/s 139 showing income of Rs. 2808270/-The assessee has disclosed income of Rs. 2179221/-during the year on account of undisclosed jewellery. Penalty u/s 271AAB is initiated.\" A perusal of the above reproduced relevant part of the assessment order reveals that the assessing officer has not mentioned about unearthing of any undisclosed income as defined u/s 271AAB of the Act during search action carried out at the premises of the assessee. In my view, the income declared by the assessee in the return of income or found or assessed by the Assessing officer in the assessment proceedings may be relevant for assessment of the income under section 68/69 and other related provisions of the Act and also for the levy of penalty under section 271(1)(c) of the Act in view of the relevant provisions of section 68/69 and 271(1)(c) of the Act. However, for the levy of penalty u/s.271AAB, the case must fall within the four corners of the definition of expression \"undisclosed income\" as defined u/s 271AAB itself. The assessee in this case is an individual and has earned income from partnership firm and interest income. The assessee has neither earned any business income nor earned any income exceeding Rs. 50 lakhs so as to require mandatory filing of personal assets and liabilities or to maintain books of account; even the assessee is not required to otherwise disclose any such income to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; the alleged income is not any income 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. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed. 14. The coordinate bench of Chennai Tribunal in ACIT V/s Shri S.Martin (ITA No.2382/Chny/2016 & ors; 05.10.2018) similarly held as under: - 20. This is the only definition available for “undisclosed income” in the Income-tax Act, 1961. Therefore, on the basis of material found during the course of search operation, if the Assessing Officer comes to a conclusion that the material found represents wholly or partly of the assessee’s income, which would not have been disclosed but for the purpose of search, may be construed as undisclosed income. In this case, it is not the case of the Revenue that any incriminating or other material was found during the course of search operation which represents wholly or partly the undisclosed income of the assessee. It is a definite case of the Revenue that the assessee offered an additional income of ₹50 Crores. Therefore, offer made by the assessee is not admitted on the basis of any material or document, bullion, etc. 16 Therefore, as rightly found by the CIT(Appeals), this cannot be construed as undisclosed income for the purpose of levy of penalty under Section 271AAB of the Act. Hence, the CIT(Appeals) has rightly deleted the penalty levied by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. The facts of the present case match with the facts of the above case law of Chennai Tribunal. Similar is the decision of Ahmedabad Tribunal in Bharatkumar N.Parikh V/s DCIT (ITA No.2493/Ahd/2018; 23.09.2019). 15. Considering the ratio of all the decisions as aforesaid, we are of the considered opinion that Ld. CIT(A) has clinched the issue in the right perspective. Therefore, we confirm the impugned order, however, with enhancement. It could be observed that excess cash was found for Rs.68.55 Lacs from the premises of M/s Kamachi Steel Ltd. which was owned up by the assessee and disclosure was made. Therefore, besides own cash, the assessee would be liable for penalty on this excess cash of Rs.68.55 Lacs also. We order so. The above decisions support the case of the assessee that mere admission of income would not automatically lead to imposition of penalty u/s 271AAB. 7. The Ld. CIT-DR has referred to the decision of Hon’ble High Court of Allahabad in the case of Pr. CIT vs. Sandeep Chandak (93 Taxmann.com 405; SLP dismissed vide 93 Taxmann.com 406) to support the imposition of penalty. After going through this decision, we find that this case law is distinguishable on facts. Upon perusal of paras 4 & 5, it could be gathered that the assessee surrendered certain income in statement made u/s 132(4). The said amount was stated to be earned form the trading of F&O and derivatives and was advanced for purchase of land. Further, during search, various incriminating items were found and the same were seized. Considering the same, the assessee surrendered certain income for the group. The same is not the case here since the amount as admitted by the assessee is not so represented by any unrecorded money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or 17 transaction found in the course of search. Therefore, this case law would not apply to the facts of the present case. 8. Finally, considering entirety of facts and circumstances of the case, we reach a conclusion that the impugned penalty is not sustainable in law. Accordingly, we direct Ld. AO to delete the same. 9. The appeal stand allowed in terms of our above order. Order pronounced on 3rd February, 2025 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) \u000eाियक सद\" /JUDICIAL MEMBER लेखा सद\" / ACCOUNTANT MEMBER चे3ई Chennai; िदनांक Dated : 03-02-2025 DS आदेश की Jितिलिप अ'ेिषत / Copy of the Order forwarded to : 1. अपीलाथ\u001c/Appellant 2. \u001f थ\u001c/Respondent 3. आयकरआयु
Other Referred Cases
ACIT vs. deccan Jewellers Pvt Ltd, Bhagwan Gupta vs. ACIT, Kanwar Sain Gupta vs. ACIT, M/s. Marvel Associates vs. DCIT, Ajay Sharma vs. DCIT, Rinku Agarwal vs. DCIT, SEL Textiles Ltd vs. DCIT, Om Prakash Modi vs. DCIT, Lajwantiben M.Manglani vs. DCIT, Shri Ghisulal Kothari vs. ACIT, Chandra Suresh Kothari vs. DCIT, Shiv Bhagwan Gupta vs. ACIT, ACIT vs. Shri S.Martin
Laws Referred To
Income Tax Act
1:1 Consultation on Legal Requirements
₹1
1:1 Consultation on SME Listing
₹0
1:1 Consultation on Business Valuations
₹1
Co-Founder Separation Agreement
₹0
Shipping and Logistics Agreement
₹0
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