SHRI PADAM CHAND PUNGLIYA, JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 112/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8795 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 31-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JHA CIT DHK
• Assessee Lawyers: S R SHARMA; RAJNIKANT BATRA
• Keywords: Unexplained expenditure; Business income; Income from undisclosed sources; Search and seizure; Loose papers; Document seized; Opportunity of being heard; Principle of natural justice; Question of law; Cost of acquisition; Initiation of penalty proceedings; Reasonable cause; Fair market value; Valuation report; Documents seized; Set aside
• Section: 271(1)(c); 143(3); 153A; 69B; 69; 132; 139; 2

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 112/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. SHRI PADAM CHAND PUNGLIYA, 2372, MSB KA RASTA, JOHARI BAZAR, JAIPUR. CUKE VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABDPP 7196 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.R. SHARMA (CA) & SHRI RAJNIKANT BATRA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA JHA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 07.03.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 05/04/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22 TH NOVEMBER, 2017 OF LD. CIT (A)-4, JAIPUR ARISING FR OM THE PENALTY ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT FOR THE ASSESSM ENT YEAR 2014-15. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT THE NOTICE ISSUED BY ASSESSING OFFICER FO R INITIATING THE PENALTY U/S 271AAB OF THE I.T. ACT, 1961 IS NOT IN ACCORDANCE WITH LAW NOT BEING SPECIFICALLY POINTING OUT THE DE FAULT FOR WHICH THE LD. A.O. SOUGHT TO IMPOSE PENALTY U/S 271AAB. 2. THAT WITHOUT PREJUDICE TO THE GROUND NO. (1) ABO VE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A ) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CONFIRMING PENALTY O F RS. 2 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 50,16,672/- IMPOSED BY THE LD. ASSESSING OFFICER U/ S 271AAB OF THE IT ACT, 1961. 3. THAT THE APPELLANT CRAVES THE PERMISSION TO ADD TO OR AMEND TO ANY OF THE ABOVE GROUNDS OF APPEAL OR TO WITHDRAW A NY OF THEM. GROUND NO. 1 IS REGARDING VALIDITY OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE IT ACT FOR WANT OF SPECIFYING THE DEFAULT AS PER CLAUSE (A) TO (C) OF SECTION 271AAB( 1) OF THE IT ACT. 2. A SEARCH AND SEIZURE ACTION UNDER SECTION 132(1) OF THE I.T. ACT WAS CARRIED OUT ON 4 TH SEPTEMBER, 2013 AT VARIOUS PREMISES OF RAMBHAJO GR OUP, JAIPUR. THE ASSESSEE IS ALSO ONE OF THE MEMBERS OF THIS GROUP C OVERED BY THE SEARCH AND SEIZURE ACTION. DURING THE COURSE OF SEARCH AND SEIZURE ACT ION, THE ASSESSEE DISCLOSED UNDISCLOSED INCOME OF RS. 5,01,66,717/- BEING AN AD DITIONAL BUSINESS INCOME. THE SAID INCOME WAS SURRENDERED BY THE ASSESSEE ON ACCO UNT UNEXPLAINED EXPENDITURE ON HOUSE CONSTRUCTION OF RS. 2,44,63,575/-, UNDISCL OSED STOCK OF RS. 1,91,24,877/-, UNDISCLOSED JEWELLERY OF RS. 60,16,265/- AND UNDISC LOSED DEBTORS/ADVANCES OF RS. 5,62,000/- TOTAL AMOUNTING TO RS. 5,01,66,717/-. T HE ASSESSEE FILED HIS RETURN OF INCOME ON 28 TH NOVEMBER, 2014 UNDER SECTION 139(1) DECLARING TOTA L INCOME OF RS. 5,06,89,010/- WHICH INCLUDED THE SAID ADDITIONAL IN COME OF RS. 5,01,66,717/- OFFERED TO TAX IN THE COURSE OF SEARCH. THE ASSESSMENT UND ER SECTION 143(3) READ WITH SECTION 153B(1)(B) OF THE IT ACT WAS COMPLETED ON 3 0 TH MARCH, 2016 ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, THE AO INITIATED TH E PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE ACT BY ISSUING SHOW CAUSE NOT ICES DATED 30 TH MARCH, 2016 AND 16.08.2016. THE ASSESSEE RAISED OBJECTION AGAINST THE LEVY OF PENALTY BY FILING THE REPLY AND WRITTEN SUBMISSIONS AND MAINLY CONTENDED THAT THE ADDITIONAL INCOME WAS 3 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. DISCLOSED AND OFFERED TO TAX TO BUY PEACE AND AVOID LITIGATION AND, THEREFORE, THE PENALTY CANNOT BE LEVIED UNDER SECTION 271AAB OF TH E ACT. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND LEVIED THE PENAL TY @ 10% OF THE UNDISCLOSED INCOME WHILE PASSING THE ORDER DATED 29 TH SEPTEMBER, 2016. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) AND SUBMITTED THAT THE PROVISIONS OF SECTION 271AAB ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS IT WAS NOT UNDISCLOSED INCOME BUT AN ADDITIONAL BUSINESS I NCOME. FURTHER, THE ASSESSEE CONTENDED THAT THE SAID AMOUNT WAS SURRENDERED ONLY TO BUY PEACE AND NOT AS AN ACTUAL UNDISCLOSED INCOME OF THE ASSESSEE. THE ASS ESSEE REFERRED TO THE PROVISIONS OF THE ACT AND SUBMITTED THAT THE AO HAS TO DECIDE THE LEVY OF PENALTY AFTER CONSIDERING THE FACTS OF THE CASE AND, THEREFORE, I T IS NOT A MANDATORY PROVISION BUT IT IS A DISCRETION OF THE AO. THE LD. CIT (A) DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE AND HELD THAT THE LEVY OF PENALTY UNDER SE CTION 271AAB IS MANDATORY IN NATURE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE WA S DISMISSED. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE AO WHILE ISSUING THE SHOW CAUSE NOTICE UNDER SECTION 274 READ WITH S ECTION 271AAB HAS NOT SPECIFIED THE DEFAULT OF THE ASSESSEE IN TERMS OF CLAUSE (A) TO (C) OF SECTION 271AAB OF THE ACT. THEREFORE, THE INITIATION OF PENALTY PROCEEDINGS IS ILLEGAL DUE TO SHOW CAUSE NOTICE IS DEFECTIVE. THEREFORE, THE NOTICES WERE ISSUED IN R OUTINE MANNER WITHOUT MENTIONING UNDER WHICH CLAUSE OF SECTION 271AAB(1) OF THE ACT THE ASSESSEE IS LIABLE FOR PENALTY. HE HAS REFERRED TO THE PROVISIONS OF SECT ION 271AAB(1) AND SUBMITTED THAT THERE ARE THREE CLAUSES (A) TO (C) AND EACH CLAUSE OF SUB-SECTION (1) PROVIDES THE CIRCUMSTANCES AND VIOLATION ATTRACTING THE PENALTY @ 10%, 20% AND 30% OF UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. THE ASSESSEE SHOULD KNOW THE 4 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. GROUNDS WHICH HE HAS TO MEET SPECIFICALLY OTHERWISE THE PRINCIPLES OF NATURAL JUSTICE ARE VIOLATED. EVEN IN THE ASSESSMENT ORDER THE AO HAS NOT SPECIFIED UNDER WHICH CLAUSE THE PENALTY IS LIABLE TO BE IMPOSED BUT THE AO HAS MENTIONED THAT THE PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE ACT ARE BEI NG INITIATED. THERE IS NO APPLICATION OF MIND AT THE TIME OF ISSUING THE SHOW CAUSE NOTICES AS THE AO HAS NOT SPECIFIED THE UNDISCLOSED INCOME ON WHICH THE ASSES SEE IS REQUIRED TO SHOW CAUSE. EVEN THE AO HAS NOT GIVEN ANY GROUND FOR LEVY OF PE NALTY FOR WHICH THE ASSESSEE COULD PUT HIS DEFENCE. THUS IN THE ABSENCE OF SPE CIFIC CHARGE AGAINST THE ASSESSEE, THE ASSESSEE WAS NOT GIVEN THE PROPER OPPORTUNITY T O COUNTER THE SHOW CAUSE NOTICE ISSUED BY THE AO AS WELL AS TO FILE THE COGENT REPL Y TO THE SAME. IN THE ABSENCE OF ANY GROUNDS SPECIFIED IN THE SHOW CAUSE NOTICE AS W ELL AS ANY AMOUNT TO BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE PURPO SE OF LEVY OF PENALTY UNDER SECTION 271AAB, THE INITIATION OF PENALTY IS NOT VA LID AND, THEREFORE, THE CONSEQUENTIAL ORDER PASSED UNDER SECTION 271AAB OF THE ACT IS ALSO LIABLE TO BE QUASHED. IN SUPPORT OF HIS CONTENTION, HE HAS RELIE D UPON THE FOLLOWING DECISIONS :- CIT VS. MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (KARNATAKA) MUNINAGA REDDY VS. ACIT 396 ITR 398 (KARNATAKA) CIT VS. SSAS EMERALD MEADOWS 73 TAXMANN.COM 248 (SC) RAVI MATHUR VS. DCIT ITA NO. 969/JP/2017 DATED 13.06.2018. 5 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. APART FROM THE ABOVE DECISIONS, THE LD. A/R HAS ALS O REFERRED TO A SERIES OF DECISIONS ON THIS POINT THAT PENALTY PROCEEDINGS UNDER SECTIO N 271AAB IS NOT MANDATORY BUT DISCRETIONARY AND THE AO HAS TO TAKE A DECISION BY CONSIDERING THE REPLY AND EXPLANATION OF THE ASSESSEE AND GIVING A FINDING WH ETHER THE INCOME DISCLOSED BY THE ASSESSEE DURING THE SEARCH AND SEIZURE ACTION I S UNDISCLOSED INCOME AS PER THE DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 2 71AAB OF THE IT ACT. 