The Asst. Commissioner of Income Tax., Visakhapatnam V. Sri M. Somabrahmam, Visakhapatnam

ITA 126/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8707 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 10-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SATYANANDAM
• Keywords: Search and seizure; Document seized; Opportunity of being heard; Principle of natural justice; Reasonable cause; Block assessment; Documents seized
• Section: 143(3); 153A; 27; 148; 132; 11; 139

Judgement Text

ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.126/VIZAG/2017 ( / ASSESSMENT YEAR: 2013-14) ACIT, CENTRAL CIRCLE - 2 VISAKHAPATNAM MOTHUKURI SOMABRAHMAM VISAKHAPATNAM [PAN NO. ADOPM6005C ] ( ' / APPELLANT) ( ()' / RESPONDENT) ./I.T.A.NO.132/VIZAG/2017 ( / ASSESSMENT YEAR: 2013-14) MOTHUKURI SOMABRAHMAM VISAKHAPATNAM ACIT, CENTRAL CIRCLE - 2 VISAKHAPATNAM ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI T. SATYANANDAM, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 08. 0 3.2018 / DATE OF PRONOUNCEMENT : 16.03.2018 ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THESE CROSS APPEAL FILED BY THE ASSESSEE AND THE R EVENUE ARE DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS)-3 {CIT(A)}, VISAKHAPATNAM VIDE ITA NO.66/2015-16/CIT( A)-3/VSP/2016- 17 DATED 14.12.2016 FOR THE ASSESSMENT YEAR 2013-14 . 2. A SEARCH U/S 132 OF THE INCOME TAX ACT, 1961 (HE REINAFTER CALLED AS 'THE ACT') WAS CARRIED OUT IN THE GROUP CASES OF GAYATRI ON 20.12.2012. THE ASSESSEE IS PARTNER IN M/S. CREATI VE ENGINEERING CONSTRUCTIONS AND GLOBAL CONSTRUCTIONS, WHICH ARE E NGAGED IN THE BUSINESS OF CONSTRUCTIONS OF APARTMENT BUILDINGS. DURING THE SEARCH U/S 132 OF THE ACT IN THE RESIDENTIAL PREMISES OF THE A SSESSEE, CERTAIN INCRIMINATING MATERIAL, BANK PASS BOOKS RELATED TO HIS WIFE SMT. LAKSHMI PRABHA AND SOME OF HIS EX-EMPLOYEES WERE FOUND. VE RIFICATION OF BANK ACCOUNT STATEMENTS OF HIS EMPLOYEES REVEALED THAT T HERE WERE SEVERAL CASH DEPOSITS IN THESE ACCOUNTS. SIMILARLY, GOLD, JEWELLERY AND DIAMONDS WERE FOUND TO THE EXTENT OF `75.16 LACS . CONSEQUENT TO THE SEARCH OPERATIONS, THE ASSESSEE HAD ADMITTED THE ADDITION AL INCOME OF ` 2.5 CRORES FOR THE ASSESSMENT YEAR 2009-10 TO 2012-13 A ND ACCORDINGLY FILED THE RETURN OF INCOME. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 3 ACT ON TOTAL INCOME OF ` 1,67,59,177/- FOR THE YEAR UNDER CONSIDERATION. THE A.O. INITIATED PENALTY U/S 271(1)(C)/271AAB OF THE ACT. THE ASSESSEE ADMITTED ADDITIONAL INCOME FOR THE ASSESSM ENT YEAR 2013-14 WITH THE FOLLOWING BREAKUP: SL. NO. DESCRIPTION AMOUNT 1 CHEQUES DEPOSITED INTO THE BANK ACCOUNT OF MY EMPLOYEES (PRESENT & FORMER) 56,74,868.00 2 GOLD JEWELLERY WEIGHING 1530.40 GMS 55,94,482.00 3 22 CARATS OF DIAMONDS 11,79,350.00 4 SILVER ARTICLES WEIGHING 13.28 KG 7,43,568.00 5 INCOME FROM BUSINESS OF CONSTRUCTION OF APARTMENT COMPLEX IN THE NAME OF SANJEEVINI MANSION 30,01,421.00 6 INCOME ADMITTED TOWARDS ANY OTHER DISCREPANCIES 1,79,502.00 TOTAL 1,63,73,191.00 THE AO HAS IMPOSED THE PENALTY OF RS.49,11,957/-@ 30% ON THE ABOVE INCOME UNDER SECTION 271AAB OF IT ACT. 3.(I) WITH REGARD TO ITEM NO.5 AND 6 I.E. INCOME FR OM BUSINESS OF CONSTRUCTION OF APARTMENT COMPLEX IN THE NAME OF SA NJEEVINI MANSION AND THE INCOME ADMITTED BY THE ASSESSEE TOWARDS DIS CREPANCIES AMOUNTING TO ` 30,01,421/- AND ` 1,79,502/-, THE LD. CIT(A) DELETED THE PENALTY IMPOSED BY THE A.O., HOLDING THAT THE F INANCIAL YEAR WAS NOT YET COMPLETE AND THE A.O. HAS NOT MADE OUT A CA SE THAT THE ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 4 ASSESSEE WOULD NOT HAVE DISCLOSED THE PROFIT FROM S ALE OF APARTMENTS AND THE REVENUE HAS NOT PREFERRED ANY APPEAL. 3 (II) WITH REGARD TO THE GOLD JEWELLERY WEIGHING AROUND 1530.40 GMS. OF THE VALUE OF ` 55,94,482/-, DIAMONDS OF ` 11,79,350/- AND SILVER ARTICLES 13.28 KGS. VALUED AT ` 7,43,568/-, THE A.O. LEVIED PENALTY @ 30% AND THE CIT(A) ALLOWED PARTIAL RELIEF AND TH E ASSESSEE IS IN APPEAL. 