SHRI AJAY AGARWAL, KOTA V. DEPUTY COMMISSIONER OF INCOME TAX, KOTA

ITA 1383/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3785 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 04-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Keywords: Business income; Search and seizure; Salary income; Share purchase agreement; Opportunity of being heard; Principle of natural justice; Transactions in derivatives; Source of fund; Question of law; Reasonable cause; Wrong claim; Non compliance; Block assessment; Set aside; Capital Gains; CHAPTER IV; Bogus
• Section: 27; 132; 271(1)(c); 44AD; 139; 143(3); 153A; 292BB; 274; 44BB; 139(1); 158BC; 43; 13; 158BFA; 22; 20

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH A, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 1383/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2015-16. SHRI AJAY AGRAWAL, BUNGALOW NO. 3, KANSUA ROAD, J.K. NAGAR, KOTA. CUKE VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, ROOM NO. 212, 2 ND FLOOR, C.R. BUILDING, RAWAT BHATA ROAD, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AFOPA 1833 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 1443/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2015-16. THE DEPUTY COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE, ROOM NO. 212, 2 ND FLOOR, C.R. BUILDING, RAWAT BHATA ROAD, KOTA. CUKE VS. SHRI AJAY AGRAWAL, BUNGALOW NO. 3, KANSUA ROAD, J.K. NAGAR, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AFOPA 1833 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VIJAY GOYAL (CA) & SHRI GULSHAN AGARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT-DR) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28.02.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 22/03/2019. VKNS'K@ ORDER PER BENCH : THESE TWO CROSS APPEALS ARE DIRECTED AGAINST THE OR DER DATED 5 TH OCTOBER, 2018 OF LD. CIT (A)-2, UDAIPUR ARISING FROM THE PEN ALTY ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT FOR THE ASSESSMENT YEAR 2015-1 6. THE ASSESSEE IS AN 2 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. INDIVIDUAL AND BELONGS TO M/S. KOTA DALL MILL GROUP . THE ASSESSEE FILED HIS RETURN OF INCOME UNDER SECTION 139(1) OF THE IT ACT ON 30.08. 2015 DECLARING TOTAL INCOME AT RS. 11,00,27,200/- WHICH INCLUDES SURRENDERED INCOM E OF RS. 10,69,91,302/- ON ACCOUNT OF LONG TERM CAPITAL GAIN. IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE IT ACT, THE ASSESSEE FURNISHED HIS RETURN OF INCOME ON 01.02.2016 DECLARING TOTAL INCOME OF RS. 11,18,27,200/- WHICH INCLUDES THE INC OME OF RS. 10,87,91,302/- ADMITTED DURING SEARCH (INCLUDING INCOME OF RS. 10, 69,91,302/- ALREADY DECLARED IN THE RETURN FILED U/S 139(1). THE ASSESSMENT WAS COM PLETED UNDER SECTION 143(3) READ WITH SECTION 153B OF THE IT ACT ON 27.12.2017 AT THE TOTAL INCOME OF RS. 11,18,77,980/- WHICH INCLUDES AN ADDITION OF RS. 9, 000/- ON ACCOUNT OF SHORT DISCLOSURE OF COMMISSION INCOME AND AN ADDITION OF RS. 41,778/- ON ACCOUNT OF MISMATCH IN THE SHARE TRADING TURNOVER. THE AO THE N INITIATED THE PROCEEDINGS FOR LEVY OF PENALTY UNDER SECTION 271AAB OF THE IT ACT BY ISSUING A SHOW CAUSE NOTICE DATED 27.12.2017. THE AO WHILE PASSING THE PENALTY ORDER DATED 21 ST JUNE, 2018 HAS LEVIED THE PENALTY UNDER SECTION 271AAB(1) OF T HE IT ACT @ 30% OF THE UNDISCLOSED INCOME OF RS. 10,88,42,080/- WHICH WAS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME FILED ON 01.02.2016 IN RESPONSE TO NOTICE UNDER SECTION 153A ON 27.01.2016 . THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFO RE THE LD. CIT (A). THE LD. CIT (A) HAS REDUCED THE LEVY OF PENALTY UND ER SECTION 271AAB FROM 30% TO 10%. HENCE BOTH THE ASSESSEE AS WELL AS THE REVENUE HAVE CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT (A) BY FILING THESE C ROSS APPEALS. THE GROUNDS RAISED BY THE ASSESSEE AS WELL AS BY THE REVENUE IN THE CR OSS APPEALS ARE AS UNDER :- 3 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. ITA NO.1376/JP/2018 (ASSESSEES APPEAL) : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT (A) ERRED IN NOT HOLDING THE PENALTY ORDER AS W RONG, BAD IN LAW, INVALID AND VOID-AB-INITIO AS THE LD. AO INITIATED THE PENALTY U/S 271AAB OF INCOME TAX ACT, 1961 WITHOUT SPECIFYING THE CLAU SE OF SECTION 271AAB OF THE ACT IN THE PENALTY NOTICE UNDER WHICH THE PENALTY WAS INITIATED I.E. WHETHER IT IS FOR CLAUSE (A) OR CLAU SE (B) OR CLAUSE (C) OF SECTION 271AAB(1) BECAUSE THE CONDITIONS FOR IMPOSI NG THE PENALTY UNDER EACH SUCH CLAUSES ARE SEPARATE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN APPLYING THE PROVISIONS OF SECTION 271AAB(1)(A) AS AGAINST LEVY OF PENALTY U/S 271AAB(1)(C) OF I.TAX A CT BY LD AO WITHOUT ISSUING NOTICE AS REQUIRED U/S 251(2) OF I. TAX ACT . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE PENALTY OF RS. 1,08 ,84,208/- U/S 271AAB(1)(A) OF THE ACT OUT OF PENALTY OF RS. 3,26, 52,624/- IMPOSED BY THE AO U/S 271AAB(1)(C) OF THE ACT MORE SO WHEN :- A) THE APPELLANT WAS NOT HAVING ANY UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 271AAB OF THE ACT, THEREFORE, NO PENALTY UNDER THIS SECTION CAN BE IMPOSED ON ASSESSEE. B) THE PENALTY WAS LEVIED BY DRAWING THE INFERENCE ONL Y FROM THE STATEMENT RECORDED U/S 132(4) OF THE ACT WHEREAS TH ERE IS NO INCRIMINATING MATERIAL OR EVIDENCE WAS FOUND DURING SEARCH TO PROVE THAT THE ASSESSEE WAS HAVING UNDISCLOSED INCO ME. C) DOCUMENTS AND EVIDENCES WERE FILED TO PROVE THE GEN UINENESS OF EXEMPTED LTCG WHICH WERE REMAINED UNCONTROVERTED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN HOLDING THAT THE PENALTY U/S 271AA B OF THE ACT IS MANDATORY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN NOT GIVING THE FINDING ON THE ALLE GATION OF AO THAT THE APPELLANT FIND IN THE POSITION OF MENS REA AND INTE NTION WAS OF WRONG DOING THAT CONSTITUTES PART OF A CRIME. 6. THE APPELLANT PRAYS FOR LEAVE TO ADD, TO AMEND, TO DELETE OR MODIFY THE ALL OR ANY GROUNDS OF APPEAL ON OR BEFORE THE HEARI NG OF APPEAL. 4 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. ITA NO.1433/JP/2018 (DEPARTMENTAL APPEAL) : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) WAS RIGHT IN REDUCING THE PENALTY OF RS. 3,28,9 5,855/- LEVIED BY THE AO @ 30% OF THE UNDISCLOSED INCOME UNDER CLAUSE 1(C) O F SECTION 271AAB OF THE INCOME TAX ACT TO RS. 1,09,65,285/- UNDER CLAUS E 1(A) OF THAT SECTION DESPITE THE FACT THAT MANNER OF EARNING OF UNDISCLO SED INCOME WAS NOT DISCLOSED BY THE ASSESSEE. 2. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES WHICH HAS RESULTED LONG TERM CAPITAL GAINS ARE DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THOUGH THE LTCG ARISING ON SALE OF SHARES OF LISTED COMPANIES IS EXEMPT UNDER SECTI ON 10(38) OF THE IT ACT, HOWEVER, DURING THE COURSE OF SEARCH AND SEIZURE ACTION ON 2 ND JULY, 2015 THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 132(4) HAS SURREND ERED THE LTCG TO TAX. THE LD. A/R HAS FURTHER CONTENDED THAT THE SHARES PURCHASED IN THE PRECEDING YEAR WERE DULY SHOWN IN THE BALANCE SHEET AS ON 31 ST MARCH 2014 AND THE AO HAS NOT DISTURBED THE TRANSACTION OF PURCHASE OF SHARES. T HE PURCHASE CONSIDERATION AS WELL AS SALE CONSIDERATION HAS BEEN PAID AND RECEIVED RE SPECTIVELY THROUGH BANKING CHANNEL. THE FACT OF PURCHASE OF SHARES AS WELL AS SALE OF SHARES AND PAYMENT AND RECEIPT OF CONSIDERATION ARE INDEPENDENTLY VERIFIAB LE FROM THE DEMAT ACCOUNT, BANK ACCOUNT STATEMENT AS WELL AS THE RECORD OF THE STOC K EXCHANGE. THE LD. A/R HAS FURTHER CONTENDED THAT THE ASSESSEE PRODUCED ALL TH E SUPPORTING DOCUMENTARY EVIDENCES OF PURCHASE AND SALE OF THESE SHARES THRO UGH STOCK EXCHANGE AS THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE OF LISTED COMPANIES THROUGH REGISTERED BROKERS. THE SHARES WERE DULY REFLECTED IN THE DEMAT ACCOUNT OF THE 5 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. ASSESSEE AND THE SALE OF THESE SHARES WERE ALSO FRO M THE DEMAT ACCOUNT OF THE ASSESSEE. THEREFORE, WHEN THE TRANSACTIONS OF PURC HASE AND SALES ARE THROUGH STOCK EXCHANGE AND PAYMENT OF PURCHASE CONSIDERATION AS W ELL AS RECEIPT OF SALE CONSIDERATION IS THROUGH BANKING CHANNEL AND DULY R ECORDED IN THE BOOKS OF ACCOUNTS, THEN THE TRANSACTIONS RECORDED IN THE SEP ARATE SLIPS WILL NOT CHANGE THE CHARACTER OF THE TRANSACTION AND THE INCOME FROM DI SCLOSED TO UNDISCLOSED. THE LD. A/R HAS POINTED OUT THAT THE ASSESSEE SUBMITTED ALL THE DOCUMENTS AND RECORDS PERTAINING TO PURCHASE AND SALE OF EQUITY SHARES OF LISTED COMPANIES THROUGH RECOGNIZED STOCK EXCHANGE. THE DOCUMENTS ALSO INCL UDE CONTRACT NOTES SHOWING PAYMENT OF STT, BILLS, DEPOSITORY STATEMENT, REGIST ERED STOCK BROKERS LEDGER ACCOUNT AND BANK STATEMENT EVIDENCING THE PAYMENT OF PURCHA SE CONSIDERATION AS WELL AS THE RECEIPT OF THE SALE CONSIDERATION THROUGH PROPE R BANKING CHANNEL. ALL THESE DOCUMENTS DULY SUBSTANTIATED THE GENUINENESS OF THE LTCG EARNED DURING THE YEAR UNDER CONSIDERATION AND THE DOCUMENTS PRODUCED BY T HE ASSESSEE WERE NOT EITHER DETECTED OR CONTROVERTED BY THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, DURING THE COURSE OF SEARCH AND SEIZURE OP ERATION, NO INCRIMINATING MATERIAL, EVIDENCE OR DOCUMENT WHATSOEVER WAS FOUND BUT ONLY THE CALCULATION OF LTCG RECORDED IN THE SEPARATE SLIPS CANNOT BE SAID TO BE INCRIMINATING MATERIAL WHEN ALL THESE TRANSACTIONS ARE DULY RECORDED IN THE BOO KS OF ACCOUNT. THE LD. A/R HAS FURTHER SUBMITTED THAT THE LEVY OF PENALTY UNDER SE CTION 271AAB(1) OF THE ACT IS NOT AUTOMATIC BUT THE AO HAS TO TAKE A DECISION BY CONS IDERING ALL THE CONDITIONS TO BE SATISFIED AS PROVIDED UNDER THE SAID SECTION. SINC E THE DISCLOSURE AND SURRENDER OF THE AMOUNT DOES NOT FALL IN THE DEFINITION OF UNDIS CLOSED INCOME, THEREFORE, THE PENALTY UNDER SECTION 271AAB IS NOT LEVIABLE IN THE CASE OF THE ASSESSEE MERELY 6 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. BECAUSE THE ASSESSEE HAS DECLARED AND SURRENDERED S OME INCOME TO TAX. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL DATED 24 TH JULY, 2018 IN CASE OF SHRI DINESH KUMAR AGARWAL VS . ACIT IN ITA NO. 855 & 856/JP/2017 AS WELL AS DECISION DATED 13. 06.2018 IN CASE OF SHRI RAVI MATHUR VS. DCIT IN ITA NO. 969/JP/2017 AND SUBMITTE D THAT THE TRIBUNAL HAS HELD THAT THE PENALTY UNDER SECTION 271AAB IS NOT AUTOMA TIC BUT THE AO HAS TO ISSUE A SHOW CAUSE NOTICE AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE AND, THEREAFTER TAKE A DECISION TO IMPOSE THE PENALTY. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FOR NOT FULFILLING THE CONDITIONS AS PRESCRIBED UNDER SECTION 271AAB OF THE IT ACT IS REQUIRED TO BE CONS IDERED BY THE AO WHILE PASSING THE PENALTY ORDER. THE PENALTY UNDER SECTION 271AA B IS NOT CONSEQUENTIAL TO THE ASSESSMENT OR SURRENDER OF INCOME DURING THE COURSE OF SEARCH BUT THE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANATION AND REPLY OF THE ASSESSEE HAS TO TAKE A DECISION. THE LD. A/R HAS CONTENDED THAT IT IS SETTLED LAW THAT PENALTY SHOUL D NOT BE IMPOSED UNLESS THE CASE FALLS UNDER THE FOUR CORNERS OF LAW MANDATING THE P ENALTY. THE LD. A/R HAS REFERRED TO THE DEFINITION OF UNDISCLOSED INCOME AS PROVIDED IN THE EXPLANATION TO SECTION 271AAB AND SUBMITTED THAT THE MERE SURRENDER OF INC OME WOULD NOT AUTOMATICALLY BECOME UNDISCLOSED INCOME BUT THE AO HAS TO TAKE A DECISION AS PER THE DEFINITION GIVEN IN THE EXPLANATION TO SECTION 271AAB. IN THE CASE OF THE ASSESSEE, WHEN THE SURRENDER IS NOT FALLING UNDER THE CATEGORY OF UNDI SCLOSED INCOME AS PRESCRIBED UNDER SECTION 271AAB AS THE ASSESSEE HAS ALREADY RE CORDED THESE TRANSACTIONS IN THE BOOKS OF ACCOUNT AND ALSO FURNISHED THE SUPPORT ING DOCUMENTS TO PROVE THE GENUINENESS OF THE TRANSACTION OF PURCHASE AND SALE OF THE SHARES OF LISTED 7 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. COMPANIES ON THE STOCK EXCHANGE THROUGH REGISTERED BROKERS, THEREFORE, WHILE PASSING THE PENALTY ORDER THE AO HAS TO DECIDE WHET HER THE SURRENDER MADE BY THE ASSESSEE IS COVERED UNDER THE DEFINITION OF UNDISCL OSED INCOME FOR THE PURPOSE OF SECTION 271AAB. THE AO HAS IMPOSED THE PENALTY BAS ED ON THE STATEMENT RECORDED DURING THE SEARCH WHEREAS THE INCOME SURRENDERED BY THE ASSESSEE IS NOT COVERED UNDER THE DEFINITION OF UNDISCLOSED INCOME PROVIDED UNDER SECTION 271AAB OF THE ACT. THE LD. A/R HAS ASSERTED THAT THE REVENUE AUT HORITIES HAVE EXAGGERATED UNDUE PRESSURE AND OBTAINED SURRENDER FROM THE ASSESSEE A ND THIS FACT IS MANIFEST FROM ALL THE SUPPORTING DOCUMENTS PRODUCED BY THE ASSESSEE A S WELL AS THE TRANSACTIONS WERE RECORDED IN THE BOOKS OF ACCOUNT AND THE SHARE S HELD BY THE ASSESSEE WERE REFLECTED IN THE BALANCE SHEET AS ON 31 ST MARCH, 2014. THUS THE LD. A/R HAS SUBMITTED THAT THE MERE STATEMENT RECORDED UNDER SE CTION 132(4) DOES NOT BY ITSELF CONSTITUTE INCRIMINATING MATERIAL AS HELD BY THE HO NBLE DELHI HIGH COURT IN CASE OF CIT VS. HARJEEV AGGARWAL, 290 CTR 263 (DELHI) AS WE LL AS IN CASE OF PR. CIT VS. BEST INFRASTRUCTURE (INDIA) PVT. LTD., 397 ITR 82 (DELHI ). THE LD. A/R HAS ALSO REFERRED TO A SERIES OF DECISIONS ON THE POINT THAT THE PENALTY UNDER SECTION 271AAB CANNOT BE IMPOSED MERELY ON THE SURRENDER MADE UNDER SECTION 132(4) IN THE ABSENCE OF ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. HE HAS REFERRED TO THE VARIOUS DOCUMENTS PRODUCED BY THE ASSESSEE BEFORE THE AO AN D SUBMITTED THAT THE AO HAS NOT POINTED OUT ANY DEFECT OR GIVEN THE FINDING THA T THE DOCUMENTS PRODUCED BY THE ASSESSEE ARE NOT GENUINE, THEN TREATING THE SURREND ER MADE BY THE ASSESSEE ON ACCOUNT OF LTCG AS UNDISCLOSED INCOME AND LEVYING T HE PENALTY UNDER SECTION 271AAB IS NOT SUSTAINABLE IN LAW. 8 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 3. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T IT WAS A CASE OF BOGUS CLAIM OF LTCG EXEMPT UNDER SECTION 10(38) OF THE IT ACT. HOWEVER, DURING THE COURSE OF SEARCH AND SEIZURE ACTION IT WAS FOUND TH AT THE CLAIM WAS BOGUS AND CONSEQUENTLY THE ASSESSEE DECLARED THE INCOME AND S URRENDERED TO TAX. THEREFORE, BOGUS CLAIM WAS DETECTED ONLY DURING THE COURSE OF SEARCH AND SEIZURE ACTION WHICH WAS ADMITTED BY THE ASSESSEE IN THE STATEMENT RECOR DED UNDER SECTION 132(4). THE DISCLOSURE OF UNDISCLOSED INCOME IS IN REFERENCE TO THE SEIZED MATERIAL WHICH WAS FOUND DURING THE COURSE OF SEARCH. ONCE THE ASSESS EE HAS SURRENDERED THE UNDISCLOSED INCOME BASED ON THE INCRIMINATING MATER IAL FOUND AND SEIZED DURING THE SEARCH, THEN THE SAID INCOME WAS RIGHTLY TREATED BY THE AO AS UNDISCLOSED INCOME IN TERMS OF PROVISIONS OF SECTION 271AAB OF THE ACT. FURTHER, THE ASSESSEE HAS NOT SUBSTANTIATED THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED DURING THE STATEMENT UNDER SECTION 132(4) OR DURING THE ASSESS MENT OR PENALTY PROCEEDINGS. THEREFORE, THE PENALTY @ 30% IS LEVIABLE IN THE CAS E OF THE ASSESSEE WHEN THE ASSESSEE FAILED TO SATISFY THE CONDITION (A)(II) OF SECTION 271AAB(1) OF THE IT ACT. THE LD. CIT (A) HAS COMMITTED AN ERROR WHILE RESTRI CTING THE PENALTY TO 10% FROM 30% OF THE SURRENDERED INCOME LEVIED BY THE AO. HE HAS RELIED UPON THE PENALTY ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE AO HAS LEVIED THE PENALTY UNDER SECTIO N 271AAB OF THE ACT IN RESPECT OF THE INCOME SURRENDERED BY THE ASSESSEE ON ACCOUNT O F LTCG FROM PURCHASE AND SALE OF EQUITY SHARES. THE QUESTION ARISES WHETHER THE SURRENDER MADE BY THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 132(4) WILL BE REGARDED AS UNDISCLOSED 9 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. INCOME WITHOUT TESTING THE SAME WITH THE DEFINITION AS PROVIDED UNDER CLAUSE (C) OF EXPLANATION TO SECTION 271AAB OF THE ACT. THERE IS NO DISPUTE THAT IN THE STATEMENT RECORDED UNDER SECTION 132(4) THE ASSESSEE HAS DISC LOSED THE INCOME UNDER CONSIDERATION AS UNDISCLOSED INCOME ON ACCOUNT OF L TCG. HOWEVER, FOR THE PURPOSE OF LEVYING THE PENALTY UNDER SECTION 271AAB, THE PR IMARY CONDITION IS THAT THE ASSESSEE SHALL PAY THE PENALTY EQUIVALENT TO 10%, 2 0% OR 30% OF UNDISCLOSED INCOME OF SPECIFIED PREVIOUS YEAR DEPENDING UPON TH E SATISFACTION OF THE CONDITION AS PROVIDED UNDER SECTION 271AAB. THE TERM UNDISC LOSED INCOME HAS BEEN DEFINED IN THE EXPLANATION TO SECTION 271AAB AND, T HEREFORE, THE PENALTY UNDER THE SAID PROVISION HAS TO BE LEVIED ONLY WHEN THE INCOM E SURRENDERED BY THE ASSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCOME AS DEFINED UNDER THIS SECTION. THE MERE DISCLOSURE OF INCOME IN THE STATEMENT RECORDED UNDE R SECTION 132(4) WOULD NOT IPSO FACTO BE REGARDED AS UNDISCLOSED INCOME UNLESS AND UNTIL IT IS TESTED AS PER THE DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 2 71AAB OF THE ACT. IN THE CASE IN HAND, THERE IS NO DISPUTE THAT THE ASSESSEE HAS DUL Y RECORDED THE TRANSACTION OF PURCHASE AND SALE OF EQUITY SHARES OF THE LISTED CO MPANIES IN THE BOOKS OF ACCOUNT WHICH HAS YIELDED THE CAPITAL GAIN IN QUESTION OF R S. 10,87,91,302/-. THE ASSESSEE HAS ALSO SHOWN THESE SHARES IN THE BALANCE SHEET AS ON 31 ST MARCH, 2014 AND THE AO HAS NOT DOUBTED OR DISTURBED THE HOLDING OF SHAR ES BY THE ASSESSEE ON THE DATE OF BALANCE SHEET ENDED ON 31 ST MARCH, 2014. ONCE THE TRANSACTIONS ARE DULY RECORDED IN THE BOOKS OF ACCOUNT, THEN THE DOCUMENT S IN THE SHAPE OF SLIPS CONTAINING THE DETAILS OF LTCG FOUND DURING THE SEA RCH WOULD NOT AMOUNT TO INCRIMINATING MATERIAL DISCLOSING ANY UNDISCLOSED I NCOME. THE DEFINITION OF 10 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. UNDISCLOSED INCOME AS PER CLAUSE (C) OF EXPLANATION TO SECTION 271AAB READS AS UNDER :- (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 VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 , WHICH HAS (A) NOT BEEN RECORDED ON OR BE FORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE 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 RECORD ED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE REL ATING 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 LEVY OF PENALTY UNDER SECTION 271AAB DOES NOT D EPENDENT ON THE ADDITION MADE DURING THE ASSESSMENT PROCEEDINGS BUT THE CONDITION S PROVIDED UNDER SECTION 271AAB ARE PRECEDENT FOR LEVY OF PENALTY. THE ASSE SSMENT ORDER IS RELEVANT ONLY FOR THE PURPOSE OF LIMITATION PROVIDED UNDER SECTION 27 5 OF THE IT ACT WHEREAS THE PENALTY UNDER SECTION 271AAB HAS TO BE IMPOSED ONLY WHEN THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCO ME AS DEFINED UNDER SECTION 271AAB OF THE ACT. THE DEFINITION OF UNDISCLOSED I NCOME CONTEMPLATES VARIOUS FORMS AND THE PRIMARY CONDITION IS THAT THE INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED BY ANY MONEY, BULLION, JEWELLERY OR OTH ER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND DURING THE COURSE OF SEARCH WHICH HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE 11 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN T HE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR. IN THE CASE IN HAND, SINCE THE SURRENDER WAS MADE IN RESPECT OF THE LTCG RECORDED IN THE SEIZED MATERIAL, THEREFORE , IT IS BASED ON THE ENTRIES IN THE OTHER DOCUMENTS FOUND DURING