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY IN NATURE AND, THEREFOR E, THE AO IS NOT REQUIRED TO SPECIFY THE CLAUSE AS PER SUB-SECTION (1) OF SECTIO N 271AAB OF THE ACT IN THE SHOW CAUSE. HE HAS REFERRED TO THE EXPLANATORY NOTE OF FINANCE BILL, 2012 WHEREBY THE PROVISIONS OF SECTION 271AAB IS INSERTED IN THE STA TUTE AND SUBMITTED THAT THE LEGISLATURE HAS MADE IT CLEAR THAT THE PENALTY UNDE R SECTION 271AAB IS MANDATORY IN NATURE. THE LD. D/R HAS SUBMITTED THAT THE ASSESSE E WAS VERY WELL AWARE ABOUT THE DEFAULT AND THE NATURE OF INCOME HE HAS DISCLOSED A ND SURRENDERED DURING THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE IT A CT. THE SURRENDER IN QUESTION WAS MADE BECAUSE THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE OF THE INVESTMENT IN QUESTION. IT IS A CLEAR CASE OF UNDISCLOSED INCO ME DETECTED DURING THE COURSE OF SEARCH AND SEIZURE ACTION AND, THEREFORE, THE SURRE NDER MADE BY THE ASSESSEE HIMSELF IS SELF-EXPLANATORY TO THE NATURE OF INCOME SURRENDERED BY THE ASSESSEE. THE LD. D/R HAS CONTENDED THAT THE ASSESSEE HAS PAR TICIPATED IN THE PENALTY PROCEEDINGS AND HAS NOT RAISED ANY OBJECTION OR HAS DEMANDED BEFORE THE AO ABOUT HIS UNAWARENESS OF THE NATURE OF DEFAULT ATTRACTING THE LEVY OF PENALTY UNDER SECTION 271AAB. IT IS NOT THE CASE OF THE ASSESSEE THAT THE DISCLOSURE WAS TAKEN UNDER COERCION AND FURTHER THE ASSESSEE HAS OFFERED THE S AID AMOUNT TO TAX IN THE RETURN OF 6 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. INCOME WHICH RULES OUT THE SCOPE OF ANY PRESSURE OR COERCION BY THE SEARCH TEAM FOR TAKING DISCLOSURE FROM THE ASSESSEE. THUS THE OBJE CTION RAISED BY THE ASSESSEE THAT THE AO HAS NOT SPECIFIED THE CLAUSE UNDER SECTION 2 71AAB(1) OF THE ACT HAS NO MERIT WHEN THE ASSESSEE HIMSELF HAS EXPLAINED THE NATURE OF INCOME DISCLOSED AND SURRENDERED AND ALSO PAID THE TAX ON THE SAME. THE LD. D/R HAS SUBMITTED THAT AS PER THE EXPLANATORY NOTE OF FINANCE BILL, 2012, THE PROVISIONS OF SECTION 271AAB ARE MANDATORY IN NATURE AND THE AO HAS NO DISCRETION BU T THE ASSESSEE SHALL PAY THE PENALTY IN ADDITION TO THE TAX ON THE UNDISCLOSED I NCOME SURRENDERED UNDER SECTION 132(4) OF THE ACT. HE HAS RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 4.1. THE LD. D/R HAS ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN CASE OF PRINCIPAL CIT VS. SANDEEP CHANDAK AND OT HERS DATED 27 TH NOVEMBER, 2017 IN I.T. APPEAL NO. 122, 128 AND 129 OF 2017 AND SUB MITTED THAT EVEN OTHERWISE IF THE SHOW CAUSE NOTICE DOES NOT MENTION THE SECTION CORRECTLY IT WILL NOT BE INVALID AS THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE ACT. THE LD. D/R HAS ALSO RELIED UPON THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. AMIT AGARWAL, 88 TAXMANN.COM 288. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF SEARCH AND SEIZURE AC TION UNDER SECTION 132 CONDUCTED ON 4 TH SEPTEMBER, 2013, THE ASSESSEE DISCLOSED INCOME OF RS. 5,01,66,717/- IN HIS STATEMENT MADE UNDER SECTION 132(4) OF THE ACT. TH E SAID DISCLOSURE WAS MADE IN PURSUANT TO THE ENTRIES IN THE SEIZED DOCUMENTS. T HE DETAILS OF THE UNDISCLOSED INCOME SURRENDERED BY THE ASSESSEE ARE AS UNDER :- 7 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. A) UNEXPLAINED EXPENDITURE ON HOUSE CONSTRUCTION 2,44 ,63,575/- B) UNDISCLOSED STOCK 1,91,24,877/- C) UNDISCLOSED JEWELLERY 60,16,265/- D) UNDISCLOSED DEBTORS/ADVANCES 5,62,000/- ------------------ TOTAL : 5,01,66,717/- ------------------ IT IS PERTINENT TO NOTE THAT THE DISCLOSURE OF ADDI TIONAL INCOME IN THE STATEMENT RECORDED UNDER SECTION 132(4) ITSELF IS NOT SUFFICI ENT TO LEVY THE PENALTY UNDER SECTION 271AAB OF THE ACT UNTIL AND UNLESS THE INCO ME SO DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME DEFIN ED IN THE EXPLANATION TO SECTION 271AAB(1) OF THE ACT. THEREFORE, THE QUESTION WHET HER THE INCOME DISCLOSED BY THE ASSESSEE IS UNDISCLOSED INCOME IN TERMS OF THE DEFI NITION UNDER SECTION 271AAB OF THE ACT HAS TO BE CONSIDERED AND DECIDED IN THE PEN ALTY PROCEEDINGS. SINCE THE ASSESSEE HAS OFFERED THE SAID INCOME IN THE RETURN OF INCOME FILED UNDER SECTION 139(1) OF THE ACT, THEREFORE, THE QUESTION OF TAKIN G ANY DECISION BY THE AO IN THE ASSESSMENT PROCEEDINGS ABOUT THE TRUE NATURE OF SUR RENDER MADE BY THE ASSESSEE DOES NOT ARISE AND ONLY WHEN THE AO HAS PROPOSED TO LEVY THE PENALTY THEN IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS OF SECTIO N 271AAB THAT THE SAID INCOME DISCLOSED BY THE ASSESSEE IN THE STATEMENT UNDER SE CTION 132(4) IS AN UNDISCLOSED INCOME AS PER THE DEFINITION PROVIDED UNDER SECTION 271AAB. THEREFORE, THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB HAS TO EXAMINE ALL THE FACTS OF THE CASE AS WELL AS THE BASIS OF THE SURRENDER AND THEN ARRIVE TO THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION O F UNDISCLOSED INCOME AS STIPULATED IN THE EXPLANATION TO THE SAID SECTION. THEREFORE, WE DO NOT AGREE WITH THE CONTENTION OF THE LD. D/R THAT THE LEVY OF PENALTY UNDER SECTI ON 271AAB IS MANDATORY SIMPLY 8 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. BECAUSE THE AO HAS TO FIRST ISSUE A SHOW CAUSE NOTI CE TO THE ASSESSEE AND THEN HAS TO MAKE A DECISION FOR LEVY OF PENALTY AFTER CONSID ERING THE FACT THAT ALL THE CONDITIONS PROVIDED UNDER SECTION 271AAB ARE SATISF IED. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAVI MATHUR VS. DCIT (SUPRA) IN PARA 4 TO 6 AS UNDER :- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. A SEARCH WAS CONDUCTED UNDER S ECTION 132 OF THE IT ACT ON 30 TH OCTOBER, 2014 AT THE PREMISES OF THE ASSESSEE. TH E ASSESSEE IN HIS STATEMENT RECORDED UNDER SECTION 13 2(4) HAS DISCLOSED AN INCOME OF RS. 10,02,00,000/- IN PURSUANT TO THE ENTRIES OF ADVANCES GIVEN FOR PURCHASE OF LAND RECORDED IN THE POCKET D IARY WHICH WAS FOUND AND SEIZED DURING THE COURSE OF SEARCH AND SE IZURE ACTION. THIS IS YEAR OF SEARCH AND THE FINANCIAL YEAR WOULD END ON 31 ST MARCH, 2015. HOWEVER, THE ASSESSEE DISCLOSED THIS AMOUNT OF RS. 10,02,00,000/- BASED ON THE ENTRIES IN THE DIARY REGARDING INVESTM ENT IN REAL ESTATE. THE DUE DATE OF FILING OF RETURN OF INCOME UNDER SE CTION 139(1) WAS 30 TH SEPTEMBER, 2015. IT IS UNDISPUTED FACT THAT THE A SSESSEE IS AN INDIVIDUAL AND WAS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT. THEREFORE, THE TRANSACTIONS RECORDED IN THE POCKET DIARY FOUND DURING THE COURSE OF SEARCH ITSELF WOULD NOT LEAD TO THE P RESUMPTION THAT THE ASSESSEE WOULD NOT HAVE OFFERED THIS INCOME TO TAX IF THE SEARCH IS NOT CONDUCTED ON 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF DO NO NOT REPRESENT THE INCOME OF THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION THOUGH THE ASSESSEE WAS REQUIRE D TO EXPLAIN THE SOURCE OF INVESTMENT IN QUESTION AND THAT SOURCE WO ULD BE THE INCOME OF THE ASSESSEE. IT IS MOST LIKELY THAT THE INVEST MENT IN QUESTION WAS MADE FROM THE UNACCOUNTED INCOME OF PRECEDING YEARS . HENCE THE INVESTMENT IN THE REAL ESTATE ITSELF WOULD NOT REVE AL THE NATURE OF 9 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. INCOME AND THE SOURCE OF INCOME OF THE YEAR UNDER C ONSIDERATION. IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS OF SECT ION 271AAB THAT THE ASSESSEE ADMITTED THE UNDISCLOSED INCOME IN THE STA TEMENT UNDER SECTION 132(4). THE DEFINITION OF UNDISCLOSED IN COME IS PROVIDED IN SECTION 271AAB ITSELF AND, THEREFORE, THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB HAS TO EXAMINE ALL THE FACTS OF THE CASE AND THEN ARRIVE TO THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME AS STIPULATED IN THE EXPLANATION TO SAID SECTION. THE FIRST QUESTION ARISES IS WHETHER THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY AND CONSEQUENTIAL TO THE DISCLOSURE OF INCOME BY THE ASSESSEE UNDER SECTION 132(4) OR THE AO HAS TO TAKE A DECISION WHETHER THE GIVEN CASE HAS SATISFIED THE REQUIREMENTS FOR LEVY OF PENALTY UNDER SECTION 271A AB OF THE ACT. IN ORDER TO CONSIDER THIS ISSUE, THE PROVISIONS OF SEC TION 271AAB ARE TO BE ANALYZED. FOR READY REFERENCE, WE QUOTE SECTION 2 71AAB AS UNDER :- 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANY THING 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 49 [BUT BEFORE THE DATE ON WHICH THE TAXATION LAWS (SE COND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT 50 ], THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE U ND ISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE MAN NER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , DOES NOT ADMIT THE UNDISCLOSED INCOME; AND 10 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNIS HED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; (C) A SUM 51 [COMPUTED AT THE RATE OF SIXTY PER CENT] OF THE UND ISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY TH E PROVISIONS OF CLAUSES (A) AND (B). 