3.(III). THE ADDITION MADE WITH REGARD TO THE CHEQU ES DEPOSITED INTO THE BANK ACCOUNT OF EMPLOYEES, THE LD.CIT(A) HAS DELETED THE PENALTY AND DEPARTMENT IS IN APPEAL. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT BANK PASS BOOKS AND CHEQUE BOOKS OF ITS EMPLOY EES WERE FOUND IN THE RESIDENTIAL PREMISES OF THE ASSESSEE INDICATING SEVERAL CASH DEPOSITS IN THE ACCOUNTS. THE ASSESSEE WAS ASKED T O EXPLAIN THE TRANSACTIONS AND THE ASSESSEE DENIED THE TRANSACTIO NS AS BELONGED TO HIM. HE EXPLAINED THAT THE BANK PASS BOOKS AND CHE QUE BOOKS ARE RELATING TO THE EMPLOYEES CONCERNED AND THEY ARE BE ING OPERATED BY THEM. DURING THE ASSESSMENT PROCEEDINGS, THE EMPLO YEES OF THE ASSESSEE HAVE FILED AFFIDAVITS OWNING THE BANK ACCO UNTS BUT INITIALLY STATED THAT THE TRANSACTIONS WERE BELONGING TO THE ASSESSEE. HOWEVER, ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 5 THE ASSESSEE HAD ADMITTED THE PEAK CASH DEPOSITS OF THE EMPLOYEES AS HIS UNDISCLOSED INCOME AND FILED THE RETURN OF INCO ME. WITH RESPECT OF GOLD AND JEWELLERY, OF 1530.400 GMS FOUND DURING TH E SEARCH THE ASSESSEE EXPLAINED THAT 770 GMS. STATED TO BE BELON GED TO HIS BROTHERS DAUGHTER MISS SARAT CHANDRIKA, 500 GMS. B ELONGED TO HIS BROTHERS WIFE, 250 GMS BELONGED TO THE ASSESSEES WIFE AND BALANCE 10.400 GMS. BELONGED TO THE ASSESSEE. THE DIAMONDS OF VALUE OF ` 12,60,650/- SAID TO BE BELONGED TO THE ASSESSEES W IFE. THE ASSESSEE ALSO EXPLAINED THAT MARRIAGE OF MISS SARAT CHANDRIK A WAS SCHEDULED ON 11.5.2013 AND SHE STAYS IN THEIR HOUSE AS SHE WAS BROUGHT UP BY HIM AND HIS WIFE RIGHT FROM HER CHILDHOOD. HOWEVER, THE ASSESSEE HAD ADMITTED THE VALUE OF GOLD JEWELLERY IN HIS HANDS A ND FILED THE RETURN OF INCOME. THE A.O. ISSUED A SHOW CAUSE NOTICE U/S 27 1AAB AND IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUB MITTED THAT THE GOLD AND JEWELLERY WAS NOT BELONGING TO HIM. ONLY TO PURCHASE PEACE WITH THE DEPARTMENT AND TO AVOID UNNECESSARY LITIGA TION, PENDING THE MARRIAGE OF HIS BROTHERS DAUGHTER, HE HAD ADMITTE D THE GOLD JEWELLERY AS HIS ADDITIONAL INCOME. BUT THE ASSESSEE STATED THAT IT WAS NEITHER HIS INCOME NOR HE HAS OWNED UP THE GOLD JWELLERY AS ACQUIRED OUT OF UNDISCLOSED INCOME. SIMILARLY, WITH REGARD TO THE CASH DEPOSITS, THE ASSESSEE ARGUED BEFORE THE ASSESSING OFFICER THAT H E HAS NO CONNECTION ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 6 WITH THE BANK ACCOUNTS AND THEY ARE OPENED AND OPER ATED BY THE EMPLOYEES THEMSELVES. HE CAME FORWARD AND ADMITTED THE PEAK DEPOSITS AS HIS INCOME ONLY TO BUY PEACE AND SAVE H IMSELF FROM PROTRACTED LITIGATION. THEREFORE, REQUESTED TO DRO P PENALTY PROCEEDINGS. THE A.O. NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE IMPOSED THE PENALTY @ 30% OF THE UNDISCLOS ED INCOME. THE A.O. WAS OF THE VIEW THAT ONCE THE SEARCH IS CONDUC TED U/S 132 OF THE ACT, AS PER THE PROVISIONS OF SECTION 271AAB OF THE ACT, LEVY OF PENALTY IS MANDATORY. 5. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE CIT(A) AND THE LD. CIT(A) HELD THAT THE IMPO SITION OF PENALTY IS NOT MANDATORY. MERE ADMISSION OF INCOME U/S 132(4) OF THE ACT CANNOT AUTOMATICALLY LEAD TO PENALTY U/S 271AAB OF THE ACT. THE LD. CIT(A) RELIED ON THE DECISION OF ITAT KOLKATA BENCH IN THE CASE OF SSP STEEL AND POWER LIMITED VS. CCIT 171 TTJ 749 (2015) , WHICH READS AS UNDER: 13. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, AND LEGAL POSITION DISCUSSED ABOVE, THE PENALTY TO BE LEVIED FOR UNDISCLOSED INCOME AS PER THE PROVISION OF SEC. 271AAA OF THE A CT, WE HAVE TO UNDERSTAND THE MEANING OF UNDISCLOSED INCOME AND TH E RELEVANT PROVISION DEFINE UNDISCLOSED INCOME AS UNDER:- (A) 'UNDISCLOSED INCOME' MEANS- (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRE SENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 7 ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOU NTS 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 I N THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE CHIEF COMMISSI ONER OR COMMISSIONER BEFORE THE DATE OF THE SEARCH ; OR ' FROM THE ABOVE, IT IS CLEAR THAT UNDISCLOSED INCOME MEANS 'ANY INCOME REPRESENTED BY ANY DOCUMENTS' FOUND DURING T HE COURSE OF SEARCH, WHICH ARE NOT RECORDED IN THE BOOKS OF A CCOUNTS OF THE ASSESSEE. IN THE INSTANT CASE, THE ADDITIONS OF CAS H EXPENSES AND PAYMENTS OF RS. 71,90,623/- IS THE RESULT OF CASH A VAILABLE OUT OF THE DISCLOSED CASH OF RS.6.84 CRORES WHICH WAS INCL UDED IN THE DISCLOSURE PETITION. FURTHER, ADDITION OF RS. 15 LA KH ON ACCOUNT OF ALLEGED CASH RECEIPTS FROM SAMPOORNA LOGISTICS, WHI CH WAS ALLEGED TO BE REIMBURSEMENT, IT IS CLEAR THAT EXPEN DITURE RECORDED IN THE BOOKS OF ACCOUNTS CAN BE HELD TO BE UNDISCLO SED INCOME OF THE ASSESSEE IF THE SAID EXPENDITURE IS FOUND TO BE FALSE. IT IS THE DEPARTMENT ON WHOM, ONUS OF PROVING THAT EXPENDITUR E RECORDED IN THE BOOKS IS BOGUS OR FALSE BASED ON DOCUMENTARY EVIDENCES FOUND IN THE COURSE OF SEARCH. HERE IN THE PRESENT CASE, NO DOCUMENTARY EVIDENCES ESTABLISHING THE FALSITY OF C LAIM OF TRANSPORTATION CHARGES PAID TO SAMPOORNA LOGISTICS WAS FOUND IN THE COURSE OF SEARCH. ACCORDING TO US THE SAID EXPE NDITURE CANNOT BE HELD TO BE UNDISCLOSED INCOME OF THE ASSESSEE FO R THE PURPOSE OF LEVYING PENALTY U/S. 271AAA OF THE ACT. 14. HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. SOT - DO RICE AND OIL MILLS 117 /TR 917 (CAT) HELD: - 'THE ITO AND THE IAC HAD PROCEED ENTIRELY ON THE BA SIS OF THE DISCLOSURE MADE BY THE ASSESSEE. THE TRIBUNAL HAD F OUND AS A FACT THAT THE DISCLOSURE HAD NO EVIDENTIARY VALUE AND WA S NOTHING BUT A SCRAP OF PAPER AND THE FINDING HAD NOT BEEN CHALLEN GED BY THE REVENUE AS PERVERSE OR BASED ON IRRELEVANT EVIDENCE OR NO EVIDENCE AT ALL. THEREFORE, THE FINDING OF THE TRIB UNAL THAT THE PROVISIONS OF S. 271(1) WERE NOT ATTRACTED WAS NOT ERRONEOUS.' SIMILARLY, THE HON'BLE MADRAS HIGH COURT IN CASE OF CIT VS. M. PACHAMUTHU 295 ITR 502 (MAD) HELD:- 'MERE ADDITION AGREED TO BY THE ASSESSEE DURING THE COURSE OF SURVEY WOULD NOT EMPOWER THE ASSESSING OFFICER TO L EVY THE PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX A CT, 1961 -.. THE FACT THAT THE ASSESSEE HAD AGREED TO ADDITIONS TO INCOME WAS NOT PROOF OF CONCEALMENT.' ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 8 EVEN HONBLE KERALA HIGH COURT IN THE CASE OF CIT V S. M. GEORGE & BROTHERS 59 CTP. 298 (KEL) HELD THAT: WHERE THE ASSESSEE FOR ONE REASON OR THE OTHER AGRE ES OR SURRENDERS CERTAIN AMOUNTS FOR ASSESSMENT, THE IMPO SITION OF PENALTY SOLELY ON THE BASIS OF THE ASSESSEES SURREN DER WILL NOT BE WELL-FOUNDED. DEPENDING UPON THE FACTS AND CIRCUMST ANCES OF EACH CASE THE COURT HAS TO DECIDE WHETHER PENALTY I S JUSTIFIED. IT IS ALWAYS FOR THE REVENUE TO BRING THE CASE UNDER T HE AMBIT OF SEC. 271(1)(C) BY ESTABLISHING THERE IS CONCEALMENT ON THE PART OF THE ASSESSEE. THE EXPLANATION TO SEC. 271(1)(C) INS ERTED W.E.F. 1 ST DAY OF APRIL, 1964 MERELY RAISES A REBUTTABLE PRESU MPTION BUT THE BASIC PRINCIPLE THAT THERE SHOULD BE HAVE BEEN CONC EALMENT STILL REMAINS. FURTHER HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX VS. RAJIV GARG 313 ITR 2 56 (P&H) UPHELD THE ORDER OF THE TRIBUNAL WHERE IT WAS OBSER VED THAT - MERELY BECAUSE AN INCOME HAS BEEN OFFERED BY THE AS SESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 148, IT CANNOT BE IPSO FACTO INFERRED THAT THE PENAL PROVISIONS OF SECTION 271(1 )(C) ARE ATTRACTED. IN ORDER TO APPLY THE PENAL PROVISIONS O F SECTION 271(1)(C) IT IS TO BE NECESSARILY INFERRED THAT THE RE IS POSITIVE ACT OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURAT E PARTICULARS OF SUCH INCOME BY THE ASSESSEE. IT IS FURTHER HELD THAT THE DEPARTMENT HAD SIMPLY R ESTED ITS CONCLUSION ON THE ACT OF THE ASSESSEE OF HAVING OFF ERED ADDITIONAL INCOME IN THE RETURN FILED IN RESPONSE