THE COURSE OF SEARCH. THE INCOME IN THE SHAPE OF ENTRIES IN OTHER DOCUMENTS FOUND DURING THE COURSE OF SEARCH WOULD BE CONSIDERED AS UNDISCLOSED INCOME IF THE SAID INCOME HAS NOT BE EN RECORDED IN THE BOOKS OF ACCOUNT ON OR BEFORE THE DATE OF SEARCH. IN THE CA SE IN HAND, IT IS UNDISPUTED FACT THAT ALL THE TRANSACTIONS OF PURCHASE AND SALE AND LTCG ARISING FROM THE SALE OF EQUITY SHARES OF THE LISTED COMPANIES ARE DULY RECO RDED IN THE BOOKS OF ACCOUNT. THEREFORE, IT IS NOT THE CASE OF ANY INCOME OF THE SPECIFIED YEAR REPRESENTING THE ENTRY IN THE OTHER DOCUMENTS WHICH HAS NOT BEEN REC ORDED IN THE BOOKS OF ACCOUNT ON THE DATE OF SEARCH. THEREFORE, THE PRIMARY CO NDITION OF UNDISCLOSED INCOME THAT THE INCOME REPRESENTED BY THE ENTRY IN THE OTHER RE CORD IS NOT RECORDED IN THE BOOKS OF ACCOUNT ON THE DATE OF SEARCH IS NOT SATISFIED. THE DEFINITION OF UNDISCLOSED INCOME IS SUBJECTED TO TWO CONDITIONS THAT THE SAI D INCOME HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACC OUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PR EVIOUS YEAR. THE SECOND CONDITION IS NOT RELEVANT FOR OUR PURPOSE SINCE THE SE ENTRIES ARE UNDISPUTEDLY DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE FURTHER NOTE THAT THE SEIZED MATERIAL DOES NOT REVEAL THE NATURE OF TRANSACTION BEING GENUINE OR BOGUS BUT THE ENTRY IN THE SEIZED MATERIAL IS ONLY THE COMPUTATIO N OF LONG TERM CAPITAL GAIN ON SALE OF SHARES. THEREFORE, THE DOCUMENTS WHICH WERE FOU ND AND SEIZED DURING THE COURSE OF SEARCH AND SEIZURE ACTION CONTAINS THE DE TAILS OF LTCG WOULD NOT BE REGARDED AS INCRIMINATING MATERIAL DISCLOSING ANY I NCOME NOT RECORDED IN THE BOOKS 12 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. OF ACCOUNT. HENCE THE PRIMARY CONDITION FOR TREATIN G SUCH INCOME AS UNDISCLOSED INCOME IN TERMS OF SECTION 271AAB IS NOT SATISFIED. APART FROM THE FACT THAT THESE TRANSACTIONS WERE DULY RECORDED IN THE BOOKS OF ACC OUNT, THE ASSESSEE HAS ALSO PRODUCED RELEVANT DOCUMENTS, THE DETAILS OF WHICH A RE AS UNDER :- (A) IN RELATION TO SHARES PURCHASE : SUMMARY OF SHARES PURCHASED DURING THE FY 2012 - 13 (PAGE NO. 89 OF PAPER BOOK) COPY OF SHARE CERTIFICATE IN SUPPORT OF SHARE PURCHASED (PAGE NO. 90 OF PAPER BOOK. COPY OF RELEVANT PAGE OF BANK STATEMENT SHOWING THE PAYMENT MADE AGAINST PURCHASES OF SHARES (PAGE NO. 91 OF PAPER BOOK) ACKNOWLEDGEMENT OF ITR FILED ON 27.09.2013 U/S 139(1) OF INCOME TAX ACT, 1961 ALONG WITH COMPUTATION SHEET OF TOTAL INCOME O F THE A.Y. 2013-14 (PAGE NOS. 92-94 OF PAPER BOOK). ACKNOWLEDGEMENT OF ITR FILED ON 0 1 .0 2 .2016 U/S 153A OF INCOME TAX ACT, 1961 ALONG WITH COMPUTATION SHEET OF TOTAL INCOME O F THE A.Y. 2013-14. (PAGE NOS. 95-98 OF PAPER BOOK) COPY OF BALANCE SHEET AND CAPITAL ACCOUNT OF ASSESS MENT YEAR 2013 - 14. (PAGE NO. 99-99A OF PAPER BOOK) COPY OF ASSESSMENT ORDER DATED 28.12.2017 U/S 143(3 ) R.W.S. 153A PASSED BY DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCL E KOTA (RAJ.) FOR THE ASSESSMENT YEAR 2013-14 (PAGE NOS. 100-106 OF PAPER BOOK). COPY OF LEDGER A/C OF FOLLOWING SHARES BROKERS FROM THE BOOKS OF ACCOUNT OF ASSESSEE DEPICTING THE DETAILS OF EQUITY SHARES PUR CHASED BY THE ASSESSEE ARE ENCLOSED. (PAGE NO. 107-108 OF PAPER BOOK) RELIGARE SECURITIES LIMITED SURESH RATHI SECURITIES PRIVATE LIMITED (B) IN RELATION TO SHARES SALES: SUMMARY OF SHARES SALE DURING THE YEAR UNDER CONSID ERATION (PAGE NO. 1 09 OF PAPER BOOK) COPY OF SALES BILLS/CONTRACT NOTES OF SHARES (PAGE NOS. 11 0 - 152 OF PAPER BOOK) COPY OF LEDGER ACCOUNT OF ASSESSEE IN BOOKS OF ACCO UNTS OF SHARE BROKERS THROUGH WHOM THE SHARES WERE SOLD (PAGE NOS. 153-15 6 OF PAPER BOOK) COPY OF RELEVANT PAGE OF BANK STATEMENT SHOWING THE ENTRY OF PAYMENT RECEIVED AGAINST SALES OF SHARES (PAGE NOS.157-164 OF PAPER BOOK) (C) DEMAT ACCOUNT STATEMENT OF FOLLOWING SHARES BROKERS IN RESPECT OF SALES & PURCHASE OF SHARES (PAGE NOS. 16 5-167 OF PAPER BOOK) : 13 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. ARIHANT CAPITAL MARKETS LIMITED SURESH RATHI SECURITIES PRIVATE LIMITED HEM SECURITIES LIMITED THUS, THE PURCHASE BILL FOR THE PURCHASE OF SHARES ALONG WITH LEDGER ACCOUNT IN THE BOOKS OF THE SHARE BROKER CLEARLY REVEAL THE DATE O F PURCHASE AND ALSO PAYMENT OF PURCHASE CONSIDERATION THROUGH BANKING CHANNEL AS R EFLECTED IN THE BANK ACCOUNT STATEMENT OF THE ASSESSEE. ALL THE ABOVE MENTIONED DOCUMENTS ARE INDEPENDENTLY VERIFIABLE EVIDENCE WITHOUT HAVING ANY CONTROL OR I NFLUENCE OF THE ASSESSEE EXCEPT THE BOOKS OF ACCOUNT OF THE ASSESSEE WHICH WERE NOT DISPUTED BY THE AO. FURTHER, THE REVENUE HAS NOT DISPUTED THE CORRECTNESS OF THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE BUT THE AO HAS PROCEEDED ON THE ASSUM PTION THAT THE INCOME DISCLOSED BY THE ASSESSEE UNDER SECTION 132(4) IS UNDISCLOSED INCOME FOR THE PURPOSE OF SECTION 271AAB OF THE ACT. THE AO WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 153A FOR THE ASSESSMENT YEAR 2014-15 HAS NOT DISTURBED THE HOLDING OF THE SHARES SHOWN IN THE BALANCE SHEET AS ON 31 ST MARCH, 2014. THESE TRANSACTIONS WERE ALSO CARRIED OUT FROM THE CAPITAL ACCOUNT OF THE ASSESSEE WHICH WAS ALSO PART OF THE RECORD OF THE ASSESSMENT YEAR 2014-15. BUT THE AO HAS ACCEPTED ALL THESE DETAILS WITHOUT ANY ADVERSE FIND ING OR COMMENTS WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 153A OR THE ACT. THE ASSESSEE HAS ALSO PRODUCED SALE BILLS/CONTRACT NOTES REGARDING SALE O F SHARES, COPY OF LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF SHARE BROKER IN RESPEC T OF SALE TRANSACTIONS, BANK STATEMENT SHOWING RECEIPT OF SALE CONSIDERATION AND DEMAT ACCOUNT HAVING THE ENTRIES OF CREDIT OF SHARES AT THE TIME OF PURCHASE AND DEBIT OF SHARES AT THE TIME OF 14 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. SALE. THE EQUITY SHARES IN QUESTION ARE OF LISTED COMPANIES IN THE STOCK EXCHANGE AND WERE PURCHASED AND SOLD BY THE ASSESSEE THROUGH STOCK EXCHANGE. THEREFORE, THE TRANSACTIONS OF PURCHASE AND SALE ARE VERIFIABL E FROM THE INDEPENDENT SOURCE INCLUDING THE RECORD OF THE STOCK EXCHANGE WITHOUT HAVING ANY INFLUENCE OF THE ASSESSEE. HENCE THE DOCUMENT PRODUCED BY THE ASSES SEE IS THE EVIDENCE WHICH CANNOT BE MANIPULATED AND ALSO CAN BE VERIFIED FROM THE INDEPENDENT SOURCES. ONCE THE ASSESSEE HAS ESTABLISHED THE FACT THAT ALL THESE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNT AND ALSO PRODUCED, THE RELE VANT DOCUMENTARY EVIDENCE TO ESTABLISH THE GENUINENESS OF THE PURCHASE AND SALE OF SHARES THROUGH STOCK EXCHANGE, THEN THE MERE DISCLOSURE AND SURRENDER OF INCOME WOULD NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE AMOUNT SURRENDERED BY THE ASSESSEE IS UNDISCLOSED INCOME IN TERMS OF SECTION 271AAB OF THE ACT. FOR BRINGING THE INCOME SURRENDERED BY THE ASSESSEE IN THE FOLD OF UNDISCLOSED INCOME A S PER THE DEFINITION OF UNDISCLOSED INCOME IN EXPLANATION TO SECTION 271A AB, THE SAID INCOME MUST REPRESENT EITHER ANY MONEY, BULLION, JEWELLERY OR O THER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S BUT HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNT AS ON THE DATE OF SEARCH. THE REFORE, THE PRIMARY CONDITION FOR TREATING AN INCOME AS UNDISCLOSED INCOME IS THAT IT SHOULD REPRESENT INTER ALIA ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS FO UND DURING THE SEARCH BUT THE SAID INCOME IS NOT RECORDED IN THE BOOKS OF ACCOUNT . IN THE CASE IN HAND, THE DOCUMENT FOUND DURING THE SEARCH IS NOT AN INCRIMIN ATING MATERIAL WHEN THE ENTRY AND THE INCOME WERE DULY RECORDED IN THE BOOKS OF A CCOUNT. THEREFORE, THE STATEMENT OF THE ASSESSEE RECORDED UNDER SECTION 13 2(4) WOULD NOT CONSTITUTE INCRIMINATING MATERIAL. THEREFORE, THE SAID INCOME DISCLOSED BY THE ASSESSEE CANNOT 15 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. BE CONSIDERED AS UNDISCLOSED INCOME IN TERMS OF SEC TION 271AAB OF THE ACT. THIS TRIBUNAL IN THE CASE OF RAVI MATHUR VS. DCIT (SUPRA ) WHILE CONSIDERING AN ISSUE OF LEVY OF PENALTY UNDER SECTION 271AAB HAS HELD IN PA RA 4 TO 9 AS UNDER :- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. A SEARCH WAS CONDUCTED UNDER SECTION 13 2 OF THE IT ACT ON 30 TH OCTOBER, 2014 AT THE PREMISES OF THE ASSESSEE. THE ASSESSEE IN HIS STATEMENT RECORDED UNDER SECTION 132(4) HAS DISCLOS ED AN INCOME OF RS. 10,02,00,000/- IN PURSUANT TO THE ENTRIES OF ADVANC ES GIVEN FOR PURCHASE OF LAND RECORDED IN THE POCKET DIARY WHICH WAS FOUND A ND SEIZED DURING THE COURSE OF SEARCH AND SEIZURE ACTION. THIS IS YEAR O F 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 I N THE DIARY REGARDING INVESTMENT IN REAL ESTATE. THE DUE DATE OF FILING O F RETURN OF INCOME UNDER SECTION 139(1) WAS 30 TH SEPTEMBER, 2015. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS AN INDIVIDUAL AND WAS NOT MAINTAINING R EGULAR BOOKS OF ACCOUNT. THEREFORE, THE TRANSACTIONS RECORDED IN THE POCKET DIARY FOUND DURING THE COURSE OF SEARCH ITSELF WOULD NOT LEAD TO THE PRESU MPTION THAT THE ASSESSEE WOULD NOT HAVE OFFERED THIS INCOME TO TAX IF THE SE ARCH IS NOT CONDUCTED ON 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF DO NO NOT REPRESENT THE INCOME OF THE ASSESSEE DURING THE YEAR UNDER CO NSIDERATION THOUGH THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOURCE OF INVE STMENT IN QUESTION AND THAT SOURCE WOULD BE THE INCOME OF THE ASSESSEE. I T IS MOST LIKELY THAT THE INVESTMENT IN QUESTION WAS MADE FROM THE UNACCOUNTE D INCOME OF PRECEDING YEARS. HENCE THE INVESTMENT IN THE REAL ESTATE ITSE LF WOULD NOT REVEAL THE NATURE OF INCOME AND THE SOURCE OF INCOME OF THE YE AR UNDER CONSIDERATION. IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS O F SECTION 271AAB THAT THE ASSESSEE ADMITTED THE UNDISCLOSED INCOME IN THE STA TEMENT UNDER SECTION 132(4). THE DEFINITION OF UNDISCLOSED INCOME IS PROVIDED IN SECTION 271AAB ITSELF AND, THEREFORE, THE AO IN THE PROCEEDINGS UN DER SECTION 271AAB HAS TO 16 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. EXAMINE ALL THE FACTS OF THE CASE AND THEN ARRIVE T O THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFIN ITION 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 AS SESSEE 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 271AAB 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 (SECOND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT 50 ], THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADD ITION 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 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 PREVIOUS 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 (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED 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 UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY TH E PROVISIONS OF CLAUSES (A) AND (B). 17 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 THIRTY PER CENT OF TH E 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 PREVIOUS 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; (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 IN THE BOO KS 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 18 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 RESPE CT OF AN EXPENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED.] THE SECTION BEGINS WITH THE STIPULATION THAT THE AO MAY DIRECT THE ASSESSEE SHALL PAY BY WAY OF PENALTY IF THE CONDITIONS AS PR ESCRIBED UNDER CLAUSES (A) TO (C) ARE SATISFIED. AS PER SUB-SECTION (3) OF SE CTION 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 IM POSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A SHOW CAUSE NOTIC E AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LE VY OF PENALTY U/S. 271AAB IS NOT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISIO N TO IMPOSE THE PENALTY 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 EXPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPLIANCE OF THE SAME IS DUE T O THE REASON BEYOND THE CONTROL OF THE ASSESSEE. THEREFORE, THE PENALTY U/S 271AAB IS NOT A CONSEQUENTIAL ACT BUT THE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANA TION AND REPLY OF THE ASSESSEE HAS TO TAKE A DECISION. THIS REQUIREMENT OF GIVING AN OPPORTUNITY OF HEARING ITSELF MAKES IT CLEAR THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT THE AO HAS TO TAKE A DECISION BASED ON THE FACTS AN D CIRCUMSTANCES OF THE CASE OTHERWISE THERE IS NO REQUIREMENT OF ISSUING A NY NOTICE FOR INITIATION OF PROCEEDINGS BUT THE LEVY OF PENALTY WOULD BE CONSEQ UENTIAL 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 QUANTU M OF PENALTY LEVIABLE U/S 271AAB IS ALSO SUBJECT TO THE CONDITION PRESCRIBED UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) AND THE AO HAS TO AGAIN GIVE A FIND ING FOR LEVY OF PENALTY @ 19 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME. THUS THE AO IS BOUND TO TAKE 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) WOUL D NOT IPSO FACTO PAR TAKE THE CHARACTER OF UNDISCLOSED INCOME BUT THE FACTS O F EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS TO ATTRACT TH E PROVISIONS OF SECTION 271AAB OF THE ACT. SINCE IT IS NOT AUTOMATIC BUT T HE AO HAS TO GIVE A FINDING THAT THE CASE OF THE ASSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATION TO THE SAID SECTION. THEREF ORE, THE PROVISIONS OF SECTION 271AAB STIPULATE THAT THE AO MAY COME TO TH E CONCLUSION THAT THE ASSESSEE SHALL PAY THE PENALTY. THE ONLY MANDATORY ASPECT IN THE PROVISION IS THE QUANTUM OF PENALTY AS SPECIFIED UNDER CLAUSES ( A) TO (C) OF SEC. 271AAB(1) OF THE ACT AS 10% TO 30% OR MORE AS AGAIN ST THE DISCRETION GIVEN TO THE AO AS PER THE PROVISIONS OF SECTION 271(1)(C ) OF THE ACT 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 UND ER SECTION 271AAB AND THEN ONLY THE QUANTUM OF PENALTY BEING 10% OR 20% OR 30% HAS TO BE DETERMINED SUBJECT TO THE EXPLANATION OF THE ASSESSEE FOR THE DEFAULTS. 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 HONBLE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AAB ON ACCOUNT OF MENTIONIN G WRONG PROVISION OF THE ACT BEING 271(1)(C) OF THE ACT. THE HONBLE HIGH C OURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO TH OUGH MENTIONS SECTION 271(1) IN THE CAPTION OF THE SAID NOTICE, HOWEVER, THE BODY OF THE SHOW CAUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS F ULLY COMPREHENDED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSES SEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HAS HEL D AS UNDER :- 20 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTIO N OF THE NOTICE MENTIONED ONLY SECTION 271 AND NOT 271AAB. IN 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 SECTIO N OF PENALTY HAS NOT BEEN CORRECTLY MENTIONED BY THE AO IN THE CAPTION. HOWEVER, THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE INCOME TAX ACT, 1961 BECAUSE FIRSTLY, THE ASSESSEE HAS RAISED NO OBJECTI ON BEFORE THE AO IN THIS REGARD. SECONDLY, LAST LINE OF THE NOTICE CLEA RLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REPLY TO SA ID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED THE IMPL ICATION 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 SUBMISSION S 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 O PPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALTY ORDER THAT TH E AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE AS SESSEE. THEREFORE, IN MY OPINION, PRINCIPLE OF NATURAL JUSTICE 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 UND ER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF THE SAME. THE SAID DECIS ION WILL NOT HELP THE CASE OF THE REVENUE SO FAR AS THE ISSUE INVOLVES THE MERITS OF LEVY OF PENALTY UNDER SECTION 271AAB. AS REGARDS THE DECISION OF KOLKATA BENCHES OF THE TRIBUNAL IN THE CASE OF DCIT VS. AMIT AGARWAL (SUPRA), WE FI ND THAT THE SAID DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRE SH ORDER DATED 14 TH MARCH, 2018 WAS PASSED BY THE TRIBUNAL IN FAVOUR OF THE AS SESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. D/R IS NO MORE IN E XISTENCE. 21 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 6. THE QUESTION WHETHER LEVY OF PENALTY UNDER SECTI ON 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSIDERED B Y THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACIT VS. M/S. MAR VEL 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 BELOW. D URING 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 WHERE SEARCH HA S BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHAL L 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 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 22 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. (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 SPECIFIED PRE VIOUS 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 UNDISCL OSED INCOME REFERRED TO IN SUB-SECTION (1). 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 P ERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TAX LEVI ABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UND ISCLOSED 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; (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 23 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 PENALTY. SIM ILAR 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 INTENTION TO CO NSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROCEDURE FO R 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 HE ARD. THEREFORE, FROM PLAIN READING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE 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 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. 24 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETION TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION OF THE AO. HENCE WE FOR TIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL AS SOCIATES. 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 SPECIFIED BY THE AO IN THE SHOW CAUSE NOTICE AND FURTHER THE AO IS REQUIRED TO GIVE A FINDING WHILE IMPOSING THE PENALTY UNDER SECTION 271AAB. EVEN IF THE AO IS SATISFIED AND CO ME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCO ME IN THE BOOKS OF ACCOUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINT AINED IN NORMAL COURSE RELATING TO SPECIFIED PREVIOUS YEAR, THE SHOW CAUSE NOTICE SHALL ALSO SPECIFY THE DEFAULT COMMITTED BY THE ASSESSEE TO ATTRACT 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 CHARGE AGA INST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UNDER SECTION 271A AB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVEN AN OPPORTU NITY TO EXPLAIN HIS CASE FOR SPECIFIC DEFAULT ATTRACTING THE 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 VS. SHRI R. ELANGOVAN (SUPRA) AT PAGES 7 TO 10 HAS HELD AS UNDER :- 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, APP LY. 