52 [(1A) THE ASSESSING OFFICER MAY, NOTWITHSTANDING AN YTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE DATE ON WHICH THE TAXATION LAWS (S ECOND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF THIRT Y PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF THE ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF SIXTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED UNDER THE PROVI SIONS OF CLAUSE ( A).] (2) NO PENALTY UNDER THE PROVISIONS OF 53 [ SECTION 270A OR] CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF T HE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1) 52 [OR SUB-SECTION (1A)]. (3) THE PROVISIONS OF SECTIONS 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNISHING O F RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 OR THE DATE ON WHICH THE PERIOD SPECIFIED IN THE NO TICE ISSUED UNDER SECTION 153A FOR FURNISHING OF RETURN OF INCOME EXPIRES, AS THE CASE MAY BE; (B) 'SPECIFIED PREVIOUS YEAR' MEANS THE PREVIOUS YEAR (I) WHICH HAS ENDED BEFORE THE DATE OF SEARCH, BUT THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 FOR SUCH YEAR HAS NOT EXPIRED BEFORE THE DATE OF SEARCH AND THE ASSESSEE HAS NOT FURNISHED THE RETURN OF INCOME FOR THE PREVIOUS YEAR BEFORE THE D ATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; 11 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER V ALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S 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 I N 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 54 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR 54 [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SE ARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED 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.] THE SECTION BEGINS WITH THE STIPULATION THAT THE AO MAY DIRECT THE ASSESSEE SHALL PAY BY WAY OF PENALTY IF THE CONDITI ONS AS PRESCRIBED UNDER CLAUSES (A) TO (C) ARE SATISFIED. AS PER SUB -SECTION (3) OF SECTION 271AAB THE PROVISIONS OF SECTION 274 AND 275 AS FAR AS MAY BE APPLIED IN RELATION TO THE PENALTY REFERRED IN THIS SECTION WHICH MEANS THAT BEFORE IMPOSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A SHOW CAUSE NOTICE AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LEVY OF PENALTY U/S. 271AAB IS N OT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISION TO IMPOSE THE PENAL TY AFTER GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FO R NOT FULFILLING THE CONDITIONS AS PRESCRIBED U/S 271AAB OF THE ACT IS R EQUIRED TO BE CONSIDERED BY THE AO AND PARTICULARLY WHETHER THE E XPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPL IANCE OF THE SAME IS DUE TO THE REASON BEYOND THE CONTROL OF THE ASSE SSEE. THEREFORE, THE PENALTY U/S 271AAB IS NOT A CONSEQUENTIAL ACT BUT T HE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANATION AND REPLY OF THE ASSESS EE HAS TO TAKE A DECISION. THIS REQUIREMENT OF GIVING AN OPPORTUNIT Y OF HEARING ITSELF 12 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. MAKES IT CLEAR THAT THE PENALTY U/S 271AAB IS NOT M ANDATORY BUT THE AO HAS TO TAKE A DECISION BASED ON THE FACTS AND CI RCUMSTANCES OF THE CASE OTHERWISE THERE IS NO REQUIREMENT OF ISSUING A NY NOTICE FOR INITIATION OF PROCEEDINGS BUT THE LEVY OF PENALTY W OULD BE CONSEQUENTIAL AND ONLY COMPUTATION OF THE QUANTUM WAS TO BE DONE BY THE AO AS IN THE CASE OF LEVY OF INTEREST AND FEE U/S 234A TO E. EVEN THE QUANTUM OF PENALTY LEVIABLE U/S 271AAB IS ALSO SUBJECT TO T HE CONDITION PRESCRIBED UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) AND THE AO HAS TO AGAIN GIVE A FINDING FOR LEVY OF PENALTY @ 10% O R 20% OR 30% OF THE UNDISCLOSED INCOME. THUS THE AO IS BOUND TO TA KE A DECISION AS TO WHAT DEFAULT IS COMMITTED BY THE ASSESSEE AND WHICH PARTICULAR CLAUSE OF SECTION 271AAB(1) IS ATTRACTED ON SUCH DEFAULT. FURTHER, MERE DISCLOSURE OF INCOME UNDER SECTION 132(4) WOULD NOT IPSO FACTO PAR TAKE THE CHARACTER OF UNDISCLOSED INCOME BUT THE FA CTS OF EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS T O ATTRACT THE PROVISIONS OF SECTION 271AAB OF THE ACT. SINCE IT IS NOT AUTOMATIC BUT THE AO HAS TO GIVE A FINDING THAT THE CASE OF THE A SSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATI ON TO THE SAID SECTION. THEREFORE, THE PROVISIONS OF SECTION 271A AB STIPULATE THAT THE AO MAY COME TO THE CONCLUSION THAT THE ASSESSEE SHA LL PAY THE PENALTY. THE ONLY MANDATORY ASPECT IN THE PROVISIO N IS THE QUANTUM OF PENALTY AS SPECIFIED UNDER CLAUSES (A) TO (C) OF SE C. 271AAB(1) OF THE ACT AS 10% TO 30% OR MORE AS AGAINST THE DISCRETION GIVEN TO THE AO AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE A CT WHERE THE AO HAS THE DISCRETION TO LEVY THE PENALTY FROM 100% TO 300 % OF THE TAX SOUGHT TO BE EVADED. THUS THE AO IS DUTY BOUND TO COME TO THE CONCLUSION THAT THE CASE OF THE ASSESSEE IS FIT FOR LEVY OF PENALTY UNDER SECTION 271AAB AND THEN ONLY THE QUANTUM OF PENALTY BEING 10% OR 20% OR 30% HAS TO BE DETERMINED SUBJECT TO THE EXPL ANATION OF THE ASSESSEE FOR THE DEFAULTS. 13 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 5. BEFORE WE PROCEED FURTHER, THE DECISIONS RELIED UPON BY THE LD. D/R ARE TO BE CONSIDERED. IN THE CASE OF PRINCIPAL CIT VS. SANDEEP CHANDAK & OTHERS (SUPRA) THE ISSUE BEFORE THE HONB LE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AA B ON ACCOUNT OF MENTIONING WRONG PROVISION OF THE ACT BEING 271(1)( C) OF THE ACT. THE HONBLE HIGH COURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO THOUGH MENTIONS SECTION 271 (1) IN THE CAPTION OF THE SAID NOTICE, HOWEVER, THE BODY OF THE SHOW C AUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS FULLY COMPREHEND ED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSES SEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HA S HELD AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTIO N OF THE NOTICE MENTIONED ONLY SECTION 271 AND NOT 271AAB. I N THIS RESPECT, THE COPY OF NOTICE HAS BEEN PRODUCED BY THE LD. A.R . BEFORE ME. IT IS SEEN THAT THE LD. A.R IS CORRECT IN OBSERVING THAT THE SECTION OF PENALTY HAS NOT BEEN CORRECTLY MENTIONED BY THE AO IN THE C APTION. HOWEVER, THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE INCOME TAX ACT, 1961 BECAUSE FIRSTLY, THE ASSESSEE HAS RAISED NO OB JECTION BEFORE THE AO IN THIS REGARD. SECONDLY, LAST LINE OF THE NOTIC E CLEARLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REP LY TO SAID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED TH E IMPLICATION OF THE NOTICE THAT IT IS FOR SECTION 271AAB. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLE S OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SU BMISSIONS OF A.R IN THIS REGARD HAS ALREADY BEEN REPRODUCED ABOVE. THE A.R DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT HE WAS NOT GIVEN PROPER OPPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALT Y ORDER THAT THE AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE ASSESSEE. THEREFORE, IN MY OPINION, PRINCIPLE OF NATURAL JUST ICE HAS NOT BEEN VIOLATED. THUS IN VIEW OF ABOVE DISCUSSION PENALTY IMPOSED BY AO U/S 271AAB OF THE ACT IS CONFIRMED. THUS IT WAS FOUND BY THE HONBLE HIGH COURT THAT TH E MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UNDER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF TH E SAME. THE SAID DECISION WILL NOT HELP THE CASE OF THE REVENUE SO F AR AS THE ISSUE 14 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. INVOLVES THE MERITS OF LEVY OF PENALTY UNDER SECTIO N 271AAB. AS REGARDS THE DECISION OF KOLKATA BENCHES OF THE TRIB UNAL IN THE CASE OF DCIT VS. AMIT AGARWAL (SUPRA), WE FIND THAT THE SAI D DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRESH O RDER DATED 14 TH MARCH, 2018 WAS PASSED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. D/R IS NO MORE IN EXISTENCE. 6. THE QUESTION WHETHER LEVY OF PENALTY UNDER SECTI ON 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSI DERED BY THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACI T VS. M/S. MARVEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. DURING THE APPEAL HEARING, THE LD. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENALTY UNDER THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION O F INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FURTHER STATED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSM ENT AND ACCORDINGLY ARGUED THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MAN DATORY BUT DISCRETIONARY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGI BLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTION 158BFA(2 ) OF THE ACT AND ARGUED THAT THE WORDS USED IN SECTION 271AAB OF THE ACT AND THE WOR DS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENAL TY SECTION 271AAB OF THE ACT PENALTY IS NOT AUTOMATIC AND IT IS ON THE MERITS OF EACH CASE. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SECTION 158BFA (2) OF THE ACT A ND SECTION 271AAB OF THE ACT WHICH READS AS UNDER; 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM 15 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF SEARCH, IN A STATEMENT UNDER SUB-S ECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AND SPEC IFIES THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED. (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT O F THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNIS HED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, I N RESPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER C ENT BUT WHICH SHALL NOT EXCEED NINETY PER CENT OF THE UNDISCLOSED INCOME OF THE SP ECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) O F SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDI SCLOSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A P ERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TA X LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C ) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RE SPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; 16 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HAS BEE N PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OFFERS THE MO NEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYABLE. (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RE TURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF TH AT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVI SO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PE NALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS I N EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, TH E WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENAL TY. SIMILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE A CT, FORTIFIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. 7. THE LEGISLATURE HAS INCLUDED THE PROVISIONS OF S ECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CLEAR INTENTIO N TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROC EDURE 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 E VIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE O PPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSE E, THE PENALTY CANNOT BE MANDATORY AND IT IS ON THE BASIS OF THE FACTS AND M ERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT TO HEAR THE ASSESSEE A ND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREM ENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPOR TUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JU STICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHIL E DEALING WITH THE PENALTY U/S 158BFA HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECTION 158BFA OF THE ACT THAT A RE ENTITLED TO BE MANDATORY, THE 17 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. WORDS MAY DIRECT IN SUB SECTION 2 THERE OF INTENDED TO DIRECTORY. IN OTHER WORDS, WHILE PAYMENT OF INTEREST IS MANDATORY LEVY OF PENA LTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHO RITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE F ACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH CASE. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETI ON TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION O F THE AO. HENCE WE FORTIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL ASSOCIATES. THUS THE TRIBUNAL HAS ANALYZED ALL THE RELEVANT PRO VISIONS OF THE ACT AS WELL AS VARIOUS DECISIONS ON THIS POINT INCLUDING THE DECIS ION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF PR. CIT VS. SANDEEP CHANDAK, 405 ITR 648 (ALLAHABAD) RELIED UPON BY THE LD. D/R AND THEN ARRIVED AT THE CONCLUSION THAT THE PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETION TO T AKE A DECISION AND THE SAME SHOULD BE BASED ON JUDICIOUS DECISION OF THE AO. A CCORDINGLY FOLLOWING THE EARLIER DECISION OF THIS TRIBUNAL IN THE CASE OF RAVI MATHU R VS. DCIT (SUPRA), WE HOLD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MAN DATORY BUT THE AO HAS A DISCRETION AFTER CONSIDERING ALL THE RELEVANT ASPEC TS OF THE CASE AND THEN TO SATISFY HIMSELF THAT THE CASE OF THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME AS PROVIDED IN THE EXPLANATION TO SECTION 271AAB OF TH E ACT. 18 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 5.1. THE SECOND LIMB OF CHALLENGING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS FOR NOT SPECIFYING THE GROUND AND DEFAULT IN THE SH OW CAUSE NOTICE ISSUED UNDER SECTION 274 HAS BEEN CONSIDERED BY THE COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF RAVI MATHUR VS. DCIT (SUPRA) IN PARA IN PAR A 7 AS UNDER :- 7. AS REGARDS THE VALIDITY OF NOTICE UNDER SECTION 274 FOR WANT OF SPECIFYING THE GROUND AND DEFAULT, WE FIND THAT WHE N THE BASIC CONDITION OF THE UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNTS DOES NOT EXISTS, THEN THE SAME HAS TO BE S PECIFIED BY THE AO IN THE SHOW CAUSE NOTICE AND FURTHER THE AO IS REQU IRED TO GIVE A FINDING WHILE IMPOSING THE PENALTY UNDER SECTION 27 1AAB. EVEN IF THE AO IS SATISFIED AND COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCOME IN THE BOOKS OF ACC OUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINTAINED IN NORMAL CO URSE RELATING TO SPECIFIED PREVIOUS YEAR, THE SHOW CAUSE NOTICE SHALL ALSO SPECIFY THE DEFAULT COMMITTED BY THE ASSESSEE TO AT TRACT THE PENALTY @ 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME. THER E IS NO DISPUTE THAT THE AO HAS NOT SPECIFIED THE DEFAULT AND CHARG E AGAINST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UND ER SECTION 271AAB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVE N AN OPPORTUNITY TO EXPLAIN HIS CASE FOR SPECIFIC DEFAULT ATTRACTING TH E LEVY OF PENALTY IN TERMS OF CLAUSES (A) TO (C) OF SECTION 271AAB(1) OF THE ACT. THE CHANNAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V S. SHRI R. ELANGOVAN (SUPRA) AT PAGES 7 TO 10 HAS HELD AS UNDE R :- IT IS CLEAR FROM THE SUB SECTION (3) OF SECTION 271 AAB THAT SECTIONS 274 AND SECTION 275 OF THE ACT SHALL, SO FAR AS MAY BE, APPLY. SUB SECTION (1) OF SECTION 274 OF THE ACT MANDATES THAT ORDER IMPOSING PENALTY HAS TO BE IMPOSED ONLY AFTER HEARING THE ASSESSEE OR GIVING A ASSESSEE OPPORTUNITY OF 19 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. HEARING. OPPORTUNITY THAT IS TO BE GIVEN TO THE ASS ESSEE SHOULD BE A MEANINGFUL ONE AND NOT A FARCE. NOTICE ISSUED TO TH E ASSESSEE REPRODUCED (SUPRA), DOES NOT SHOW WHETHER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR HAVING UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 271AAB OF THE ACT. NOTICE IN OUR OPINION WAS VAGUE. HONBLE KARNA TAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA) RELYING IN IT S OWN JUDGMENT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPR A) HAD HELD AS UNDER:- 2. THIS APPEAL HAS BEEN FILED RAISING THE FOLLOWI NG SUBSTANTIAL QUESTIONS OF LAW: (1) WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITL Y MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATED FOR FURNISH ING OF INACCURATE PARTICULARS OR THAT FOR CONCEALMENT OF I NCOME MAKES THE PENALTY ORDER LIABLE FOR CANCELLATION EVEN WHEN IT HAS BEEN PROVED BEYOND REASONABLE DOUBT THAT THE ASSESSEE HA D CONCEALED INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE P ENALTY NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) IS BAD IN LAW AN D INVALID DESPITE THE AMENDMENT OF SECTION 271(1B) WITH RETRO SPECTIVE EFFECT AND BY VIRTUE OF THE AMENDMENT, THE ASSESSIN G OFFICER HAS INITIATED THE PENALTY BY PROPERLY RECORDING THE SAT ISFACTION FOR THE SAME? (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DECIDING THE APPEALS AGAI NST THE REVENUE ON THE BASIS OF NOTICE ISSUED UNDER SECTION 274 WIT HOUT TAKING INTO CONSIDERATION THE ASSESSMENT ORDER WHEN THE ASSESSI NG OFFICER HAS SPECIFIED THAT THE ASSESSEE HAS CONCEALED PARTICULA RS OF INCOME? 