TO NOTICE UN DER SECTION 148 OF THE ACT. AS NOTED EARLIER, THE ADDITIONAL INCOME SO OFFERED BY THE ASSESSEE WAS DONE IN GOOD FAITH AND, THEREFORE, IN OUR VIEW, PENALTY UNDER SECTION 271(1)(C) OF THE ACT COULD NO T BE LEVIED. FURTHER HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. HAJI GAFFAR HAJI DADA CHINI 169 ITR 033 (BORN) HELD THAT: 'ON THE FACTS OF THE CASE, THE TRIBUNAL HAD TAKEN A POSSIBLE VIEW ON THE QUESTION BEFORE IT AND, THEREFORE, THERE WAS NO REASON TO INTERFERE WITH ITS CONCLUSION THAT THE LETTER ADDRE SSED BY THE ASSESSEE TO THE INCOME-TAX OFFICER OFFERING CREDITS IN RESPECT OF HUNDI LOANS FOR ASSESSMENT AND ALSO STATING THAT TH E PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 , MAY BE DECIDED ON THE MERITS, DID NOT AMOUNT TO AN ADMISSI ON OF CONCEALMENT OF INCOME AND THE LEVY OF PENALTY ON SU CH BASIS WAS LIABLE TO BE QUASHED.' FROM THE ABOVE, IT IS CLEAR THAT PENALTY CANNOT BE LEVIED MERELY ON THE ADMISSION OF THE ASSESSEE AND THERE MUST BE SOME CONCLUSIVE EVIDENCE BEFORE THE ASSESSMENT OFFICER T HAT ENTRY MADE IN THE SEIZED DOCUMENTS, REPRESENTS UNDISCLOSE D INCOME OF ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 9 THE ASSESSEE. IN THE INSTANT CASE, IN RESPECT TO TH E AMOUNT OF RS. 1,13,65,623/-, THERE IS NO EVIDENCE WHICH PROVES TH AT THE ENTRIES RECORDED IN THE DOCUMENTS FOUND DURING THE COURSE O F SEARCH IS OVER AND ABOVE THE INCOME AS DECLARED BY THE ASSESS EE AT RS.6.84 CRORES AS UNDISCLOSED INCOME AND ACCEPTED B Y REVENUE, IN VIEW OF THE ABOVE, WE DELETE THE PENALTY AND ALL OW THE APPEAL OF THE ASSESSEE.' 6. FURTHER, THE LD. A.R. RELIED ON THE DECISION IN RESPECT OF SECTION 158BFA(2) IN THE CASE OF SADHU RAM GOYAL VS. DCIT 1 28 ITD 436 (2011). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. DURING THE APPEAL HEARING, THE LD. A.R. VEHEMENTLY ARGUED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DISCRETIONAR Y. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH THAT OF SECTION 158BFA(2) OF THE ACT RELATING TO BLOCK ASSESSMENT AND ACCORDI NGLY ARGUED THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATO RY BUT DIRECTORY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT E XIGIBLE. THE LD. A.R. HAS 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 WORDS USED IN SECTION 158BFA(2) OF THE ACT AND SUB SECTION (1) OF SECTION 271AAB OF THE ACT ARE IDENTI CAL. HONBLE COURTS IN RESPECT OF PENALTY U/S 158BFA HELD THE PENALTY IS N OT MANDATORY BUT ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 10 DISCRETIONARY. HENCE, ARGUED THAT THE PENALTY UNDER SECTION 271AAB OF THE ACT PENALTY IS ALSO NOT AUTOMATIC AND IT IS ON THE BASIS OF MERITS OF THE CASE. FOR READY REFERENCE, WE EXTRACT HEREUNDE R SECTION 158BFA (2) OF THE ACT AND SECTION 271AAB OF THE ACT WHICH READ S 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 WHERE 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-- (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE U NDISCLOSED 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 OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSE SSEE-- (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UND ER SUB-SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCO ME; 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, IN RE SPECT 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 SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLA USES (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 O F THE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1). ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 11 SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APP EALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOU NT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABL E IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CL AUSE (C) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RES PECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; (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 MONEY 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 PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSE SSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUC H CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DE TERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 8. CAREFUL READING OF SECTION 271AAB OF THE ACT, TH E WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENALTY. SIMILAR WORDS WERE USED SECTION 158BFA(2) OF THE ACT. THE W ORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB S ECTION (3) OF SECTION 271AAB OF THE ACT, FORTIFIES THIS INTERPRETATION AN D THE SAME READS AS UNDER; SUB SECTION (3) OF SECTION 271AAB: THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FA R AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION . 9. THE LEGISLATURE HAS INCLUDED THIS PROVISIONS OF SECTION 274 AND SECTION 275 OF THE ACT IN SUB-SECTION 3 WITH AN INT ENTION TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEAL S WITH THE PROCEDURE FOR ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 12 LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS B EEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. THEREFORE, FROM COMBINED READING OF SECTION 271AAB AND SECTION 274 OF THE AC T, IT IS ESTABLISHED THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSES SEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSEE, THE PENALTY C ANNOT BE MANDATORY AND IT IS ON THE BASIS OF THE FACTS AND MATERIALS P LACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT, TO HEAR THE ASSE SSEE AND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE I S NO MANDATORY REQUIREMENT OF IMPOSING PENALTY BECAUSE THE OPPORTU NITY OF BEING HEARD AND REASONABLE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JUSTICE. HONBLE A.P. H IGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHILE DEALIN G WITH THE PENALTY U/S 158BFA(2) HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECTION 158BFA O F THE ACT THAT ARE ENTITLED TO BE MANDATORY, THE WORDS MAY DIRECT IN S UB SECTION 2 THERE OF INTENDED TO DIRECTORY. IN OTHER WORDS, WHILE PAYM ENT OF INTEREST IS MANDATORY LEVY OF PENALTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHORITY HAS TO BE EXERCI SED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE FACTS AND CI RCUMSTANCES OF THE ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 13 EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE AC T IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALT Y U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH C ASE. 10. HAVING HELD THAT THE PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY NOW WE PROCEED TO DECIDE THE ISSUE WITH R EGARD TO THE CIRCUMSTANCES UNDER WHICH THE PENALTY IS EXIGIBLE U /S 271AAB OF IT ACT. SECTION 271AAB READS AS UNDER: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYT HING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER TH E 1ST DAY OF JULY, 2012, 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 T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSE SSEE- (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (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, I N RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFI ED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE- (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER SUB-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 ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 14 (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT 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 INCOM E OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIO NS 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 UNDISCLOSED INCOME REFERRED TO IN SU B-SECTION (1). (3) THE PROVISIONS OF SECTIONS 274 AND 275 SHALL, A S FOR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THI