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 HE ARING. OPPORTUNITY THAT IS TO BE GIVEN TO THE ASSESSEE SHOULD BE A MEANINGFUL ONE AN D NOT A FARCE. NOTICE ISSUED TO THE ASSESSEE REPRODUCED (SUPRA), DOES NOT SHOW WHET HER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME OR FOR HAVING UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 271AAB OF 25 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. THE ACT. NOTICE IN OUR OPINION WAS VAGUE. HONBLE K ARNATAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA) RELYING IN ITS OWN JUDGMENT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAD H ELD 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 SECTION 274 R EAD WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO BE BA D IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY P ROCEEDINGS HAD BEEN INITIATED I.E., WHETHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THI S COURT RENDERED IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 35 9 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 SUBSTANTIAL QUESTI ON OF LAW ARISES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE APPEAL IS ACCORDIN GLY 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 26 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 E MERALD MEADOWS (SUPRA), SPECIFICALLY OBSERVING THAT THERE WAS NO MERITS IN THE PETITION FILED BY THE REVENUE. CONSIDERING THE ABOVE CITED JUDGMENTS, WE HOLD THAT THE NOTICE ISSUED U/S.274 R.W.S. 271AAB OF THE ACT, REPRODUCED BY US AT PARA 5 ABOVE WAS NOT VALID. EX-CONSEQUENTI, THE PENALTY ORDER 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 INFRUCTUOUS. 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. 8. EVEN OTHERWISE, WITHOUT RESTRICTING OURSELVES TO THE VALIDITY OF SHOW CAUSE NOTICE, WE NOTE THAT SECTION 271AAB OF THE AC T CONTEMPLATES IMPOSITION OF PENALTY PURSUANT TO THE DISCLOSURE OF UNDISCLOSE D INCOME IN THE STATEMENT RECORDED UNDER SECTION 132(4) AND, THEREFORE, THE L EVY OF PENALTY UNDER THIS SECTION DOES NOT DEPEND ON THE ADDITION MADE DURING THE ASSESSMENT PROCEEDINGS. HENCE THE PENALTY PROCEEDINGS UNDER SE CTION 271AAB ARE COMPLETELY INDEPENDENT OF THE ENQUIRY AND FINDING O F THE AO IN THE 27 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. ASSESSMENT ORDER EXCEPT FOR THE LIMITATION PROVIDED AS PER SECTION 275 OF THE ACT. WE HAVE ALREADY HELD THAT THE PENALTY IS NOT AUTOMATIC BUT THE AO HAS TO TAKE A DECISION TO IMPOSE THE PENALTY AFTER GIVI NG AN OPPORTUNITY OF HEARING TO THE ASSESSEE IN TERMS OF SECTION 274 OF THE ACT. THUS THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB OF THE ACT HAS TO FIRST DECIDE THAT THE CONDITIONS PRESCRIBED UNDER THE SAID SECTION ARE SA TISFIED FOR LEVY OF PENALTY AND THEN TO FURTHER TAKE A DECISION AFTER CONSIDERI NG THE EXPLANATION OF THE ASSESSEE FOR NON COMPLIANCE OF ANY OF THE CONDITION S UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) REGARDING THE QUANTUM OF PENALTY . THE PRIMARY CONDITION FOR LEVY OF PENALTY IS THE EXISTENCE OF UNDISCLOSED INCOME AS PER THE DISCLOSURE MADE BY THE ASSESSEE UNDER SECTION 132(4 ). THE TERM UNDISCLOSED INCOME HAS BEEN DEFINED IN EXPLANATIONS TO SECTION 271AAB. THEREFORE, AS PER THE DEFINITION PROVIDED IN THE EXPLANATION, THE UNDISCLOSED INCOME MAY HAVE VARIOUS FORMS AND THE SAME IS NOT RECORDED IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN NORMAL COURSE RELATIN G TO THE SPECIFIED PREVIOUS YEAR. AS PER SUB-CLAUSE (I) OF CLAUSE (C) OF THE EXPLANATION , THE UNDISCLOSED INCOME MEANS ANY INCOME OF THE SPEC IFIED PREVIOUS YEAR REPRESENTED BY ANY MONEY, BULLION, JEWELLERY OR VAL UABLE ARTICLE OR THINGS OR ANY ENTRY IN BOOKS OF ACCOUNTS OR OTHER DOCUMENTS O R TRANSACTIONS FOUND IN THE COURSE OF SEARCH. THIS DEFINITION IS FURTHER S UBJECT TO TWO CONDITIONS THAT THE SAID INCOME HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR OR OTHERWISE NOT BEI NG DISCLOSED TO THE PRINCIPAL CHIEF COMMISSIONER, PRINCIPAL COMMISSIONER OR COMMI SSIONER BEFORE THE DATE OF SEARCH. THE OTHER FORMS OF UNDISCLOSED INCOME A S DEFINED IN SUB CLAUSE (II) IS ANY ENTRY IN RESPECT OF EXPENSES RECORDED IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE. THEREFO RE, THE CLAUSE (II) CONTEMPLATES UNDISCLOSED INCOME IN THE FORM OF FALS E ENTRIES OF EXPENSES RECORDED IN THE BOOKS OF ACCOUNTS WHICH IS NOT RELE VANT FOR THE CASE IN HAND. SINCE IN THE CASE OF ASSESSEE THE TRANSACTIONS OF I NVESTMENT WERE FOUND IN THE DIARY, THEREFORE, WHETHER THESE ENTRIE S IN THE DIARY CONSTITUTE 28 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. UNDISCLOSED INCOME AS PER CLAUSE (C)(I) OF EXPLANAT ION TO SECTION 271AAB OF THE ACT. THE ASSESSEE IS AN INDIVIDUAL AND FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT REPORTED ANY BUSINESS INCOME N OR IT WAS ASSESSED BY THE AO. THEREFORE, IT IS CLEAR THAT THE ASSESSEE W AS NOT REQUIRED BY ANY MANDATE OF LAW TO MAINTAIN REGULAR BOOKS OF ACCOUNT S. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE RETURNE D INCOME WAS ACCEPTED BY THE AO WHILE FRAMING THE ASSESSMENT UNDER SECTIO N 143(3) AND HENCE ASSESSEES CASE DOES NOT FALL IN THE CATEGORY WHERE THE REGULAR BOOKS OF ACCOUNTS ARE MANDATORY. THE ENTRIES OF INVESTMENT IN REAL ESTATE WERE FOUND RECORDED IN THE DIARY AND IN THE ABSENCE OF ANY OTH ER DOCUMENT MAINTAINED IN THE NORMAL COURSE RELATING TO THE YEAR UNDER CONSID ERATION, THE ENTRIES IN THE DIARY ARE TO BE CONSIDERED AS RECORDED IN THE DOCUM ENTS MAINTAINED IN THE NORMAL COURSE. IT IS NOT THE CASE OF THE REVENUE T HAT THE ASSESSEE HAS RECORDED THE OTHER TRANSACTIONS IN THE OTHER DOCUME NTS MAINTAINED IN THE REGULAR COURSE RELATING TO THE YEAR UNDER CONSIDERA TION AND ONLY THESE ENTRIES ARE RECORDED IN THE DIARY. SINCE THE LEVY OF PENAL TY UNDER SECTION 271AAB IS NOT BASED ON THE ADDITION AND ENQUIRY CONDUCTED BY THE AO IN THE ASSESSMENT PROCEEDINGS, THEREFORE, IT IS INCUMBENT ON THE AO TO CONDUCT A PROPER EXAMINATION OF FACTS, CIRCUMSTANCES AND EXPL ANATION FURNISHED BY THE ASSESSEE BEFORE ARRIVING TO THE CONCLUSION THAT PEN ALTY UNDER SECTION 271AAB IS LEVIABLE AND FURTHER WHETHER IT IS 10% OR 20% OR 30% OF SUCH UNDISCLOSED INCOME. THEREFORE, THE AO IS UNDER STATUTORY OBLIG ATION TO EXAMINE ALL THE ISSUES DURING THE PROCEEDINGS UNDER SECTION 271AAB AFTER GIVING THE ASSESSEE AN OPPORTUNITY TO EXPLAIN THE CHARGES/GROUNDS ON WH ICH THE PENALTY IS PROPOSED TO BE LEVIED. HENCE IT IS A PRE-REQUISITE CONDITION THAT THE AO FIRST SPECIFY THE CHARGES AGAINST THE ASSESSEE AND TO MAK E KNOWN THE ASSESSEE OF HIS DEFAULT SO AS TO AFFORD AN OPPORTUNITY TO EXPLA IN THE DEFAULT/CHARGES SO BROUGHT AGAINST THE ASSESSEE. WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE ON THE SPECIFIC DEFAULT, THE ORDER PASSED BY THE AO UNDER SECTION 271AAB SUFFERS FROM SERIOUS ILLEGALITY AND THEREFOR E NOT SUSTAINABLE IN LAW. 29 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. WHEN A STRINGENT ACTION IS PROVIDED IN THE STATUTE AGAINST THE DEFAULT COMMITTED BY THE ASSESSEE, THEN IT ALSO CAST AN EQU ALLY STRINGENT AND STRICT DUTY ON THE AUTHORITY RESPONSIBLE TO TAKE SUCH ACTI ON. THEREFORE, WHEN THE PROVISIONS FOR LEVY OF PENALTY UNDER SECTION 271AAB IS A SPECIFIC PROVISION TO DEAL WITH THE UNDISCLOSED INCOME AND IT PROVIDES A STRICT PENAL ACTION THEN THE CORRESPONDING DUTY OF THE TAX AUTHORITY IS ALSO EQU ALLY STRINGENT. THE AO CANNOT ESCAPE FROM FOLLOWING THE STRICT MANDATORY R EQUIREMENT OF LAW AND PARTICULARLY THE PRINCIPLE OF NATURAL JUSTICE. THE AO HAS NEITHER SPECIFIED THE GROUNDS AND CLAUSE OF SECTION 271AAB NOR HAS DEALT WITH THE SAME IN THE IMPUGNED ORDER PASSED UNDER SECTION 271AAB. THE AO HAS ALSO NOT GIVEN A FINDING THAT THE CASE OF THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME PROVIDED UNDER CLAUSE (C)(I) OF EXPLANATION TO SECTION 271AAB. WHEN THE TRANSACTIONS OF INVESTMENT IN REAL ESTATE ARE R ECORDED IN THE DIARY BEING OTHER DOCUMENTS MAINTAINED BY THE ASSESSEE FOR THE SAID PURPOSE, THEN IN THE ABSENCE OF ANY REQUIREMENT OF MAINTAINING REGULAR B OOKS OF ACCOUNTS BY THE ASSESSEE, THE CASE OF THE ASSESSEE WOULD NOT FALL I N THE DEFINITION OF UNDISCLOSED INCOME AS PER CLAUSE (C) OF EXPLANATION TO SECTION 271AAB OF THE ACT. 9. THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. MADAN LAL BESWAL (SUPRA) HAS CONSIDERED THIS ISSUE OF THE ALL EGED INCOME FOUND RECORDED IN THE OTHER DOCUMENTS WOULD FALL IN THE D EFINITION OF UNDISCLOSED INCOME IN PARA 3 AND 4 AS UNDER :- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ISS UE INVOLVED HEREIN IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E IN THE CASE OF DCIT VS MANISH AGARWALA (ANOTHER MEMBER IN THE SAME NEZONE GROUP) IN ITA NO. 1479/KOL/2015 FOR AY 2013-14 DATE D 9.2.2018 BY THE ORDER OF THIS TRIBUNAL , WHEREIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO HAS LEVIED THE PENALTY U/S. 271AAB ON THE GROUND THAT THE INCOME FROM COMMODITY PROFIT HAS BEEN FOUND DURING SEARCH U/S.132 OF THE ACT WHICH IS NOT REFLE CTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO HAS ACCEPTED THAT DURING SEARCH THE ASSESSEE HAS ADMITTED 30 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. U/S. 132(4) OF THE ACT THE INCOME FROM SPECULATIVE TRADING. THE UNDISPUTED FACTS THE AO HAS GIVEN FINDING PERTAINING TO THIS C ASE IS AS FOLLOWS: I) THE ASSESSEE HAS SUBSTANTIATED THE MANNER IN WHI CH THE INCOME WAS DERIVED. II) FURNISHED THE RETURN OF INCOME THEREIN AND III) PAID THE TAX ALONG WITH INTEREST. BASED ON THE SAID FINDING, ACCORDING TO AO, THE ASS ESSEE SATISFIES THE CONDITIONS ENUMERATED IN SEC. 271AAB(I)(A) OF THE A CT AND THEREAFTER LEVIED TEN PERCENT OF RS.3 CR., WHICH HAVE BEEN DELETED BY THE IMPUGNED ORDER OF LD. CIT(A). 4. THE LD. DR BROUGHT TO OUR NOTICE THAT IN THE VE RY SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIRMED T HE LEVY OF PENALTY AND CONTENDED BEFORE US THAT PENALTY U/S. 271AAB OF THE ACT IS MANDATORY AND THEREFORE, ACCORDING TO LD. DR, THE LD. CIT(A) ERRE D IN DELETING THE PENALTY BY STATING THAT THE ASSESSEE DID NOT HAD ANY MENS REA NOT TO DISCLOSE THE AMOUNT IN QUESTION. ACCORDING TO HIM, PENALTY HAS T O BE MANDATORILY LEVIED U/S. 271AAB OF THE ACT ON THE UNDISCLOSED INCOME FO UND DURING SEARCH. ON THE OTHER HAND, LD. AR SHRI MIRAZ D. SHAH, SUPPO RTING THE DECISION OF LD. CIT(A) MADE CONTENTIONS THOUGH TAKEN UP BEFORE THE LD. CIT(A) BUT HAS NOT BEEN ADJUDICATED ON THOSE AVERMENTS, WHICH THE LD. AR URGES BEFORE US TO CONSIDER WHILE ADJUDICATING THE APPEAL OF THE REVENUE. THE LD. AR ALSO POINTED OUT THAT THE CONTENTIONS WHICH HE IS GOING TO RAISE HAS BEEN TAKEN UP BEFORE THE AO ALSO, HOWEVER, ACCORDIN G TO LD. COUNSEL, THOSE LEGAL ARGUMENTS WERE NOT CONSIDERED BY THE AO IN THE RIGHT PERSPECTIVE. THE FIRST CONTENTION OF THE LD. AR IS THAT SINCE SEC. 271AAB OF THE ACT IS A PENALTY SECTION IT SHOULD BE CONSTR UED STRICTLY, WHICH WE AGREE BEING IT IS A TRITE LAW THAT PENALTY PROVISIO NS HAVE TO BE STRICTLY INTERPRETED. NEXT CONTENTION OF LD. AR IS THAT SEC. 271AAB OF THE ACT IS NOT MANDATORY BECAUSE PARLIAMENT IN ITS WISDOM HAS USED THE WORD MAY AND NOT SHALL. SO, ACCORDING TO HIM, IT IS THE DISCRE TION BESTOWED UPON THE AO WHETHER TO INITIATE AND IMPOSE PENALTY U/S. 271AAB OF THE ACT. WE AGREE WITH THE SAID CONTENTION OF LD. AR BECAUSE WHEN A S IMILAR ISSUE WAS ADJUDICATED BY ITAT LUCKNOW (THE AUTHOR OF THIS ORD ER WAS A MEMBER OF THE BENCH) IN SANDEEP CHANDAK & ORS. VS. CIT (2017) 55 ITR (TRIB) 209 AND 2017 (5) TMI 675- ITAT-LUCKNOW IN ITA NO. 416, 417 AND 418/LKW/2016 DATED 30.01.2017 WHILE ADJUDICATING A CASE WHERE PENALTY WAS LEVIED UNDER SECTION 271AAB OF THE ACT IT WAS H ELD THAT THE PROVISIONS OF SEC. 271AAB OF THE ACT ARE NOT MANDATORY, WHICH MEANS THAT PENALTY NEED NOT BE LEVIED IN EACH AND EVERY CASE WHEREVER THE ASSESSEE HAS MADE DEFAULT AS STATED IN CLAUSES (A), (B) AND (C) OF THE ACT. SUB-SECTION (1) OF SEC. 271AAB OF THE ACT USES THE WORD MAY N OT SHALL. MAY CANNOT BE EQUATED WITH SHALL ESPECIALLY IN PENALT Y PROCEEDING. USING THE WORD MAY IN OUR OPINION, GIVES A DISCRETION TO TH E AO TO LEVY THE PENALTY OR NOT TO LEVY, EVEN IF THE ASSESSEE HAS MADE THE D EFAULT UNDER THE SAID PROVISION. THEREFORE, THE 2 ND GROUND OF REVENUE FAILS AND WE HOLD THAT PENALTY U/S. 271AAB OF THE ACT IS NOT MANDATORY AND IS DISCRETIONARY. BEFORE PROCEEDING FURTHER, WE NOTE THAT THE EX PART E ORDER PASSED BY THE COORDINATE BENCH RELIED UPON BY LD. DR, MANOJ BESWA L, SUPRA, HAVE 31 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. BEEN RECALLED IN MA NOS. 218 TO 220/KOL/2017 DATED 12.01.2018 BY OBSERVING AS UNDER: BY VIRTUE OF THESE MISCELLANEOUS APPLICATIONS, THE ASSESSEE SEEKS TO RECALL THE ORDER PASSED BY THIS TRIBUNAL IN I.T. A. NOS. 1471, 1475&1476/KOL/2015 IN THE HANDS OF AMIT AGARWAL, MA DAN LAL BESWAL AND MANOJ BESWAL RESPECTIVELY FOR THE ASSESS MENT YEAR 2013-14 ON THE GROUND THAT NOTICE WAS NOT SERVED ON THE ASSESSEE FOR THE HEARING AND ON CERTAIN FACTUAL ERROR THAT H AD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECT ION RAISED BY THE LD. AR WAS THAT THE NOTICE OF HEARING WAS NOT SERVE D ON THE ASSESSEE FOR THE HEARING SCHEDULED ON 06.11.2017 AN D HENCE, THE ASSESSEE COULD NOT BE PRESENT ON THE SAID DATE BY W AY OF PERSONAL APPEARANCE. THE SECOND OBJECTION RAISED BY THE LD. AR WAS THAT THE TRIBUNAL HAD STATED IN PARA 9 OF ITS ORDER THAT THE ASSESSEE HIMSELF HAD ACCEPTED THAT HE IS ENGAGED IN COMMODIT IES TRADING BUSINESS AND THEREFORE MANDATED TO MAINTAIN BOOKS O F ACCOUNTS IN TERMS OF SECTION 44AA OF THE ACT AND THEREBY INFERR ING THAT THE ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES T RADING BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR PR OFESSION. BASED ON THIS CRUCIAL FINDING, THE TRIBUNAL HAD CON CLUDED THAT SINCE THE TRANSACTION OF COMMODITIES TRADING HAD NOT BEEN ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH ON 01.08.2012 AND THEREBY IT TAKES THE CHARACTER OF UN DISCLOSED INCOME FOR WHICH PENALTY U/S 271AAB OF THE ACT IS E XIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR DREW OUR ATTENTION TO THE COMPUTATION OF THE TOTAL INCOME WHEREIN THE ASSESSE E HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD I NCOME FROM OTHER SOURCES. WE ALSO FIND THAT THE LD. AO HAD ALS O SPECIFICALLY STATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COL UMN NO. 10 THAT THE ASSESSEE IS HAVING ONLY SALARY INCOME AND INCOM E FROM OTHER SOURCES. WE FIND THAT DUE TO THE ABSENCE OF THE ASS ESSEE AT THE TIME OF HEARING THIS PARTICULAR FACT HAD ESCAPED TH E ATTENTION OF THE TRIBUNAL. ON PERUSAL OF THE FACT AVAILABLE ON RECOR D, WE FIND THAT THE FINDING RECORDED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 THAT THE ASSESSEE IS MANDATED TO MAINTAI N BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS FACTUALLY INCORRECT AND DESERVES TO BE RECTIFIED. THIS MISTAKE OF PRIMARY FACT HAD LEAD TO A CONCLUSION OF UPHOLDING THE LEVY OF PENALTY U/S 271AAB OF THE ACT . HENCE, IN THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE AF ORESAID MISTAKE OF PRIMARY FACT RIGHTLY POINTED OUT BY THE LD. AR , WE DEEM IT FIT TO RECALL THE ORDERS OF THIS TRIBUNAL DATED 10.11.2017 IN THE CASE OF AFORESAID ASSESSEES. IN THE AFORESAID SCENARIO, THE LEGAL POSITION IS TH AT AN ORDER WHICH HAS BEEN RECALLED FOR DE NOVO ADJUDICATION, IS NO ORDER IN THE EYES OF LAW AND SO IT CANNOT BE TREATED AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD. DR IN RESPECT OF ASSESSEES IN THE SAME GROUP C ONCERN CASES AS DECIDED BY THE TRIBUNAL NO LONGER SURVIVES AND CANN OT BE TREATED AS COVERED AGAINST THE ASSESSEE. 32 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 5. THE THIRD CONTENTION OF THE LD. AR IS THAT THE ASSESSEE IS AN INDIVIDUAL, WHO WAS DRAWING SALARY INCOME. SO, ACCO RDING TO HIM, HE NEED NOT MAINTAIN ANY BOOKS OF ACCOUNT AS PER THE ACT. A CCORDING TO LD. AR, UNDISPUTEDLY THE ASSESSEE WAS ENGAGED FOR THE FIRST TIME THIS AY ONLY IN TRADING OF COMMODITIES, THAT TOO WHICH WAS CONDUCTE D IN A NON- SYSTEMATIC MANNER AND THE INCOME FROM IT WAS DULY O FFERED TO TAX BY THE ASSESSEE IN HIS RETURN OF INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES, WHICH, ACCORDING TO LD. AR WAS ACCEPTED A S SUCH BY THE AO AND DREW OUR ATTENTION TO PAGE ONE OF ASSESSMENT OR DER, (NOT THE PENALTY ORDER) WHEREIN WE NOTE THAT THE AO HAS ACKNOWLEDGED THAT THE ASSESSEE OWNED UP RS. 3 CR. AS HIS INCOME FROM COMMODITY PRO FIT AND IT HAS BEEN DISCLOSED IN HIS INCOME AND EXPENDITURE FOR AY 2013 -14 UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF CO MMODITIES, AND THEREAFTER THE AO CONFIRMED THE ASSESSEES CLAIM AN D THEREAFTER TOTAL INCOME WAS ASSESSED BY THE AO AS PER THE RETURN SUB MITTED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS DISCE RNED FROM ASSESSMENT ORDER, THE ASSESSEES CASE IS THAT FOR THE FIRST TI ME IN THIS AY HE WAS DOING UNSYSTEMATIC SPECULATIVE ACTIVITY WHICH EARNED INCO ME AND, IT WAS BROUGHT UNDER THE HEAD INCOME FROM OTHER SOURCES, AND SO, ACCORDINGLY, HE IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT AS STIPUL ATED IN SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT BECAUSE, THESE PROVISIO NS ARE ONLY FOR ASSESSES WHO ARE EARNING INCOME UNDER THE HEAD BUS INESS OR PROFESSION. WE NOTE THAT SEC. 44AA OR SEC. 44AA(2) (II) OF THE ACT CASTS A DUTY UPON THE ASSESSEE WHO ARE INTO BUSINESS OR PR OFESSION AND SUCH ASSESSEES ARE BOUND TO MAINTAIN BOOKS OF ACCOUNT A S STIPULATED THEREIN. FOR APPRECIATING THIS SUBMISSION LET US GO THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICA L, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROF ESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR ANY OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFICIAL GAZETTE SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND O THER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF T HIS ACT. (2) EVERY PERSON CARRYING ON BUSINESS OR PROFESSION [NOT BEIN G A PROFESSION REFERRED TO IN SUBSECTION (1)] SHALL, (I) IF HIS INCOME FROM BUSINESS OR PROFESSION EXCE EDS [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVE R OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFES SION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THREE Y EARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR; OR (II) WHERE THE BUSINESS OR PROFESSION IS NEWLY SET UP IN ANY PREVIOUS YEAR, IF HIS INCOME FROM BUSINESS OR PROFESSION IS LIKELY TO EXCEED [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALE S, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION ARE OR IS LIKELY TO EXCEED [TEN LAKH] RUPEES, [DURING S UCH PREVIOUS YEAR; OR 33 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. (III) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER [SECTIO N 44AE] [OR SECTION 44BB OR SECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CLAIMED HIS INCOME TO BE LOWER THAN TH E PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS, AS THE CASE MAY BE, DURING SUCH [PREVIOUS YEAR; OR]] (IV) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER SECTION 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFIT S AND GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME- TAX DURING SUCH PREVIOUS YEAR,] KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER D OCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. (3) THE BOARD MAY, HAVING REGARD TO THE NATURE OF THE BUSINESS OR