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTIO N 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE ACT) TO BE BAD IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDINGS HAD BEEN INITIATED I.E., WHETHER FOR CO NCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELI ED ON THE DECISION OF THE DIVISION BENCH OF THIS COURT RENDERED IN THE CASE O F CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 4. IN OUR VIEW, SINCE THE MATTER IS COVERED BY JUDG MENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIA L QUESTION OF LAW ARISES IN 20 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. THIS APPEAL FOR DETERMINATION BY THIS COURT. THE AP PEAL IS ACCORDINGLY DISMISSED. IN THE EARLIER CASE OF MANJUNATHA COTTON AND GINNIN G FACTORY (SUPRA) THEIR LORDSHIP HAD OBSERVED AS UNDER:- NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIF ICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E. SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW ; THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OF FENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON TH E ASSESSEE ; ) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW ; PENALTY PROCEEDINGS AR E DISTINCT FROM THE ASSESSMENT PROCEEDINGS : THOUGH PROCEEDINGS FOR IMP OSITION OF PENALTY EMANATE FROM PROCEEDINGS OF ASSESSMENT, THEY ARE IN DEPENDENT AND A SEPARATE ASPECT OF THE PROCEEDINGS ; THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCORREC T PARTICULARS WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE PROCEEDINGS ON THE MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE A SSESSMENT OR REASSESSMENT CANNOT BE DECLARED INVALID IN THE PENA LTY PROCEEDINGS. VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN T HE ABOVE JUDGMENT WAS INDIRECTLY AFFIRMED BY THE HONBLE APEX COURT, WHEN IT DISMISSED AN SLP FILED BY THE REVENUE AGAINST THE JUDGMENT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA), SPECIFICALLY OBSERVING THAT THERE WAS NO M ERITS IN THE PETITION FILED BY THE REVENUE. CONSIDERING THE ABOVE CITED JUDGMEN TS, WE HOLD THAT THE NOTICE ISSUED U/S.274 R.W.S. 271AAB OF THE ACT, REP RODUCED BY US AT PARA 5 ABOVE WAS NOT VALID. EX-CONSEQUENTI, THE PENALTY OR DER IS SET ASIDE. 6. SINCE WE HAVE SET ASIDE THE PENALTY ORDER FOR TH E IMPUGNED ASSESSMENT YEAR, THE APPEAL FILED BY THE REVENUE HAS BECOME IN FRUCTUOUS. IN VIEW OF THE DECISION OF THE CHENNAI BENCH (SUPRA ), THE SHOW CAUSE NOTICE ISSUED BY THE AO IN THE CASE OF THE ASSESSEE IS NOT SUSTAINABLE. 21 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. WE FURTHER NOTE THAT IN THE CASE IN HAND, THE AO IN THE SHOW CAUSE NOTICE HAS NEITHER SPECIFIED THE GROUNDS AND DEFAULT ON THE PA RT OF THE ASSESSEE NOR EVEN SPECIFIED THE UNDISCLOSED INCOME ON WHICH THE PENAL TY WAS PROPOSED TO BE LEVIED. FOR READY REFERENCE WE REPRODUCE THE SHOW CAUSE NOT ICES ISSUED BY THE AO UNDER SECTION 274 READ WITH SECTION 271AAB ON 30 TH MARCH, 2016 AND 16 TH AUGUST, 2016 AS UNDER :- NO. ACIT/CC-1/JPR/2015-16 DATED : 30.03.2016. PENALTY NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. PAN ABDPP 7196A TO, SH. PADAM CHAND PUNGALIA, 2372, MSB KA RASTA, JOHARI BAZAR, JAIPUR. WHEREAS IN THE COURSE OF ASSESSMENT PROCEEDINGS BEF ORE ME FOR THE A.Y. 2014-15, IT APPEARS TO ME THAT AS PER SECTIONS 274 AND 275 READ WITH SECTION 271AAB OF THE INCOME-TAX ACT YOU ARE LIABLE FOR PENALTY ON ASSESSED UNDISCLOSED INCOME. YOU ARE HEREBY REQUESTED TO APPEAR BEFORE ME AT MY OFFICE ROOM NO. 103 (NA), N.C.R.B., JAIPUR AT 11.00 A.M. ON 28.04.2 016 AND SHOW CAUSE WHY AN ORDER IMPOSING PENALTY ON YOU SHOULD NOT BE MADE U/S 271AAB R.W.S. 274 OF THE INCOME TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AUT HORIZED REPRESENTATIVE, YOU MAY REPLY TO SHOW CAUSE IN WRITING ON OR BEFORE THE SAID DATE WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE. YOURS FAITHFULLY, SD/- ( SUSHIL KUMAR KULHARI ) ASSTT. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, JAIPUR. 22 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. NO. ACIT/CC-1/JPR/2016-17/928 DATED : 16.08.20 16. PENALTY NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. PAN ABDPP 7196A TO, SH. PADAM CHAND PUNGALIA, 2372, MSB KA RASTA, JOHARI BAZAR, JAIPUR. WHEREAS IN THE COURSE OF ASSESSMENT PROCEEDINGS BEF ORE ME FOR THE A.Y. 2014-15, IT APPEARS TO ME THAT AS PER SECTIONS 274 AND 275 READ WITH SECTION 271AAB OF THE INCOME-TAX ACT YOU ARE LIABLE FOR PENALTY ON ASSESSED UNDISCLOSED INCOME. YOU ARE HEREBY REQUESTED TO APPEAR BEFORE ME AT MY OFFICE ROOM NO. 103 (NA), N.C.R.B., JAIPUR AT 11.00 A.M. ON 25.08.2 016 AND SHOW CAUSE WHY AN ORDER IMPOSING PENALTY ON YOU SHOULD NOT BE MADE U/S 271AAB R.W.S. 274 OF THE INCOME TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AUT HORIZED REPRESENTATIVE, YOU MAY REPLY TO SHOW CAUSE IN WRITING ON OR BEFORE THE SAID DATE WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE. YOURS FAITHFULLY, SD/- ( DEVANGI SWARNKAR ) ASSTT. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, JAIPUR. THUS IT IS CLEAR THAT BOTH THE SHOW CAUSE NOTICES I SSUED BY THE AO FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271AAB ARE VERY V AGUE AND SILENT ABOUT THE DEFAULT OF THE ASSESSEE AND FURTHER THE AMOUNT OF U NDISCLOSED INCOME ON WHICH THE PENALTY WAS PROPOSED TO BE LEVIED. EVEN THE HONBL E JURISDICTIONAL HIGH COURT IN CASE OF SHEVATA CONSTRUCTION CO. PVT. LTD IN DBIT A PPEAL NO. 534/2008 DATED 23 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 06.12.2016 HAS CONCURRED WITH THE VIEW TAKEN BY HON BLE KARNATAKA HIGH COURT IN CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY , 359 ITR 565 (KARNATAKA) WHICH WAS SUBSEQUENTLY UPHELD BY THE HONBLE SUPREM E COURT BY DISMISSING THE SLP FILED BY THE REVENUE IN THE CASE OF CIT VS. SSAS E MERALD MEADOWS, 242 TAXMAN 180 (SC). ACCORDINGLY, FOLLOWING THE DECISION OF THE C OORDINATE BENCH AS WELL AS HONBLE JURISDICTIONAL HIGH COURT, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE INITIATION OF PENALTY IS NOT VALID AND CON SEQUENTLY THE ORDER PASSED UNDER SECTION 271AAB IS NOT SUSTAINABLE AND LIABLE TO BE QUASHED. GROUND NO. 2 IS REGARDING LEVY OF PENALTY UNDER SEC TION 271AAB OF THE ACT BEING UNJUST AND AGAINST THE PROVISIONS OF LAW. 6. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT T HE AO WHILE PASSING THE PENALTY ORDER UNDER SECTION 271AAB HAS NOT GIVEN A FINDING THAT THE INCOME DISCLOSED BY THE ASSESSEE IS AN UNDISCLOSED INCOME AS PER DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 271AAB(1) OF THE ACT. HE HA S FURTHER SUBMITTED THAT WHEN THE LEVY OF PENALTY IS NOT MANDATORY BUT TO BE IMPO SED ON MERITS OF EACH CASE, THEN THE AO IS DUTY BOUND TO FIRST HOLD THAT THE INCOME DISCLOSED BY THE ASSESSEE IS UNDISCLOSED INCOME AS PER THE PROVISIONS OF SECTION 271AAB AND THEN TAKE A DECISION OF IMPOSING THE PENALTY. HE HAS REFERRED TO THE RE LEVANT DISCLOSURE MADE BY THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 13 2(4) AND SUBMITTED THAT IT IS A CLEAR CASE OF OBTAINING THE DISCLOSURE FROM THE ASS ESSEE WITHOUT ANY INCRIMINATING MATERIAL DISCLOSING ANY UNDISCLOSED INCOME. THE AL LEGED SEIZED MATERIAL OF ANNEXURE A-1 AND A-2 ARE NOTHING BUT CONTAINING SOME IMAGINA RY NAMES AND DETAILS AND SOME FIGURES WHICH WERE SPECIFICALLY STATED BY THE ASSES SEE IN HIS STATEMENT. THE LD. A/R HAS THUS CONTENDED THAT THE SAID SEIZED DOCUMENTS A RE NOTHING BUT DUMB AND DEAF 24 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. PAPERS WITHOUT INDICATING ANY UNDISCLOSED INCOME OF THE ASSESSEE. THE ASSESSEE HAS SURRENDERED THE INCOME JUST TO BUY PEACE AND AV OID UNNECESSARY LITIGATION, HOWEVER, THERE IS NO IOTA OF EVIDENCE THAT THE SURR ENDERED INCOME WAS UNDISCLOSED INCOME OF THE ASSESSEE. ALL THE ENTRIES IN THE SEI ZED DOCUMENTS ARE WRITTEN AGAINST SOME IMAGINARY NAMES AND FIGURES AND DO NOT REPRESE NT ANY ACTUAL TRANSACTION BUT ONLY FOR SAKE OF OBTAINING THE SURRENDER FROM THE A SSESSEE, THE SEARCH PARTY HAS FORCED UPON THESE DOCUMENTS ON THE ASSESSEE. THE L D. A/R HAS REFERRED TO THE CBDT CIRCULAR NO. 286 OF 2003 DATED 10 TH MARCH, 2003 AND SUBMITTED THAT THE CBDT EXPRESSED ITS CONCERN ABOUT THE PRACTICE OF CONFESS ION OF ADDITIONAL INCOME DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS WHICH DO NOT SERVE ANY USEFUL PURPOSE IN THE ABSENCE OF ANY EVIDENCE OF INCOME WHICH LEAD S TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED . HENCE THE LD. A/R HAS SUBMITTED THAT THE BOARD HAS TIME AND AGAIN ADVISED THE TAXIN G AUTHORITIES TO AVOID OBTAINING AN ADMISSION/CONFESSION OF UNDISCLOSED INCOME UNDER COERCIVE/UNDUE INFLUENCE. HE HAS THEN REFERRED TO THE CIRCULAR DATED 18 TH DECEMBER, 2018 AND SUBMITTED THAT THE CBDT HAS REPEATED ITS EARLIER INSTRUCTIONS. THUS TH E LD. A/R HAS SUBMITTED THAT IN THE ABSENCE OF ANY UNDISCLOSED INCOME INDICATED OR DISC OVERED ON THE BASIS OF SEIZED MATERIAL, THE DISCLOSURE MADE IN THE STATEMENT UNDE R SECTION 132(4) IS NOT SUFFICIENT TO LEVY THE PENALTY UNDER SECTION 271AAB OF THE ACT . IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS :- RAVI MATHUR VS. DCIT ITA NO. 969/JP/2017 DATED 13.06.2018. DINESH KUMAR AGARWAL VS. ACIT ITA NOS. 855 & 856/JP/2017 DATED 24.07.2018. 