S SECTION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNISHI NG OF RETURN OF INCOME UNDER SUBSECTION (1) OF SECTION 139 OR THE D OTE ON WHICH THE PERIOD SPECIFIED IN THE NOTICE ISSUED UNDER SECTION 153A FOR FURNISHING OF RETURN OF INCOME EXPIRES, AS THE CASE MAY BE; (B) 'SPECIFIED PREVIOUS YEAR' MEANS THE PREVIOUS YE AR (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 PREV IOUS YEAR BEFORE THE DATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRE SENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOU NT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UND ER SECTION 132, WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEAR CH 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 CHIEF COMMI SSIONER OR COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRE SENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RE CORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FA LSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CO NDUCTED. ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 15 FROM PLAIN READING OF SECTION 271AAB PENALTY IS LEVIABLE ON UNDISCLOSED INCOME. INCOME ADMITTED U/S 132(4) OF THE ACT NEED NOT BE UNDISCLOSED INCOME AND EVERY UNDISCLOSED INCOME NEED NOT NECESSARILY BE ADMITTED BY THE ASSESSEE U/S 132(4) OF THE ACT. 11. IN THE ASSESSEES CASE, THE ASSESSEE HAD ADMITT ED THE UNDISCLOSED INCOME IN RESPECT OF THE DEPOSITS OF TH E EMPLOYEES, EX- EMPLOYEES IN THEIR BANK ACCOUNTS. THE ASSESSEE ADM ITTED THE PEAK DEPOSIT IN THE ACCOUNTS OF EMPLOYEES AS HIS UNDISCL OSED INCOME AMOUNTING TO ` 56,74,868/-. AT THE TIME OF SEARCH, THE ASSESSEE HAS SUBMITTED BEFORE THE A.O. THAT THE BANK ACCOUNTS AR E NOT BELONGED TO THE ASSESSEE AND THEY WERE BELONGED TO THE EMPLOYEE S WHO OPENED THE ACCOUNTS AND OPERATING THE SAME. HOWEVER, THE ASSESSEE HAD ADMITTED PEAK DEPOSITS U/S 132(4) OF THE ACT. THE A.O. DID NOT MAKE ANY FURTHER ENQUIRIES AND ACCEPTED THE ADMISSION GI VEN BY THE ASSESSEE. THOUGH PEAK DEPOSITS WERE ADMITTED BY TH E ASSESSEE AS ADDITIONAL INCOME U/S 132(4) OF THE ACT, THE A.O. H AS NOT ESTABLISHED THAT THE IMPUGNED BANK ACCOUNTS WERE BELONGED TO TH E ASSESSEE, THEREFORE, WE HOLD THAT THERE IS NO UNDISCLOSED INC OME IN RESPECT OF THE DEPOSITS IN THE NAME OF THE EMPLOYEES OF THE ASSESS EE. THE LD.CIT(A) ALSO HAS EXPRESSED THE SAME VIEW. FOR READY REFERE NCE, WE EXTRACT RELEVANT PARAGRAPH OF THE CIT(A), WHICH READS AS UN DER: ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 16 6.7) I HAVE GONE THROUGH THE FACTS OF THE CASE AND A LSO THE SUBMISSIONS OF THE APPELLANT. IT IS FOUND THAT THE ASSESSING OFFICER, THOUGH INITIATED PENALTY PROCEEDINGS FOR THE EARLIER ASSES SMENT YEARS U/S 271(1)(C) OF THE ACT HAS CHOSEN TO DROP THE PROCEED INGS. THE ADMISSION TOWARDS DEPOSITS IN THE BANK ACCOUNTS OF THE EMPLOY EES WAS VERY MUCH THERE IN THE EARLIER ASSESSMENT YEARS AS WELL. APAR T FROM THIS, I HAVE ALSO FOUND THAT THE BANK ACCOUNTS WERE NOT IN THE NAME O F THE APPELLANT AND THE ACCOUNT HOLDERS HAVE OWNED UP THE BANK ACCOUNTS AND ALSO THE TRANSACTIONS IN THE AFFIDAVITS FILED BY THEM. NO MA TERIAL WAS FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS TO ESTA BLISH ANY NEXUS BETWEEN THESE BANK ACCOUNTS AND THE TRANSACTIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY SUC H MATERIAL TO SHOW THAT THIS INCOME BELONGED TO THE APPELLANT. MERELY BECAUSE, THE APPELLANT ADMITTED THE INCOME U/S 132(4) IT CANNOT BE CONCLUD ED THAT THE SAME REPRESENTED THE UNDISCLOSED INCOME OF THE APPELLANT . THEREFORE, I DIRECT THE ASSESSING OFFICER TO CANCEL THE PENALTY LEVIED WITH REGARD TO THIS AMOUNT OF ` 56,74,868/- ADMITTED BY THE APPELLANT TOWARDS DEPO SITS IN THE ACCOUNTS OF THE EMPLOYEES/EX-EMPLOYEES. 