PROFESSION CARRIED ON BY ANY CLASS OF PERSONS, PRESCRIBE, BY R ULES, THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INVENTORIES, WHEREVER NECESSARY) TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2), THE PARTICULARS TO BE CONTAINED THEREIN AND THE FORM AN D THE MANNER IN WHICH AND THE PLACE AT WHICH THEY SHALL BE KEPT AND MAINT AINED. (4) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (3), THE BOARD MAY PRESCRIBE, BY RULES, THE PERIOD FOR WHICH THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SUB-SECTI ON (1) OR SUB-SECTION (2) SHALL BE RETAINED.] SO FROM A READING OF THE ABOVE PROVISIONS WHICH CLE ARLY STIPULATES THAT ASSESSEE WHO ARE CARRYING ON BUSINESS OR PROFESSION SHALL KE EP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH MAY ENABLE THE AO TO COMPUTE THE TOTAL INCOME. WE NOTE THAT ASSESSEE IN THE STATEMENT OF T OTAL INCOME FILED BEFORE THE AO HAS SHOWN INCOME ONLY UNDER TWO HEADS (I) SALARY INCOME (II) INCOME FROM OTHER SOURCES. WE WOULD LIKE TO REPRODUCE THE SUMMA RY OF TOTAL INCOME OF THE ASSESSEE FILED ALONG WITH THE RETURN: INCOME FROM SALARY RS. 45,57,600 INCOME FROM OTHER SOURCES RS.3,00,24,047 RS.3,45,81,647 6. WE NOTE THAT THE AO HAS ACCEPTED THE AFORESAID STATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING THE CLAIM OF TH E ASSESSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCOME OTHER THAN FROM SALARY S HOULD BE FROM INCOME FROM BUSINESS. THE CONFUSION THAT HAS ARISEN IN THIS CA SE, WE NOTE IS ON THE MISDIRECTION OF AO IN THE ASSESSMENT PROCEEDINGS WH EREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE AO HAS OBSERVED DURING SEARCH AND SEIZURE OPERATION, SHRI MANOJ BESWAL HAD MADE A CONSOLIDATED DISCLOSURE OF RS.32 CRORE VIDE HIS DISCLOSURE PETITION. OUT OF THIS CONSOLIDATED DISCL OSURE, THE ASSESSEE OWNED UP RS. 3 CR. IN THE DISCLOSURE PETITION SHRI MANOJ BES WAL IT WAS STATED THAT THE SOURCE 34 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. OF SUCH UNDISCLOSED INCOME WAS OUT OF COMMODITY PRO FIT. IT HAS BEEN SUBMITTED THAT THE AMOUNT HAS ALREADY BEEN DISCLOSED IN HIS I NCOME & EXPENDITURE ACCOUNT FOR THE AY 2013-14 UNDER THE HEAD INCOME OUT OF SP ECULATIVE BUSINESS FROM SALE OF COMMODITIES. VERIFICATION OF ACCOUNTS CONF IRMS HIS CLAIM. THIS OBSERVATION IS FLAWED BECAUSE, WE NOTE THAT AO GOT CARRIED AWAY BY PERUSAL OF THE INCOME & EXPENDITURE ACCOUNT FOR AY 2013-14 S UBMITTED BY THE ASSESSEE BEFORE HIM, WHEREIN IT WAS SHOWN IN THE INCOME SIDE THAT IS RIGHT HAND COLUMN AS INCOME FROM SPECULATIVE BUSINESS FROM SALE OF COMM ODITIES AND LEFT HAND SIDE COLUMN REFLECTS THE EXPENDITURE; AND AO CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCLOSED UNDER THE HEADING INCOME OUT OF SPECU LATIVE BUSINESS FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HEA D UNDER WHICH IT HAS TO BE TAXED IS NOT BASED ON THE NOMENCLATURE OF RECEIPT O F INCOME SHOWN IN INCOME & EXPENDITURE ACCOUNT. ALL THE INCOMES OF REVENUE NAT URE WILL BE POSTED IN THE RIGHT HAND SIDE COLUMN OF INCOME IN THE INCOME & EXPEND ITURE ACCOUNT AND THE DESCRIPTION GIVEN THEREIN CANNOT DETERMINE THE HEAD OF INCOME PRESCRIBED UNDER CHAPTER IV OF THE ACT. THEREFORE, THE OBSERVATION O F THE AO IN ASSESSMENT ORDER IN THE LIGHT OF HIS ACTION OF ACCEPTING THE STATEME NT OF TOTAL INCOME FILED BY THE ASSESSEE ALONG WITH RETURN WHICH WITHOUT BEING CONT ESTED, IS ERRONEOUS, UNLESS THE AO WAS ABLE TO NEGATE THE CLAIM OF THE ASSESSEE BY BRINGING THE INCOME FROM COMMODITY TRANSACTIONS AS PART OF BUSINESS INCOME. IT SHOULD BE REMEMBERED THAT UNDER THE INCOME TAX ACT 1961, THE TOTAL INCOM E OF AN ASSESSEE INDIVIDUAL /COMPANY IS CHARGEABLE TO TAX U/S. 4 OF THE ACT. TH E TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. SECTION 14 OF THE ACT LAYS DOWN THAT FOR THE PURPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS TO BE CLASSIFIED UNDER FIVE HEADS. IT IS POSSIBLE FOR AN ASSESSEE/INDIVIDUAL/COMPANY TO HAVE FIVE DIFFERENT SOURCES OF INCOME, EACH ONE OF IT WILL BE CHARGEABLE TO INCOME TAX ACT. PROFITS AND GAINS OF BUSINESS OR PROFESSIO N IS ONLY ONE OF THE HEADS UNDER WHICH AN ASSESSEES INCOME IS LIABLE TO BE AS SESSED TO TAX. IF AN ASSESSEE HAS NOT COMMENCED BUSINESS THERE CANNOT BE ANY QUES TION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT MEAN T HAT UNTIL AND UNLESS THE ASSESSEE COMMENCES ITS BUSINESS, ITS INCOME FROM AN Y OTHER SOURCE WILL NOT BE TAXED AS HELD BY THE HONBLE SUPREME COURT IN THE C ASE OF TUTICORIN ALKALI & CHEMICALS LTD. VS. CIT (1997) 227 ITR 172 (SC). IT HAS BEEN FURTHER HELD THAT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTION FROM THAT RECEIPT IS PRINCIPLES O F LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. FURTHER, THE HONBLE APEX COU RT HELD THAT THE QUESTION AS TO WHETHER A PRINCIPAL RECEIPT IS OF THE NATURE OF INCOME AND FALLS WITHIN THE CHARGE OF SEC. 4 OF THE ACT IS A QUESTION OF LAW WH ICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND INTERPRETATION OF THE TERM INCOME GIVEN IN A LARGE NUMBER OF DECISIONS OF TH E HONBLE SUPREME COURT, HIGH COURT AND PRIVY COUNCIL. AFTER TAKING NOTE OF THE A PEX COURT ORDER AS ABOVE, WE NOTE THAT THE AO IN THE ASSESSMENT ORDER AFTER HAVI NG ACCEPTED THE STATEMENT OF TOTAL INCOME (SUPRA) AND THE RETURN WHEREIN THE ASS ESSEE HAS SHOWN THE INCOME FROM COMMODITIES UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER PERUSAL OF INCOME & EXPENDITURE ACCOUNT DETERMINE THE CHARACTER OF TRANSACTION IN THE PENALTY PROCEEDINGS AS INCOME F ROM BUSINESS OR PROFESSION WHICH APPROACH/ACTION IS ERRONEOUS. WE NOTE THAT TH E ASSESSEE IN HIS STATEMENT OF TOTAL INCOME ALONG WITH RETURN HAS CLASSIFIED HI S INCOME UNDER TWO HEADS (I) SALARY AND (II) FROM OTHER SOURCES AND THE INCOME O F RS. 3 CR. AS INCOME FROM OTHER SOURCES, WHICH WE FIND THE AO HAS NOT CONTEST ED IN THE ASSESSMENT ORDER, HAS THUS CRYSTALLIZED AND THE NECESSARY INFERENCE D RAWN IS THAT ASSESSEE AN 35 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. INDIVIDUAL WHO WAS ADMITTEDLY A SALARIED PERSON ENG AGED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION (THAT TOO FOR THE FIRST TIME) IN AN ACTIVITY FROM WHICH HE DERIVED INCOME FROM OTHE R SOURCES ARE NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT WHICH ARE APPLICABLE O NLY IF THE ASSESSEE WAS ENGAGED IN BUSINESS OR PROFESSION. HOWEVER, WE FURT HER NOTE THAT THE TRANSACTIONS WHICH YIELDED INCOME, THE ASSESSEE HAD IN FACT MAINTAINED RECORDS FROM WHICH THE AO WAS ABLE TO DEDUCE THE TRUE INCOM E AND EXPENDITURE OF THE ASSESSEE. WE NOTE THE AO IN THE ASSESSMENT ORDER HA S ACCEPTED THE RETURNED INCOME COMPRISING OF INCOME FROM SALARY AND INCOME FROM OTHER SOURCES BY OBSERVING AS UNDER : TOTAL INCOME ASSESSED AS PER RETURN RS.3,44,65,120 /-. AND FURTHER WE NOTE THAT THE AO HAD SPECIFICALLY ST ATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESS EE IS HAVING ONLY SALARY INCOME AND INCOME FROM OTHER SOURCES. THUS FROM A P ERUSAL OF THE ASSESSMENT ORDER, IT IS NOT IN DISPUTE THAT ASSESSEE IS NOT EN GAGED IN ANY BUSINESS. AND THE AO CANNOT CHANGE THE CHARACTER OF INCOME IN A DERIV ATIVE PROCEEDING WHICH IS AN OFF-SHOOT OF ASSESSMENT PROCEEDINGS I.E. THE PENALT Y PROCEEDINGS WITHOUT CONTESTING AND MAKING A FINDING AGAINST THE CLAIM O F THE ASSESSEE IN THE ASSESSMENT ORDER AS DISCUSSED ABOVE. 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE S EARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TRANSACTIONS IN SPECULATIVE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE AO COULD COMPUTE THE INCOME OF THE ASSESSEE FROM THE SAID TRANSACTION WH ICH AMOUNT ASSESSEE DECLARED DURING SEARCH AND WHICH WAS DULY RETURNED AND WHICH FIGURE WAS ACCEPTED BY THE AO. ACCORDING TO LD. AR, THE FACT T HAT SEARCH HAPPENED ON 01.08.2012 NEED TO BE TAKEN NOTE OF SINCE UNDISPUTE DLY THERE WAS ENOUGH AND MORE TIME FOR THE ASSESSEE TO SUBMIT THE ACCOUNTS D URING ASSESSMENT PROCEEDINGS WHICH FACT HAS BEEN TAKEN NOTE OF AND C ONCURRED BY THE LD. CIT(A). THEREAFTER, THE LD. AR DREW OUR ATTENTION TO THE DE FINITION OF UNDISCLOSED INCOME GIVEN UNDER SECTION 271AAB WHICH READS AS UNDER: PENALTY WHERE SEARCH HAS BEEN INITIATED. '271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTAN DING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ******** EXPLANATION FOR THE PURPOSES OF THIS SECTION, - (A) . 36 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. (B) . (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHE R VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OT HER 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 SEA RCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] C OMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXP ENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN T HE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FO UND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEE N CONDUCTED. ACCORDING TO THE LD. AR, FROM THE FACTS AND CIRCUMS TANCES DESCRIBED ABOVE, SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINES S OR PROFESSION, HE DOES NOT REQUIRE TO MAINTAIN THE BOOKS OF ACCOUNT A S PER SEC. 44AA OR SEC. 44AA(2) OF THE ACT, THEREFORE, THE ASSESSEES CASE FALLS IN THE SECOND LIMB I.E. OR OTHER DOCUMENTS AS STIPULATED U/S. 2 71AAB EXPLANATION (C) (SUPRA) WHICH DESCRIBES UNDISCLOSED INCOME FOR THE PURPOSES OF THIS SECTION WHICH IS VERY IMPORTANT TO ADJUDICATE THIS ISSUE. THEREFORE, THE QUESTION IS WHEN THE SEARCH TOOK PLACE, THE ASSESSE ES TRANSACTIONS (IN THIS CASE, THE SPECULATIVE TRANSACTION) HAS BEEN FO UND TO BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEVED FROM THE ASSESSEES ACCOUNTANTS DRAWER) AND BASED ON THAT THE ASSESSEE DECLARED RS. 3 CR. DURING SEARCH AND LATER RETURNED INCOME OF RS. 3 CR . AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH WAS ACCEPTED BY THE AO IN TOTO. WE NOTE THAT SINCE THE INCOME UNDER QUESTION (RS. 3 CR.) WAS IN FACT ENTERED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE AY 2013-14, WHICH DOCUMENT WAS RETRIEVED DUR ING SEARCH, HENCE, THE AMOUNT OF RS. 3 CR. OFFERED BY THE ASSESSEE DOE S NOT FALL IN THE KEN OF UNDISCLOSED INCOME DEFINED IN SEC. 271AAB OF THE ACT. SO, RS. 3 CR. WHICH WAS COMMODITY PROFIT RECORDED IN THE OTHER DO CUMENT MAINTAINED BY THE ASSESSEE WHICH WAS RETRIEVED DURING SEARCH CANN OT BE TERMED AS UNDISCLOSED INCOME IN THE DEFINITION GIVEN U/S. 2 71AAB OF THE ACT. SINCE RS. 3 CR. CANNOT BE TERMED AS UNDISCLOSED INCOME AS PER SEC. 271AAB OF THE ACT, NO PENALTY CAN BE LEVIED AGAINST THE AS SESSEE. THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE AFORESAID REASONING RENDERED BY US. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 37 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 4. WE FIND THAT THE FACTS IN THE AFORESAID CASE AN D THE DECISION RENDERED THEREON ARE SQUARELY APPLICABLE TO THE FAC TS OF THE INSTANT CASES BEFORE US AND RESPECTFULLY FOLLOWING THE SAME, WE D ISMISS THE APPEALS OF THE REVENUE. THEREFORE, WHEN THE ASSESSEE IS NOT REQUIRED TO MAI NTAIN THE BOOKS OF ACCOUNT AS PER SECTION 44AA, THEN THE MATTER IS REQ UIRED TO BE EXAMINED WHETHER THE ALLEGED UNDISCLOSED INCOME IS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE AS PER CLAUSE (C) T O EXPLANATION TO SECTION 271AAB. UNDISPUTEDLY THE ALLEGED INCOME WAS FOU ND RECORDED IN THE DIARY WHICH IS NOTHING BUT THE OTHER RECORD MA INTAINED IN THE NORMAL COURSE, THUS THE SAME WOULD NOT FALL IN THE DEFINIT ION OF UNDISCLOSED INCOME. ONCE THE SAID INCOME IS FOUND AS RECORDED IN THE OT HER DOCUMENTS MAINTAINED IN THE NORMAL COURSE, THEN IT CANNOT BE PRESUMED THAT THE ASSESSEE WOULD NOT HAVE DISCLOSED THE SAME IN THE R ETURN OF INCOME TO BE FILED AFTER ABOUT ONE YEAR FROM THE DATE OF SEARCH. HENCE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL A S THE VARIOUS DECISIONS ON THIS POINT, WE HOLD THAT THE PENALTY LEVIED UNDER S ECTION 271AAB IS NOT SUSTAINABLE AND THE SAME IS DELETED. THUS THE TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT THE PENALTY UNDER SECTION 271AAB IS NOT AUTOMATIC BUT THE AO HAS TO TAKE A DE CISION AS PER THE PROVISIONS OF SECTION 271AAB AND PARTICULARLY IN THE LIGHT OF THE DEFINITION OF THE UNDISCLOSED INCOME AS PRESCRIBED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. WE FURTHER NOTE THAT THIS TRIBUNAL HAS CONSIDERED THIS ISSUE I N CASE OF SHRI RAJA RAM MAHESHWARI VS. DCIT VIDE ORDER DATED 10 TH JANUARY, 2019 IN ITA NO. 992/JP/2017 IN PARA 12 TO 14 AS UNDER :- 38 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 12. NOW, COMING TO ANOTHER CONTENTION OF THE LD A R WHERE HE HAS CHALLENGED THE FINDINGS OF THE LD. CIT(A) THAT PENA LTY U/S 271AAB IS MANDATORY IN NATURE AND THERE IS NO DISCRETION WITH THE INCOME TAX AUTHORITIES. IT WAS SUBMITTED BY THE LD AR THAT IN SECTION 271AAB, THE WORD MAY IS USED INSTEAD OF SHALL SO IT IS NOT MANDATORY BUT SAME IS DISCRETIONARY. IT WAS SUBMITTED THAT IT IS SETTLED POSITION OF LAW THAT PENALTIES ARE NOT COMPULSORY, NOT MANDATORY BUT ARE ALSO DISCRETIONARY CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE. IN SUPPORT, RELIANCE WAS PLACED ON PROVISIONS OF SECTI ON 158BFA(2) WHEREIN SIMILAR PHRASELOGY HAS BEEN USED BY THE LEG ISLATURE AND DECISION OF HONBLE A.P HIGH COURT IN CASE OF RADHA KRISHNA VIHAR (ITA NO. 740/2011). 13. IN THIS REGARD, WE REFER TO THE PROVISIONS OF S ECTION 271AAB WHICH BEGINS WITH THE STIPULATION THAT THE ASSESSIN G OFFICER MAY DIRECT THE ASSESSEE AND THE ASSESSEE SHALL PAY THE PENALTY AS PER CLAUSE (A) TO (C) SO SATISFIED IN SUB-SECTION (1) TO SECTION 2 71AAB. FURTHER, AS PER SUB-SECTION (3) OF SECTION 271AAB, THE PROVISIO NS OF SECTION 274 AND SECTION 275 AS FAR AS MAY BE APPLIED IN RELATIO N TO PENALTY UNDER THIS SECTION WHICH MEANS THAT BEFORE LEVYING THE PE NALTY, THE ASSESSING OFFICER HAS TO ISSUE A SHOW-CAUSE GRANTING AN OPPOR TUNITY TO THE ASSESSEE. THUS, THE LEVY OF PENALTY IS NOT AUTOMAT IC BUT THE ASSESSING OFFICER HAS TO DECIDE BASED ON FACTS AND CIRCUMSTAN CES OF THE CASE. SIMILAR VIEW HAS BEEN TAKEN BY THE VARIOUS CO-ORDIN ATE BENCHES AND USEFUL REFERENCE CAN BE DRAWN TO THE DECISION OF TH E CO-ORDINATE BENCH IN CASE OF ACIT VS MARVEL ASSOCIATES 92 TAXMANN.COM 109 WHEREIN IT WAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE APPEAL HEARING, THE L D. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENA LTY UNDER 39 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION OF INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FUR THER 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 ASSESSMENT AND ACCORDINGLY ARGUED THAT THE LE VY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT DISCRETIONARY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGIBLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTION 158BFA(2) OF THE ACT AND ARGUE D 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 PENALTY SECTION 271AAB OF THE ACT PENALTY IS NO T AUTOMATIC AND IT IS ON THE MERITS OF EACH CASE. FOR READY REF ERENCE, 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 ANYT HING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRE CT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) 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- SECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AN D SPECIFIES THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED. (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS 40 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 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, IN RE SPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER CENT 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 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 R ESPECT OF THE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): 41 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT T HAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TI MES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOM E DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC : PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MA DE IN RESPECT 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 PRECEDI NG 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. 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 I NDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE ACT, FORTIFIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: 42 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. 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 P ROCEDURE 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 REASONA BLE OPPORTUNITY OF BEING HEARD. THEREFORE, FROM PLAIN READING OF SECTION 271 AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS T HE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSEE, THE PENALTY CANNOT BE MANDAT ORY AND IT IS ON THE BASIS OF THE FACTS AND MERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT TO HEAR THE ASSESSEE AND TO GIVE REASONABLE OPP ORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPORTUNI TY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JU STICE. HON'BLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/20 11 WHILE 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 O F THE ACT THAT ARE ENTITLED TO BE MANDATORY, THE WORDS MAY DIRECT IN SUB SECTIO N 2 THERE OF INTENDED TO DIRECTORY'. IN OTHER WORDS, WHILE PAYMENT OF INTERE ST IS MANDATORY LEVY OF PENALTY IS DISCRETIONARY. IT IS TRITE POSITION OF L AW THAT DISCRETION IS VESTED AND AUTHORITY HAS TO BE EXERCISED IN A REASONABLE AND R ATIONAL MANNER DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSI TION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. A CCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE I MPOSED ON MERITS OF THE EACH CASE. 14. THEREFORE, WE AGREE WITH THE CONTENTIONS OF THE LD AR THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY. IN THE INSTANT CASE, IT THEREFORE NEEDS TO BE EXAMINED WHETHER THERE IS ANY BASIS FOR LEVY OF PENALTY 43 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA. OR NON-LEVY THEREOF AND THE SAME WILL DEPEND UPON T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHICH WE SHALL DI SCUSS IN SUBSEQUENT PARAGRAPHS. HENCE IN VIEW OF THE FACTS AND CIRCUMSTANCES AS DIS CUSSED IN DETAIL IN FOREGOING PARAS AS WELL AS FOLLOWING THE EARLIER DECISION OF THIS TRIBUNAL, WE HOLD THAT THE INCOME SURRENDERED BY THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 132(4) DOES NOT FALL IN THE AMBIT OF DEFINITION OF UNDISCL OSED INCOME AS CONTEMPLATED IN EXPLANATION TO SECTION 271AAB OF THE ACT. ACCORDIN GLY, THE PENALTY LEVIED BY THE AO AND SUSTAINED BY THE LD. CIT (A) IS NOT SUSTAINABLE AND THE SAME IS DELETED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 22/03/2 019. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 22/03/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI AJAY AGARWAL, KOTA. 2. THE RESPONDENT THE DCIT, CENTRAL CIRCLE, KOTA. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 1383 & 1443/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 44 ITA NOS. 1383 & 1443/JP/2018 SHRI AJAY AGARWAL, KOTA.