25 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. RAJA RAM MAHESHWARI VS. DCIT ITA NO. 992/JP/2017 DATED 10.01.2019. M/S. RAMBHAJOS VS. ACIT ITA NO. 991/JP/2017 DATED 11.01.2019. RAJENDRA KUMAR GUPTA VS. DCIT ITA NO. 359/JP/2017 DATED 18.01.2019. THUS THE LD. A/R HAS SUBMITTED THAT EVEN IF THE SEI ZED MATERIAL DISCLOSES SOME OUT- FLOW OF FUNDS FROM THE ASSESSEES HANDS, THE SAME C ANNOT NECESSARILY BE AN INCOME OF THE ASSESSEE. THEREFORE, IN THE ABSENCE OF ANY OTHER MATERIAL OR EVIDENCE TO SHOW THE UNDISCLOSED INCOME OF THE ASSESSEE, ONLY T HE ENTRIES IN THE SEIZED MATERIAL WHICH IS DUMB AND DEAF DOCUMENT CANNOT BE THE BASIS OF LEVY OF PENALTY UNDER SECTION 271AAB OF THE IT ACT. AS REGARDS THE PENAL TY IN RESPECT OF UNDISCLOSED INCOME ON ACCOUNT OF EXCESS STOCK, THE LD. A/R HAS SUBMITTED THAT THERE IS NO MATERIAL FOUND OR DETECTED DURING THE COURSE OF SEA RCH TO DISCLOSE THAT THE ASSESSEE HAS NOT RECORDED THE STOCK-IN-TRADE IN THE BOOKS OF ACCOUNT BUT THE SAID DISCLOSURE WAS OBTAINED ONLY ON THE BASIS OF THE VALUATION DON E BY THE DEPARTMENTAL VALUER OF THE STOCK OF GEM STONES. HE HAS FURTHER SUBMITTED THAT THE STOCK AS PER THE ACCOUNTS OF THE PROPRIETARY CONCERN OF THE ASSESSEE AND HIS SON WAS TAKEN INTO CONSIDERATION, HOWEVER, THERE WAS NO DISCREPANCY FO UND IN THE QUANTUM OF STOCKS DURING THE COURSE OF SEARCH AND SEIZURE BUT ONLY ON THE BASIS OF THE VALUATION DONE BY THE DEPARTMENTAL VALUER, AN EXCESS STOCK OF RS. 1,91,24,877/- WAS VALUED. THE SAID VALUATION IS NOT PROPER AS THE DEPARTMENTAL VA LUER HAS NOT MADE THE VALUATION AS PER THE CATEGORY AND VOLUME OF DIFFERENT TYPES O F GEM AND JEWELLERY BASED ON THEIR PURITY AND SIZE. RATHER, AN AVERAGE AND ON L UMP SUM BASIS THE STOCK WAS 26 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. VALUED BY THE DEPARTMENTAL VALUER AND, THEREFORE, T HE EXCESS VALUATION DONE BY THE DEPARTMENTAL VALUER WOULD NOT CONSTITUTE UNDISCLOSE D INCOME OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS REFERRED TO THE D ECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S. RAMBHAJOS VS. ACIT ( SUPRA) AND SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL . HE HAS ALSO REFERRED TO THE DECISION OF COORDINATE BENCH DATED 11 TH FEBRUARY, 2019 IN CASE OF M/S. SILVER & ART PALACE IN ITA NO. 236/JP/2018. THEREFORE, THE LD. A/R HAS SUBMITTED THAT THE SURRENDER OF AMOUNT OF RS. 1,91,24,877/- ON ACCOUNT OF EXCESS STOCK WOULD NOT COME IN THE AMBIT OF UNDISCLOSED INCOME AS PER THE DEFINITION PROVIDED UNDER SECTION 271AAB OF THE ACT. HE HAS THEN REFERRED TO THE UNDISCLOSED ADVANCES AND SUBMITTED THAT THE ALLEGED SEIZED MATERIAL CONTAINS NO DETAILS EXCEPT SOME IMAGINARY NAMES AND DETAILS AND THEREFORE, THE SAME DO NOT CO NSTITUTE UNDISCLOSED INCOME. THIS TRIBUNAL IN THE CASE OF RAJA RAM MAHESHWARI VS . DCIT (SUPRA) HAS DEALT WITH THIS ISSUE AND HELD THAT THE ENTRIES OF OUT-GO OF M ONEY FROM THE HANDS OF THE ASSESSEE DOES NOT REPRESENT THE INCOME BUT ONLY AN IN-FLOW IN THE HANDS OF THE ASSESSEE WOULD CONSTITUTE AN INCOME, IF AT ALL. 7. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE ASSESSEE HAS DISCLOSED THE INCOME BASED ON THE SEIZED MATERIAL FOUND DURIN G THE COURSE OF SEARCH. THEREFORE, THE DISCLOSURE IS IN RESPECT OF THE UNDI SCLOSED INCOME RECORDED IN THE SEIZED MATERIAL. HE HAS FURTHER CONTENDED THAT IN THIS CASE THE ENTRIES ARE IN RESPECT OF SOME PHYSICAL ASSETS WITH THE ASSESSEE EXCEPT TH E ADVANCES OF RS. 5,62,000/-, THEREFORE, THE ENTRIES IN THE SEIZED MATERIAL REPRE SENTS THE PHYSICAL ASSETS OF THE ASSESSEE. HE HAS RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 27 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. OUT OF THE FOUR ITEMS REPRESENTING THE UND ISCLOSED INCOME DISCLOSED BY THE ASSESSEE DURING THE STATEMENT UNDER SECTION 132(4) OF THE IT ACT, ONLY TWO ITEMS, NAMELY, EXPENDITURE ON HOUSE CONSTRUCTION AND UNDIS CLOSED ADVANCES ARE BASED ON THE SEIZED MATERIAL. THE OTHER TWO ITEMS BEING REP RESENTING EXCESS STOCK AND UNDISCLOSED JEWELLERY ARE NOT BASED ON THE SEIZED D OCUMENTS BUT THESE ARE BASED ON THE VALUATION OF THE STOCK AS WELL AS THE JEWELLERY FOUND AT THE TIME OF SEARCH AND SEIZURE ACTION. FIRST, WE TAKE UP THE UNDISCLOSED INCOME ON ACCOUNT OF EXPENDITURE ON HOUSE CONSTRUCTION OF RS. 2,44,63,575/-, THE REL EVANT ALLEGED SEIZED DOCUMENT IN THIS RESPECT ARE THE ENTRIES IN THE DIARY ON 04.04. 2013, 14.04.2013, 28.04.2013, 28.05.2013 AND 01.06.2013. IT IS PERTINENT TO NOTE THAT ALL THESE NOTINGS ARE DONE DURING THE MONTH OF APRIL, ONE IN MAY AND ONE IN 1 ST JUNE, 2013. THE CONSTRUCTION OF HOUSE IS NOT A TASK TO BE COMPLETED FROM 1 ST APRIL, 2013 TO 1 ST JUNE, 2013, THAT TOO WHEN THE ALLEGED EXPENDITURE OF RS. 2,44,63,575/- W AS INCURRED IN RESPECT OF VARIOUS ARTICLES AND CONSTRUCTION MATERIALS. IT APPEARS FRO M THE SEIZED DOCUMENTS THAT THESE ARE THE NOTINGS ON THESE 5 PAGES OF A DIARY ARE DON E IN ONE GO, WHEREAS THE SAID NOTINGS ARE PURPORTED TO BE ON DIFFERENT DATES OF M ONTH OF APRIL, MAY AND JUNE. SOME OF THE ENTRIES ARE EVEN UNREALISTIC LIKE RS. 1 5 LACS TOWARDS PURCHASE OF PAINT. IT IS PERTINENT TO NOTE THAT HOW PAINT IS PURCHASED PRIOR TO THE COMPLETION OF CONSTRUCTION AND AS PER THE ENTRIES IN THESE PAPERS THERE IS AN ENTRY OF SOME MARBLE FIXING OF RS. 5 LACS. FROM THESE ENTRIES IN THE AL LEGED SEIZED MATERIAL, IT IS MANIFEST THAT MOST OF THEM ARE UNREALISTIC AS ENTRY OF RS. 7 0 LACS IS SHOWN TOWARDS FURNITURE WHICH IS HIGHLY IMPOSSIBLE. ANOTHER ENTRY OF RS. 45 LACS IS SHOWN TOWARDS STEEL. THUS FROM THE NOTINGS OF THESE PAPERS IT IS CLEAR T HAT THESE ARE NOT ENTRIES 28 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. REPRESENTING THE REAL AND ACTUAL TRANSACTIONS. FUR THER, NEITHER DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS NOR EVEN IN THE COUR SE OF STATEMENT RECORDED UNDER SECTION 132(4) ANY EFFORTS WERE MADE BY THE SEARCH PARTY TO FIND OUT THE ACTUAL EXISTENCE OF THESE ASSETS TOWARDS WHICH THE ALLEGED ENTRIES ARE RECORDED IN THE SEIZED MATERIAL/PAPERS. THOUGH THE ADMISSION ON TH E PART OF THE ASSESSEE IS A RELEVANT EVIDENCE, HOWEVER, WHEN THE ENTRIES/NOTING S IN THE LOOSE PAPERS ARE APPARENTLY NOT REPRESENTING THE REAL TRANSACTIONS T HEN IT WAS INCUMBENT UPON THE DEPARTMENT TO FIND OUT AND ESTABLISH THE EXISTENCE OF THESE ASSETS IN THE POSSESSION OF THE ASSESSEE. IN THE ABSENCE OF SUCH EFFORTS AN D EVEN ANY QUESTION PUT TO THE ASSESSEE REGARDING THE EXISTENCE OF THESE ASSETS, T HESE ENTRIES ALONE WOULD NOT IPSO FACTO CONSTITUTE UNDISCLOSED INCOME OF THE ASSESSEE . EVEN OTHERWISE, THESE ENTRIES IN ITSELF ARE NOT HAVING ANY INCOME ELEMENT BUT THE SE ARE ALL EXPENDITURE ENTRIES AND, THEREFORE, UNTIL AND UNLESS A CORRESPONDING AS SET IS FOUND IN THE POSSESSION OF THE ASSESSEE, THE ENTRIES ALONE CANNOT BE REGARDED AS REPRESENTING THE UNDISCLOSED INCOME OF THE ASSESSEE. THEREFORE, WHEN THE DURATIO N OF THE CONSTRUCTION PERIOD OF THE HOUSE HAS NOT BEEN ASCERTAINED BY THE DEPARTMEN T, THEN SHOWING THE ENTIRE COST OF CONSTRUCTION WITH IMAGINARY FIGURES FOR A PERIOD OF 2 MONTH IS NOT JUSTIFIED. EVEN WE FIND THAT THE CONSTRUCTION MATERIAL ENTRIES ARE ON SUBSEQUENT DATES AND FURNITURE AND TV ENTRIES ON THE EARLIER DATES WHICH DO NOT SU PPORT OF THE CASE OF THE DEPARTMENT THAT THESE ENTRIES/NOTINGS IN THE SEIZED DOCUMENTS REPRESENTS THE REAL TRANSACTIONS/ASSETS PURCHASED BY THE ASSESSEE OR IN THE POSSESSION OF THE ASSESSEE. THE POSSESSION OF THE ASSET WAS A MATTER OF FACT AT THE TIME OF SEARCH AND IN THE ABSENCE OF SUCH ASSET EITHER FOUND OR OTHERWISE DIS COVERED DURING THE COURSE OF SEARCH AND SEIZURE, THESE ENTRIES IN THE SEIZED DOC UMENTS WOULD NOT CONSTITUTE 29 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. UNDISCLOSED INCOME ON ACCOUNT OF EXPENDITURE IN CON STRUCTION OF THE HOUSE. SIMILARLY, THE ENTRIES IN RESPECT OF ADVANCES OF RS . 