12. SINCE THE A.O. DID NOT COLLECT ANY EVIDENCE TO HOLD THAT THE BANK ACCOUNTS WERE BELONGED TO THE ASSESSEE AND BEING OP ERATED BY THE ASSESSEE, THERE IS NO CASE TO HOLD THAT THE ADMISSI ON MADE BY THE ASSESSEE REPRESENTED THE UNDISCLOSED INCOME OF THE ASSESSEE WITH IN THE MEANING OF SECTION 271AAB OF THE ACT ACCORDING LY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF TH E REVENUE. 13. WITH REGARD TO THE APPEAL OF THE ASSESSEE IN IT A NO.132/VIZAG/2017 DURING THE COURSE OF SEARCH PROCE EDINGS, THE A.O. FOUND THAT THE GOLD AND JEWELLERY OF 1530.400 GMS., THE ASSESSEE EXPLAINED THAT THE GOLD AND JEWELLERY SAID TO BE BE LONGING TO (1) S. CHANDRIKA, DAUGHTER OF HIS BROTHER OF 770 GMS (2) S MT. SITA, WIFE OF HIS BROTHER OF 500 GMS. (3) HIS WIFE OF 250 GMS. (4) BA LANCE 10.400 GMS. ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 17 BELONGING TO THE ASSESSEE. SIMILARLY, IN THE CASE OF DIAMONDS AMOUNTING TO ` 12,63,650/- WERE SAID TO BE BELONGED TO HIS WIFE, THOUGH ASSESSEE HAD ADMITTED THE SAME AS INCOME IN HIS HANDS. THE LD. CIT(A) HAS ALLOWED THE RELIEF TO THE EXTENT OF PERMISSIBLE DEDUCTION AS PER BOARDS CIRCULAR AND SUSTAINED THE PENALTY TO THE EXTENT OF ` 27,41,676/- AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT , PERUSED THE FACTS OF THECASE AND GONE THROUGH THE PROCEEDINGS OF SEARCH AND SEIZURE OPERATIONS. THOUGH THE APPELLANT CLAIMED THAT EXCEPT 10.400 GRA MS OF JEWELLERY BELONGS TO HIM, THE REST OF THE JEWELLERY BELONGED TO HIS W IFE, HIS SISTER-IN-LAW AND HIS BROTHER'S DAUGHTER, HE COULD NOT FURNISH ANY SP ECIFIC EVIDENCE IN THIS REGARD. AT THE SAME TIME, A PART OF THE JEWELLERY C AN CERTAINLY BE HELD TO BE BELONGING TO THEM. IN THE ABSENCE OF SPECIFIC EVIDEN CE IN THIS REGARD, I WOULD CONSIDER 500 GMS AS BELONGING TO THE WIFE OF THE APPELLANT AND 250 GMS AS BELONGING TO MS.SARAT CHANDRIKA WHO WAS STAY ING WITH THE APPELLANT EVEN AT THE TIME OF SEARCH AND SEIZURE OPERATIONS. JEWELLERY OF BROTHER'S WIFE CANNOT BE GIVEN CREDIT IN THE HANDS OF THE APP ELLANT. THEREFORE, TO THE EXTENT OF 750 GMS, THOUGH THE APPELLANT ADMITTED IN COME U/S 132(4), THE SAME WOULD NOT FALL WITHIN THE SCOPE OF 'UNDISCLOSE D INCOME' AS DEFINED IN S.271AAB OF THE ACT. THE ASSESSING OFFICER IS DIREC TED TO CANCEL THE PENALTY U/S 271AAB WITH REGARD TO VALUE OF 750 GMS OF GOLD JEWELLERY I.E., RS.27,41,676/- AND THE REMAINING PENALTY WITH REGAR D TO BALANCE AMOUNT OF JEWELLERY, SILVER ARTICLES AND DIAMONDS I.E., RS.47 ,75,724/- IS SUSTAINED. 14. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE ASSESSEE MADE DISCLOSURE ONLY TO PURCHASE PEACE FROM THE DEP ARTMENT AND THE ASSESSEE HAD EXPLAINED THE SOURCE OF JEWELLERY AND DIAMONDS AT THE TIME OF SEARCH, THUS, THERE IS NO UNDISCLOSED INCOM E AS SUCH, HENCE THERE IS NO CASE FOR PENALTY. ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 18 15. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE O RDERS OF THE CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, ON THE DAY OF THE SEARCH AND SUBSEQUENTLY, TH E ASSESSEE HAS CATEGORICALLY EXPLAINED THE SOURCE OF ACQUISITION O F GOLD AND JEWELLERY STATING THAT THE SAID GOLD AND JEWELLERY WAS SAID T O BE BELONGING TO HIS BROTHERS DAUGHTER MISS S. CHANDRIKA AND ALSO TO HI S BROTHERS WIFE. THOUGH HE HAS ADMITTED THE INCOME, THE ABOVE GOLD A ND JEWELLERY REQUIRED TO BE EXAMINED IN THE HANDS OF MISS S. CHA NDRIKA AND MRS. SITA WIFE OF HIS BROTHER AND HIS WIFE FOR LEVY OF P ENALTY U/S 271AAB. THE A.O. STOPPED HIS ENQUIRIES ONCE THE DISCLOSURE HAS BEEN MADE BY THE ASSESSEE AND DID NOT MAKE ANY FURTHER ENQUIRY, THEREFORE, THE A.O. HAS NOT ESTABLISHED THAT GOLD AND JEWELLERY WAS ACQ UIRED FROM THE SOURCES OF UNDISCLOSED INCOME. AS PER THE PROVISIO NS OF SECTION 271AAB OF THE ACT, THE PENALTY IS LEVIABLE ONLY ON UNDISCLOSED INCOME. IN THE INSTANT CASE, THE A.O. HAS FAILED TO ESTABLI SH THE UNDISCLOSED INCOME, HENCE, WE HOLD THAT THERE IS NO CASE FOR IM POSING PENALTY U/S 271AAB OF THE ACT, ACCORDINGLY, WE CANCEL THE PENAL TY AND SET ASIDE THE ORDER OF THE LOWER AUTHORITIES. ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 19 ITA 132/VIZAG/2017 : 17. THE LD. CIT(A) HAS CONFIRMED THE PENALTY OF ` 14,32,717/- IN RESPECT OF THE GOLD JEWELLERY AS UNDER: 6.8) WITH REGARD TO ADMISSION MADE BY THE APPELLANT TOWARDS JEWELTERY, SILVER ARTICLES AND DIAMONDS, THE APPELLANT SUBMITT ED THAT THE GOLD JEWELLERY FOUND AT THE RESIDENCE WAS 1530.400 GMS AND, OUT OF THIS, 770 GMS BELONGED TO HIS BROTHERS DAUGHTER MS.SARAT CHANDRIK A AND 500 GRA-MS BELONGED TO SMT. SITA, WIFE OF HIS BROTHER. OUT OF THE BALANCE, 250 GMS BELONGED TO WIFE OF THE APPELLANT AND ONLY 10.400 G MS BELONGED TO THE APPELLANT. THE GOLD JEWELLERY AND DIAMONDS OF THE V ALUE OF RS. 12,63,650/- BELONGED TO WIFE OF THE APPELLANT. IT WAS FURTHER E XPLAINED THAT MARRIAGE OF MS.SARAT CHANDRIKA WAS SCHEDULED FOR 1 11H MAY, 2013 AND SHE STAYS IN THEIR HOUSE ONLY AS SHE WAS BROUGHT UP BY HIM AND H IS WIFE RIGHT SINCE HER CHILDHOOD. THE JEWELLERY OF 770 GRAINS WAS KEPT REA DY FOR HER MARRIAGE AND THE SAID JEWELLERY DOES NOT BELONG TO THE APPELLANT . LIKEWISE, THE APPELLANT SUBMITTED THAT THE REMAINING JEWELLERY ALSO DID NOT BELONG TO HIM. FURTHER, THE APPELLANT SUBMITTED THAT THE ADMISSION WAS GIVE N IN ANTICIPATION THAT THE JEWELLERY WILL BE RELEASED ONCE THE SAME IS ADMITTE D AS INCOME AND THE TAXES ARE PAID. 6.9) I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT, PERUSED THE FACTS OF THE CASE AND GONE THROUGH THE PROCEEDINGS OF SEARCH AND SEIZURE OPERATIONS. THOUGH THE APPELLANT CLAIMED THAT EXCEPT 10.400 GRA MS OF JEWELLERY BELONGS TO HIM, THE REST OF THE JEWELLERY BELONGED TO HIS W IFE, HIS SISTER-IN-LAW AND HIS BROTHERS DAUGHTER, HE COULD NOT FURNISH ANY SP ECIFIC EVIDENCE IN THIS REGARD. AT THE SAME TIME, A PART OF THE JEWELLERY C AN CERTAINLY BE HELD TO BE BELONGING TO THEM. IN THE ABSENCE OF SPECIFIC EVIDE NCE IN THIS REGARD, I WOULD CONSIDER 500 GMS AS BELONGING TO THE WIFE OF THE AP PELLANT AND 250 GMS AS BELONGING TO MS.SARAT CHANDRIKA WHO WAS STAYING WIT H THE APPELLANT EVEN AT THE TIME OF SEARCH AND SEIZURE OPERATIONS. JEWELLER Y OF BROTHER'S WIFE CANNOT BE GIVEN CREDIT IN THE HANDS OF THE APPELLANT. THER EFORE, TO THE EXTENT OF 750 GMS, THOUGH THE APPELLANT ADMITTED INCOME U/S 132(4 ), THE SAME WOULD NOT FALL WITHIN THE SCOPE OF 'UNDISCLOSED INCOME' AS DE FINED IN S.271AAB OF THE ACT. THE ASSESSING OFFICERS DIRECTED TO CANCEL THE PENALTY U/S 271 MB WITH REGARD TO VALUE OF 750 GMS OF GOLD JEWELLERY I.E., RS.27,41,676/- AND THE REMAINING PENALTY WITH REGARD TO BALANCE AMOUNT OF JEWELLERY, SILVER ARTICLES AND DIAMONDS I.E. ` 47,75,724/- IS SUSTAINED. ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 20 18. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSES SEE IS IN CROSS APPEAL BEFORE THIS TRIBUNAL RAISING FOLLOWING GROUN DS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE TO THE FAC TS OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED SUSTAINING PENALTY TO THE EXTENT OF RS. 14,32,717 O UT OF TOTAL PENALTY OF RS.49,1 1,957 LEVIED U/S 271 AAB OF THE INCOME TAX ACT,1961. 3. THE NOTICE ISSUED U/S 271AAB IS LIABLE TO BE QUASHE D AS THE SAME IS NOT IN ACCORDANCE WITH LAW. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF A PPEAL HEARING. 19. IN THE REVENUES APPEAL WITH REGARD TO THE GOLD JEWELLERY FOUND IN THE RESIDENTIAL PREMISES OF THE ASSESSEE, WE HAVE H ELD THAT THERE IS NO UNDISCLOSED INCOME, ACCORDINGLY, THE PENALTY LEVIED BY THE ASSESSING OFFICER WAS DELETED. HENCE, THE CROSS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 16 TH MAR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 16.03.2018 VG/SPS ITA NO.126&132 /VIZAG/2017 MOTHUKURI SOMABRAHMAM, VSKP 21 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CENTRAL CIRCLE-2, VISA KHAPATNAM 2. / THE RESPONDENT SRI M. SOMABRAHMAM, FLAT NO.402 , CHEKURI MANSION, SEETHAMMADHARA, VISAKHAPATNAM-13 3. + / THE PR. CIT (CENTRAL), VISAKHAPATNAM 4. + ( ) / THE CIT (A)-3, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM