DCIT, CEN. CIR-2(2), KOLKATA, Kolkata V. Subhas Candra Agarwala & Sons, Guwahati

ITA 1470/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1495 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Business income; Search and seizure; Salary income; Transactions in derivatives; Source of fund; Question of law; Bonafide mistake
• Section: 44AD; 143(3); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & HONBLE S HRI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 1470/KOL/20 15 ASSESSMENT YEAR : 2013-1 4 DCIT, CC-2(2), KOLKATA -VS- SUBHAS CHAN DRA AGARWALA & SONS (HUF) [PAN: AAHHS 0407 G] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI G. HANGSHING, CIT FOR THE RESPONDENT : SHRI MIRAJ D. SHAH, AR DATE OF HEARING : 14.02.2018 DATE OF PRONOUNCEMENT : 19.02.2018 ORDER PER M.BALAGANESH, AM 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF LD. CIT(A)-20, KOLKATA DATED 14.09.2015 FOR AY 2013-14 BY WHICH HE DELETED THE PENALTY IMPOSED U/S. 271AAB OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT).. 2. BRIEFLY STATED FACTS ARE THAT THERE WAS A SEARCH AND SEIZURE OPERATION IN RESPECT OF NEZONE GROUP OF CASES ON 01.08.2012 AND ON SUBSEQUE NT DATES; AND THE ASSESSEE BEFORE US IS SRI SUBASH CHANDRA AGARWALS & SONS (HUF) IS B ELONGING TO THE SAID GROUP. IN THE PENALTY ORDER, THE LD AO NOTES THAT DURING THE COUR SE OF POST SEARCH OPERATION, THE ASSESSEE ADMITTED AN UNDISCLOSED INCOME OF RS.3,00, 00,000/- FOR THE ASST YEAR UNDER CONSIDERATION IN THE FORM OF COMMODITY PROFIT VIDE A CONSOLIDATED DISCLOSURE PETITION 2 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 2 FILED BY SHRI MANOJ BESWAL, CHAIRMAN OF NEZONE GROU P. FURTHER, THE LD AO ACKNOWLEDGES THAT THE ASSESSEE HAS FILED HIS RETURN OF INCOME FOR AY 2013-14 ON 30.09.2013 DECLARING A TOTAL INCOME OF RS.1,98,79,9 90/-. ACCORDING TO LD AO, ON VERIFICATION OF ACCOUNTS, HE NOTICED THAT THE ASSES SEE FOR THE RELEVANT YEAR DISCLOSED A SUM OF RS.2,00,00,000/- AND HAD SHOWN THE SAME UNDE R THE HEAD INCOME OUT OF SPECULATIVE TRANSACTIONS FROM SALE OF COMMODITIES. THEN THE LD AO NOTES THAT THE RETURN WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 29.08.2014 ON A TOTAL INCOME OF RS.1,98,79,990/- (O N THE SAME INCOME RETURNED BY THE ASSESSEE IN THE ROI) AND PENALTY PROCEEDINGS WERE I NITIATED U/S. 271AAB OF THE ACT ON THE AMOUNT DISCLOSED DURING SEARCH OF RS. 2 CR. AND AFTER SERVING THE PENALTY NOTICE U/S. 271AAB READ WITH SECTION 274 OF THE ACT ON THE ASSE SSEE ON 05.09.2014. IN RESPONSE, THE ASSESSEE SUBMITTED A WRITTEN SUBMISSION, WHICH WE NOTE HAS BEEN REPRODUCED BY THE LD AO IN THE ORDER PASSED U/S. 271AAB OF THE ACT DA TED 24.02.2015. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LD AO IMPOSED P ENALTY U/S. 271AAB(1)(A) OF THE ACT BY OBSERVING THAT THE ENTIRE UNDISCLOSED INCOME CAN ONLY BE TREATED AS ARISING OUT OF DOCUMENTS/TRANSACTIONS/EVIDENCE FOUND IN THE COURSE OF SEARCH U/S. 132 OF THE ACT AND THE SAME WAS NOT ENTERED IN THE BOOKS OF ACCOUNT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CITA, WHO DELETED THE PENALTY BY OBSERVING AS UNDER: 8. I HAVE CONSIDERED THE FINDING OF THE AO IN THE PENALTY ORDER AND THE WRITTEN SUBMISSION AS WELL AS ORAL SUBMISSION MADE BY THE A R DURING THE APPELLATE PROCEEDINGS. I FIND THAT THE AO HAS ARRIVED AT THE CONCLUSION THAT HAD THERE BEEN NO SEARCH OPERATION U/S. 132 OF THE I. T. ACT, 1961 , THE ASSESSEE WOULD NOT HAVE DISCLOSED INCOME WHICH WAS FOUND RECORDED ON PAPERS AND RELATED DOCUMENTS IN THE OFFICE PREMISES OF THE ASSESSEE (BUT NOT RECORD ED IN THE REGULAR BOOKS OF ACCOUNTS ON DAY TO DAY BASIS). THE AO HAS NOT BROU GHT ON RECORD ANYTHING TO PROVE THE INTENTION OF THE ASSESSEE TO DO SO. ON T HE OTHER HAND, THE AR HAS EMPHASIZED THAT KEEPING PAPERS/DOCUMENTS CONTAINING ASSESSEES INCOME IN THE SAFE CUSTODY IN THE OFFICE PREMISES SHOWS THAT THE ASSESSEE HAD NO INTENTION TO CONCEAL HIS INCOME. THE INCIDENCE OF NOT MAKING EN TRIES IN THE REGULAR BOOKS OF ACCOUNTS ON DAY TO DAY BASIS IS A BONAFIDE MISTAKE ON THE PART OF THE ACCOUNTANT FOR WHICH ASSESSEE COULD NOT BE PENALIZED. I THINK , THERE IS NO DOUBT THAT NOT MAKING ENTRIES IN THE REGULAR BOOKS OF ACCOUNTS OF THE INCOME EARNED BY THE 3 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 3 ASSESSEE, IS A MISTAKE ON THE PART OF THE ACCOUNTAN T . BUT FOR THIS, IMPOSITION OF THE PENALTY U/S. 271AAB OF THE I. T. ACT, 1961, (IN A SITUATION WHEN THERE WAS ENOUGH TIME LATE IN THE FY TO MAKE ENTRIES OF SUCH INCOME IN THE REGULAR BOOKS OF ACCOUNTS) IS NOT JUSTIFIED. IT IS SO, BECAUSE IT D OES NOT PROVE THE GUILTY MIND AND INTENTION TO CONCEAL THE INCOME ON THE PART OF THE ASSESSEE. IT ALSO DOES NOT PROVE THAT HAD THERE BEEN NO SEARCH OPERATION, THE ASSESS EE WOULD NOT HAVE DECLARED SUCH INCOME IN THE RETURN OF INCOME. ACCORDINGLY, ASSESSEES APPEAL ON GROUNDS NO. 1 AND 2 ARE ALLOWED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE LD AO HAS LEVIED THE PENALTY U/S. 271AAB ON THE GROUND THAT THE INCOME FROM COMMODITY PROFIT HAS BEEN FOUN D DURING SEARCH U/S. 132 OF THE ACT WHICH IS NOT REFLECTED IN THE REGULAR BOOKS OF ACCO UNT. THE LD AO HAS ACCEPTED THAT DURING SEARCH, THE ASSESSEE HAS ADMITTED U/S. 132( 4) OF THE ACT THE INCOME FROM SPECULATIVE TRADING. THE LD AO HAS GIVEN FINDING P ERTAINING TO THIS CASE IN THE FOLLOWING MANNER:- 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 LD AO, THE ASSESSEE SATISFIES THE CONDITIONS ENUMERATED IN SEC. 271AAB(I)(A) OF THE ACT AND THER EAFTER LEVIED TEN PERCENT OF RS.2 CR., WHICH HAVE BEEN DELETED BY THE IMPUGNED ORDER OF LD CITA. 4 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 4 4. THE LD DR BROUGHT TO OUR NOTICE THAT IN THE VERY SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIRMED THE LEVY O F PENALTY AND CONTENDED BEFORE US THAT PENALTY U/S. 