5,62,000/- ALSO VERY VAGUE AND AMBIGUOUS NOT GIVING ANY DETAILS ABOUT THE PURPOSE OR DATE ON WHICH THESE ADVANCES WERE GIVEN. ONLY A DATE IS MENTIONED AT TH E BOTTOM OF THE PAGE BUT NOT AGAINST EACH AND EVERY ENTRY OF THE PAGE. FURTHER, WE NOTE THAT THE DEPARTMENT HAS NOT TRIED TO ASCERTAIN THE FULL PARTICULARS OF THE ALLEGED PERSONS WHOSE NAMES ARE NOTED IN THE SEIZED DOCUMENTS AGAINST CERTAIN AMOUN TS WHICH ARE CONSIDERED AS ADVANCES GIVEN BY THE ASSESSEE. IT IS PERTINENT TO NOTE THAT WITHOUT ASCERTAINING THE FULL PARTICULARS OF THE PERSONS IN WHOSE NAMES THE ENTRIES ARE MADE, IT IS POSSIBLE THAT ALL THESE NAMES ARE ONLY IMAGINARY AND NOT THE NAMES OF ANY EXISTING PERSONS. THEREFORE, THESE VAGUE ENTRIES ITSELF DO NOT REPRES ENT THE REAL TRANSACTION AND CONSEQUENTLY THE UNDISCLOSED INCOME OF THE ASSESSEE . THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAJENDRA KUMAR GUPTA VS. DC IT (SUPRA) HAS CONSIDERED THE ISSUE OF OUT FLOW OF FUNDS FROM THE ASSESSEE CAN BE AN UNDISCLOSED INCOME FOR THE PURPOSE OF SECTION 271AAB OF THE ACT IN PARA 21 AS UNDER :- 21. DURING THE COURSE OF SEARCH, A NOTE BOOK (DIA RY) HAS BEEN FOUND REFERRED TO AS ANN. AS WHEREIN THERE ARE CERT AIN NOTINGS RELATING TO CASH ADVANCES GIVEN TO VARIOUS PERSONS TOTALING TO RS 82,80,000. REFERRING TO THE STATEMENT OF THE ASS ESSEE IN RESPECT OF THESE NOTINGS RECORDED U/S 132(4), LD CI T(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS GIVEN A GENER ALIZED STATEMENT WITHOUT SPECIFYING THE COMPLETE PARTICULA RS OF PERSONS TO WHOM LOANS WERE GIVEN AND ALSO FAILED TO SUBSTANTIATE THE SAME. THE SAID FINDINGS HAVE NOT BEEN DISPUTED BY THE REVENUE AND THEREFORE, MERELY BASED ON 30 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. SURRENDER AND GENERALIZED STATEMENT OF THE ASSESSEE , IN ABSENCE OF ANYTHING SPECIFIC TO CORROBORATE SUCH EN TRIES, CAN IT BE SAID THAT SUCH ENTRIES/NOTINGS REPRESENT UNDISCL OSED INCOME OF THE ASSESSEE. AS PER THE DEFINITION OF UNDISCLO SED INCOME U/S 271AAB, THE SAID CASH ADVANCES CANNOT BE STATED TO BE INCOME WHICH IS REPRESENTED BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING. WHETHER IT CAN THEN BE SAID THAT SUCH UNDISCLOSED CASH ADVANCES REPRESENTS INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACT IONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132. A CASH ADVAN CE PER SE REPRESENTS AN OUTFLOW OF FUNDS FROM THE ASSESSEES HAND AND AN INCOME PER SE REPRESENTS AN INFLOW OF FUNDS IN THE HANDS OF THE ASSESSEE. THEREFORE, ONCE THERE IS AN INFLOW OF FU NDS BY WAY OF INCOME, THERE CAN BE SUBSEQUENT OUTFLOW BY WAY OF A N ADVANCE TO ANY THIRD PARTY. GIVING AN ADVANCE AND INCOME THUS CON NOTES DIFFERENT MEANING AND CONNOTATION AND THUS CANNOT BE USED INT ER-CHANGEABLY. IN THE DEFINITION OF UNDISCLOSED INCOME, WHERE IT T ALKS ABOUT INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHE R DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHAT PERHAPS HAS BEEN ENVISAGED BY THE LEGISLATURE IS AN INFLOW OF FUNDS IN THE HANDS OF THE ASSESSEE WHICH HAS BEEN FOUND BY W AY OF ANY ENTRY IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS, AND WH ICH HAS NOT BEEN RECORDED BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED BY THE ASSESSEE IN THE NORMAL COURSE AND NOT VICE-VERSA. WE ARE ALSO CONSCIOUS OF THE FACT THAT THERE ARE DEEMING PROVISIONS IN TERMS OF SECTION 69 AND 69B WHEREIN S UCH AMOUNTS MAY BE DEEMED AS INCOME IN ABSENCE OF SATISFACTORY EXPL ANATION. IN OUR VIEW, THE DEEMING FICTION SO ENVISAGED UNDER SECTIO N 69 AND SECTION 69B CANNOT BE EXTENDED AND APPLIED AUTOMATICALLY IN CONTEXT OF SECTION 271AAB. IT IS A WELL-SETTLED LEGAL PROPOSITION THA T THE DEEMING PROVISIONS ARE LIMITED FOR THE PURPOSES THAT HAVE B EEN BROUGHT ON THE 31 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. STATUTE BOOK AND HAVE THEREFORE TO BE APPLIED IN TH E CONTEXT OF PROVISIONS WHEREIN THEY HAVE BEEN BROUGHT ON THE ST ATUE BOOK AND NOT OTHERWISE. IN THE INSTANT CASE, THE DEEMING PROVIS IONS CONTAINED IN SECTION 69 AND SECTION 69B COULD HAVE BEEN APPLIED IN THE CONTEXT OF BRINGING TO TAX SUCH INVESTMENTS TO TAX IN THE QUAN TUM PROCEEDINGS, THOUGH THE FACT OF THE MATTER IS THAT THE AO HAS NO T EVEN INVOKED THE SAID DEEMING PROVISIONS IN THE QUANTUM PROCEEDINGS. THEREFORE, EVEN ON THIS ACCOUNT, THE DEEMING FICTION CANNOT BE EXTE NDED TO THE PENALTY PROCEEDINGS WHICH ARE SEPARATE AND DISTINCT FROM TH E ASSESSMENT PROCEEDINGS AND MORE SO, WHERE THE PROVISIONS OF SE CTION 271AAB PROVIDE FOR A SPECIFIC DEFINITION OF UNDISCLOSED IN COME. WHERE A SPECIFIC DEFINITION OF UNDISCLOSED INCOME HAS BEEN PROVIDED IN SECTION 271AAB, BEING A PENAL PROVISION, THE SAME MUST BE S TRICTLY CONSTRUED AND IN LIGHT OF SATISFACTION OF CONDITIONS SPECIFIE D THEREIN AND IT IS NOT EXPECTED TO EXAMINE OTHER PROVISIONS WHERE THE SAME HAS BEEN DEFINED OR DEEMED FOR THE PURPOSES OF BRINGING THE AMOUNT TO TAX. IN LIGHT OF THE SAME, THE UNDISCLOSED INVESTMENT BY WA Y OF ADVANCES CAN BE SUBJECT MATTER OF ADDITION IN THE QUANTUM PROCEE DINGS, AS THE SAME HAS BEEN SURRENDERED DURING THE COURSE OF SEARCH IN THE STATEMENT RECORDED U/S 132(4) AND OFFERED IN THE RETURN OF IN COME, HOWEVER THE SAME CANNOT BE SAID TO QUALIFY AS AN UNDISCLOSED IN COME IN THE CONTEXT OF SECTION 271AAB READ WITH THE EXPLANATION THERETO AND PENALTY SO LEVIED THEREON DESERVED TO BE SET-ASIDE. ACCORDINGLY, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF RAJENDRA KUMAR GUPTA VS. DCIT (SUPRA), WE HOLD THAT THE ENTRIES IN THE SEIZED DOCUMENTS REPRESENTING THE EXPENDITURE ON ACCOUNT OF CONSTRUC TION OF THE HOUSE AND PURCHASE OF OTHER ASSETS AS WELL AS ADVANCES IN THE ABSENCE OF THE REAL TRANSACTIONS DO NOT 32 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. CONSTITUTE THE UNDISCLOSED INCOME OF THE ASSESSEE A S DEFINED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. ACCORDINGLY, THE PENALT Y LEVIED UNDER SECTION 271AAB IN RESPECT OF THE SAID AMOUNT IS NOT SUSTAINABLE AND L IABLE TO BE SET ASIDE. 9. AS REGARDS THE UNDISCLOSED INCOME ON ACCOUNT OF EXCESS STOCK, WE NOTE THAT DURING THE COURSE OF SEARCH AND SEIZURE ACTION THE DEPARTMENT HAS GOT VALUED THE STOCK OF THE ASSESSEE FROM THE DEPARTMENTAL VALUER. WE FIND THAT IN THE VALUATION REPORT THE VALUER HAS NOT MADE ANY ATTEMPT TO FIND OUT THE NET WEIGHT BUT ALL THE ARTICLES ARE TAKEN AT GROSS WEIGHT ON WHICH THE PRE VAILING MARKET PRICES AS ON THE DATE OF SEARCH WERE APPLIED. THUS IT IS CLEAR THAT THE DIFFERENCE IN THE CLOSING STOCK WAS DUE TO THE VALUATION DETERMINED BY THE DEPARTME NTAL VALUER BASED ON THE GROSS WEIGHT AND PREVAILING MARKET PRICES IN COMPARISON T O THE VALUE RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE FURTHER NOTE THAT IN THE ENTIRE VALUATION REPORT AND IN THE PROCEEDINGS OF THE SEARCH AND SEIZURE, T HE DEPARTMENT HAS NOT MADE ANY ALLEGATION THAT THERE WAS ANY DISCREPANCY IN THE QU ANTITY OF THE STOCK FOUND DURING THE COURSE OF SEARCH AND SEIZURE AND THE STOCK RECO RDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. ONCE THE STOCK WHICH IS RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE STOCK PHYSICALLY FOUND AT THE TIME OF SEARCH HAS NO DISCREPANCY IN TERMS OF QUANTITY, THEN ONLY BECAUSE OF DIFFERENCE IN VALUATION DONE BY THE DEPARTMENTAL VALUER WOULD NOT AMOUNT TO UNDISCLOSED INCOME BASED ON THE DEFINITION AS PER EXPLANATION TO SECTION 271AAB OF THE ACT. THEREFORE, ONCE THE STOCK IS FOUND RECORDED IN THE BOOKS OF ACCOUNT, IT DOES NOT FALL IN THE CATEGORY OF VALUABLE ARTICLE OR THINGS WHICH HAS NOT BEEN RECOR DED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS M AINTAINED IN THE NORMAL COURSE 33 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. RELATING TO SUCH PREVIOUS YEAR. FOR READY REFERENC E, WE QUOTE THE DEFINITION AS PROVIDED IN CLAUSE (C) OF EXPLANATION TO SECTION 27 1AAB OF THE ACT AS UNDER :- ( A ) XXXX XXXXX XXXXX ( B ) XXXXX XXXXX XXXXXX ( C ) 'UNDISCLOSED INCOME' MEANS ( I ) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER V ALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S 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 I N 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 54 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR 54 [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SEARCH; OR ( II ) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS F OUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO B E SO HAD THE SEARCH NOT BEEN CONDUCTED. THEREFORE, THE STOCK WHICH WAS FOUND AT THE TIME OF SEARCH AND SEIZURE WAS NOT DISPUTED BY THE DEPARTMENT THAT THE SAME HAS BEEN R ECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ONCE THE STOCK IS RECORD ED IN THE BOOKS OF ACCOUNT AND NO DISCREPANCY IS FOUND AS FAR AS QUANTITY OF STOCK , THEN THE DIFFERENCE OF VALUATION WOULD NOT AMOUNT TO UNDISCLOSED INCOME IN TERMS OF DEFINITION PRESCRIBED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. RAMBHAJOS VS. ACIT (SUPRA) HAS CO NSIDERED THE IDENTICAL ISSUE IN PARA 38 AS UNDER :- 34 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. 38. FIRSTLY, REGARDING STOCK OF KUNDAN MEENA, AND DIAMOND AND OTHER GEMSTONES STUDDED JEWELLERY WHICH HAS BEEN SU RRENDERED DURING THE COURSE OF SEARCH, WHAT HAS TO BE DETERMINED IS THE INCOME WHICH IS REPRESENTED BY SUCH STOCK OF JEWELLERY WHICH IS NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS MAINTAINED IN THE NORMAL COUR SE RELATING TO SUCH PREVIOUS YEAR. IN OTHER WORDS, THE VALUE AT WHICH SUCH STOCK HAS BEEN ACQUIRED BY THE ASSESSEE AND NOT THE VALUE WHICH SU CH STOCK CAN FETCH IN THE MARKET OR THE FAIR MARKET VALUE OF SUCH STOC K. IN THE INSTANT CASE, IT HAS BEEN CONTENDED THAT THE VALUATION OF T HE STOCK HAS BEEN DONE AT MARKET RATE AS ON THE DATE OF SEARCH WITHOU T CONSIDERING THE COST DISCLOSED IN THE BOOKS OF ACCOUNTS AND WITHOUT CONSIDERING THE WELL-ACCEPTED ACCOUNTING POLICY WHICH HAS BEEN FOLL OWED BY THE ASSESSEE FIRM WHERE IT VALUES ITS STOCK AT LOWER OF COST AND NET REALIZABLE VALUE. THE COST CAN BE DETERMINED ON TH E BASIS OF HISTORICAL AND/OR CURRENT COST SO RECORDED IN THE BOOKS OF ACC OUNTS. ALTERNATIVELY, PAST GROSS PROFIT PERCENTAGE CAN ALS O GIVE A REASONABLE BASIS FOR DETERMINING SUCH COST. IN THE INSTANT CA SE, THE LD AR HAS CONTENDED THAT WHERE GROSS PROFIT OF THE PAST YEAR DETERMINED AT THE RATE OF 13.92% IS USED AND APPLIED TO THE STOCK VAL UED BY THE REVENUE AT THE CURRENT MARKET VALUE, IT WILL RESULT IN A SC ENARIO WHERE THE STOCK AS PER BOOKS OF ACCOUNT IS HIGHER THAN THE STOCK VA LUED AT THE TIME OF SEARCH. AS PER COMPUTATION PREPARED WHICH WE HAVE N OTED ABOVE, WE FIND THAT STOCK (INCLUDING STOCK OF SILVER JEWELLER Y) AS PER BOOKS OF ACCOUNTS COMES TO RS 35,11,24,031 AS AGAINST RS 34, 27,22,924 VALUED BY THE DEPARTMENT AT THE TIME OF SEARCH AND THEREFO RE, CONTENTION SO ADVANCED BY THE LD AR IS FOUND REASONABLE. ANOTHER ASPECT WHICH HAS BEEN SUBMITTED BY THE ASSESSEE RELATES TO NON-DEDUC TION ON ACCOUNT OF CHAPADI, WAX ETC FOR THE KUNDAN MEENA JEWELLERY WHI LE PHYSICALLY WEIGHING THE JEWELLERY. IT WAS SUBMITTED BY THE LD AR THAT THE SAID FACT WAS DULY BROUGHT TO THE NOTICE OF ASSESSING OFFICER VIDE WRITTEN 35 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. SUBMISSION DATED 15.12.2015, HOWEVER, THE SAME HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. IN OUR VIEW, GIVEN THAT THE ASSESSEE HAS DISCLOSED THE WHOLE OF THE AMOUNT SURR ENDERED DURING THE COURSE OF SEARCH IN ITS RETURN OF INCOME, THE A MOUNT SO SURRENDERED AND DISCLOSED IN THE RETURN OF INCOME H AS RIGHTLY BEEN BROUGHT TO TAX IN THE QUANTUM PROCEEDINGS. HOWEVER , AS FAR AS PENALTY PROCEEDINGS ARE CONCERNED, THE ASSESSING OF FICER IS REQUIRED TO GIVE A SPECIFIC FINDING THAT THERE IS AN UNDISCLOSE D INCOME FOUND DURING THE COURSE OF SEARCH AND WHICH HAS NOT BEEN RECORDE D IN THE BOOKS OF ACCOUNT. IN THE INSTANT CASE, WE FIND THAT THE ASS ESSING OFFICER HAS MERELY GONE BY THE SURRENDER STATEMENT AND HAS NOT EXAMINED THE MATTER FROM THE PERSPECTIVE OF DETERMINING THE COST OF SUCH STOCK AND THE QUANTIFICATION THEREOF AFTER ALLOWING DEDUCTION FOR CHAPADI, WAX, ETC. WHICH IS A WELL ESTABLISHED STEP AS PART OF VA LUATION METHODOLOGY OF SUCH KIND OF JEWELLERY AND WHICH HAS BEEN FOLLOW ED AT OTHER LOCATIONS EXCEPT AT JAIPUR. THERE IS NO FINDING THA T THERE IS ANY EXCESS STOCK WHICH HAS BEEN PHYSICALLY FOUND AND WHICH HAS NOT BEEN FOUND RECORDED IN THE BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH. IN LIGHT OF ABOVE DISCUSSIONS, IT IS THUS CLEAR THAT DIFFERENCE IN STOCK OF JEWELLERY AND SILVER ITEMS AS PER BOOKS AND AS FOUND AT THE T IME OF SEARCH IS ON ACCOUNT OF VALUATION OF SUCH STOCK AT THE MARKET VA LUE INSTEAD OF COST AND SUCH VALUATION DIFFERENCE AND ON ACCOUNT OF NON -DEDUCTION OF CHAPADI, WAX, ETC WHILE WEIGHING THE KUNDAN MEENA J EWELLERY AND THE SAME CANNOT BE A BASIS TO HOLD THAT IT REPRESENT UN DISCLOSED INCOME SO DEFINED IN EXPLANATION TO SECTION 271AAB OF THE ACT AND THE PENALTY LEVIED THEREON IS LIABLE TO BE SET-ASIDE. 36 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE AND FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE HOLD THAT TH E AMOUNT REPRESENTING THE EXCESS STOCK BASED ON THE VALUATION OF THE DEPARTMENTAL VA LUER CANNOT BE REGARDED AS UNDISCLOSED INCOME IN TERMS OF DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. HENCE, THE PENALTY LEVIED AGAINS T SUCH AMOUNT IS NOT SUSTAINABLE. 10. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH AND THE DISCLOSUR E WAS TAKEN ONLY ON THE BASIS OF THE VALUATION OF JEWELLERY AT CURRENT RATE INSTEAD OF THE ACTUAL COST OF ACQUISITION OF THE JEWELLERY. THEREFORE, HE HAS SUBMITTED THAT CO NSIDERING THE STATUS OF THE ASSESSEES FAMILY AND THE NUMBER OF FAMILY MEMBERS, THE JWELLERY FOUND DURING THE COURSE OF SEARCH IS NOT ABNORMAL AND ACQUIRED IN TH E LONG BACK. THE LD. A/R HAS FURTHER CONTENDED THAT PART OF THE JEWELLERY WAS EV EN NOT PURCHASED BUT INHERITED FROM THE FOREFATHERS. HENCE THE DISCLOSURE OBTAINE D ON ACCOUNT OF THE JEWELLERY WOULD NOT CONSTITUTE UNDISCLOSED INCOME OF THE ASSE SSEE FOR THE PURPOSE OF LEVY OF PENALTY. 11. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED TH AT THE JEWELLERY FOUND DURING THE SEARCH AND SEIZURE ACTION REPRESENTS THE BULLIO N AND VALUABLE ARTICLES AND, THEREFORE, IN THE ABSENCE OF THE SAME FOUND RECORDE D IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IT IS UNDISCLOSED INCOME AS PER THE DEFINI TION PROVIDED UNDER SECTION 271AAB OF THE ACT. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE JEWELLERY FOU ND DURING THE COURSE OF SEARCH AND 37 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. SEIZURE ACTION BELONGS TO THE ASSESSEES FAMILY. TH EREFORE, ONCE THE JEWELLERY WAS NOT FOUND TO BE PURCHASED DURING THE YEAR UNDER CON SIDERATION, THEN THE SAME CANNOT BE TREATED AS AN UNDISCLOSED INCOME FOR THE YEAR UNDER CONSIDERATION WHICH IS SPECIFIED PREVIOUS YEAR. THE DEPARTMENT HAS NOT FOUND THAT THE JEWELLERY WAS PURCHASED OR ACQUIRED BY THE ASSESSEE AND OTHER FAM ILY MEMBERS ONLY DURING THE YEAR UNDER CONSIDERATION. THE JEWELLERY BELONG TO THE FAMILY MEMBERS OF THE ASSESSEE AND FOUND IN THE LOCKER WAS OLD JEWELLERY AND, THEREFORE, THE VALUATION OF THE JEWELLERY FOR THE PURPOSE OF COMPUTING THE UNDI SCLOSED INCOME BY APPLYING THE CURRENT RATES ON THE GROSS WEIGHT IS NOT PERMISSIB LE. HENCE WHEN THE DEPARTMENT HAS NOT MADE ANY EFFORTS TO ASCERTAIN THE YEAR OF A CQUISITION OF THE JEWELLERY AND THEN TO APPLY THE RATES AS PREVAILING IN THE YEAR O F ACQUISITION AND SOME OF THE JEWELLERY EVEN NOT ACQUIRED BY THE ASSESSEE OR THE FAMILY MEMBERS BUT IS INHERITED, THEN THE MANNER IN WHICH THE DISCLOSURE IS OBTAINED ON ACCOUNT OF THE JEWELLERY WOULD NOT REPRESENT THE UNDISCLOSED INCOME AS DEFIN ED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. WE FIND THAT THE ORDER PASSED B Y THE AO UNDER SECTION 271AAB AS WELL AS THE ORDER OF THE LD. CIT (A) ARE SILENT ON THE ISSUE OF INCORRECT VALUATION AS WELL AS THE TIMING OF ACQUIRING OF THE PERSONAL JEW ELLERY OF THE ASSESSEE AND THE FAMILY MEMBERS. THEREFORE, IN THE FACTS AND CIRCUMS TANCES OF THE CASE, THE PERSONAL JEWELLERY OF THE ASSESSEE AND FAMILY MEMBERS ACQUIR ED IN THE PAST AND SOME PART OF WHICH WAS ALSO INHERITED WILL NOT FALL IN THE AMBIT OF UNDISCLOSED INCOME. HENCE THE PENALTY LEVIED BY THE AO AGAINST SUCH DISCLOSURE IS NOT SUSTAINABLE. IT MAY BE PERTINENT TO MENTION THAT THE STATEMENT RECORDED UN DER SECTION 132(4) ITSELF WOULD NOT EITHER CONSTITUTE AN INCRIMINATING MATERIAL OR UNDISCLOSED INCOME IN THE ABSENCE OF ANY CORRESPONDING ASSET OR ENTRY IN THE SEIZED D OCUMENT REPRESENTING THE 38 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR. UNDISCLOSED INCOME. ACCORDINGLY, THE PENALTY LEVIE D BY THE AO UNDER SECTION 271AAB OF THE ACT IS DELETED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05/04/ 2019. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 05/04/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI PADAM CHAND PUNGLIYA, JAIPUR . 2. THE RESPONDENT THE ACIT, CENTRAL CIRCLE-1, JAI PUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 112/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 39 ITA NO. 112/JP/2018 SHRI PADAM CHAND PUNGLIYA, JAIPUR.