271AAB OF THE ACT IS MANDATORY AN D THEREFORE, ACCORDING TO LD DR, THE LD CIT(A) ERRED 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 TO BE MANDATORILY LEVIED U/S. 271AAB OF THE ACT ON THE UN DISCLOSED INCOME FOUND DURING SEARCH. ON THE OTHER HAND, LD AR, SUPPORTING THE DE CISION OF LD CITA MADE CONTENTIONS THOUGH TAKEN UP BEFORE THE LD CITA BUT HAS NOT BEE N ADJUDICATED ON THOSE AVERMENTS, WHICH THE LD AR URGES BEFORE US TO CONSIDER WHILE A DJUDICATING THE APPEAL OF THE REVENUE. THE LD AR ALSO POINTED OUT THAT THE CONTE NTIONS WHICH HE IS GOING TO RAISE HAS BEEN TAKEN UP BEFORE THE LD AO ALSO, HOWEVER, ACCOR DING TO LD AR, THOSE LEGAL ARGUMENTS WERE NOT CONSIDERED BY THE LD AO IN THE R IGHT PERSPECTIVE. THE FIRST CONTENTION OF THE LD AR IS THAT SINCE SEC. 271AAB O F THE ACT IS A PENALTY SECTION IT SHOULD BE CONSTRUED STRICTLY, WHICH WE AGREE BEING IT IS A TRITE LAW THAT PENALTY PROVISIONS HAVE TO BE STRICTLY INTERPRETED. NEXT C ONTENTION OF LD AR IS THAT SEC. 271AAB OF THE ACT IS NOT MANDATORY BECAUSE PARLIAMENT IN I TS WISDOM HAS USED THE WORD MAY AND NOT SHALL. SO, ACCORDING TO HIM, IT IS THE D ISCRETION BESTOWED UPON THE LD 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 SIMILAR ISSUE WA S ADJUDICATED BY THE CO-ORDINATE BENCH OF LUCKNOW TRIBUNAL IN THE CASE OF SANDEEP CH ANDAK & 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 HELD THAT THE PROVISIONS OF SEC. 271AAB OF THE ACT ARE NOT MANDATORY, WHICH MEANS THAT PENALTY NEE D NOT BE LEVIED IN EACH AND EVERY CASE WHEREVER THE ASSESSEE HAS MADE DEFAULT AS STA TED IN CLAUSES (A), (B) AND (C) OF THE ACT. SUB-SECTION (1) OF SEC. 271AAB OF THE ACT USE S THE WORD MAY NOT SHALL. MAY CANNOT BE EQUATED WITH SHALL ESPECIALLY IN PENALTY PROCEEDING. USING THE WORD MAY IN OUR OPINION, GIVES A DISCRETION TO T HE AO TO LEVY THE PENALTY OR NOT TO 5 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 5 LEVY, EVEN IF THE ASSESSEE HAS MADE THE DEFAULT UND ER 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 PARTE ORDER PASSED BY THE COORDINATE BENCH RELIED UPON BY LD DR, IN THE CASE OF MANOJ BESWAL, SUPRA, HAVE 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, MADAN LAL BESWAL AND MANOJ B ESWAL RESPECTIVELY FOR THE ASSESSMENT YEAR 2013-14 ON THE GROUND THAT NOTI CE WAS NOT SERVED ON THE ASSESSEE FOR THE HEARING AND ON CERTAIN FACTUAL ERR OR THAT HAD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECTION RA ISED BY THE LD. AR WAS THAT THE NOTICE OF HEARING WAS NOT SERVED ON THE ASSESSEE FO R THE HEARING SCHEDULED ON 06.11.2017 AND HENCE, THE ASSESSEE COULD NOT BE PRE SENT ON THE SAID DATE BY WAY 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 COMMODITIES TRADING BUSINESS AND THEREFORE MANDATED TO MAINTAIN BOOKS OF ACCOUNTS IN TERMS OF SECTION 44AA OF THE ACT AND THEREBY INFERRING THAT THE ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES TRADING BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR P ROFESSION. BASED ON THIS CRUCIAL FINDING, THE TRIBUNAL HAD CONCLUDED THAT SI NCE THE TRANSACTION OF COMMODITIES TRADING HAD NOT BEEN ENTERED BY THE AS SESSEE IN HIS BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH ON 01.08.2012 AND THEREBY IT TAKES THE CHARACTER OF UNDISCLOSED INCOME FOR WHICH PENALTY U /S 271AAB OF THE ACT IS EXIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR D REW OUR ATTENTION TO THE COMPUTATION OF THE TOTAL INCOME WHEREIN THE ASSESSE E HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD INCOME FROM O THER SOURCES. WE ALSO FIND THAT THE LD. AO HAD ALSO SPECIFICALLY STATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESSEE IS HAVING ONLY SALARY INCOME AND INCOME FROM OTHER SOURCES. WE FIND THAT DUE TO THE ABSENCE OF THE ASSESSEE AT THE TIME OF HEARING THIS PARTICULAR FACT HAD ESCAPED THE ATTENT ION OF THE TRIBUNAL. ON PERUSAL OF THE FACT AVAILABLE ON RECORD, WE FIND TH AT THE FINDING RECORDED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 TH AT THE ASSESSEE IS MANDATED TO MAINTAIN BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS F ACTUALLY INCORRECT AND DESERVES TO BE RECTIFIED. THIS MISTAKE OF PRIMARY F ACT 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 AFORESAID MISTAKE OF PRIMARY FACT RIGHTLY POINTED OUT BY THE LD. AR , WE DEEM IT FIT TO R ECALL THE ORDERS OF THIS TRIBUNAL DATED 10.11.2017 IN THE CASE OF AFORESAID ASSESSEES . 6 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 6 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 LA W AND SO IT CANNOT BE TREATED AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD DR SUPRA IN RESPECT OF ASSESSEES IN THE SAME GROUP CONCERN CASES AS DECIDED BY THE TRIBUNAL NO LONGER SURVIVES AND CANNOT BE TREATED AS COVERED AGAINST THE ASSESSEE. 5.THE THIRD CONTENTION OF THE LD AR IS THAT THE ASS ESSEE IS AN INDIVIDUAL, WHO WAS DRAWING SALARY INCOME. SO, ACCORDING TO HIM, HE NEE D NOT MAINTAIN ANY BOOKS OF ACCOUNT AS PER THE ACT. ACCORDING TO LD AR, UNDISPU TEDLY THE ASSESSEE WAS ENGAGED FOR THE FIRST TIME IN THIS ASST YEAR ONLY IN TRADING OF COMMODITIES, THAT TOO WHICH WAS CONDUCTED IN A NON-SYSTEMATIC MANNER AND THE INCOME FROM IT WAS DULY OFFERED TO TAX BY THE ASSESSEE IN HIS RETURN OF INCOME UNDER THE H EAD INCOME FROM OTHER SOURCES, WHICH, ACCORDING TO LD AR WAS ACCEPTED AS SUCH BY T HE LD AO AND DREW OUR ATTENTION TO PAGE ONE OF ASSESSMENT ORDER, (NOT THE PENALTY ORDE R) WHEREIN WE NOTE THAT THE LD AO HAS ACKNOWLEDGED THAT THE ASSESSEE OWNED UP RS. 2 C R. AS HIS INCOME FROM COMMODITY PROFIT 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 COMMODITIES, AND THEREAFTER THE LD AO CONFIRMED THE ASSESSEES CLAIM AND THEREAFTER TOTAL INCOME WAS ASSESSED BY THE LD AO AS PER THE RETURN SUBMITTED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS DISCERNED FROM ASSESSMENT ORDER, THE ASSESSEES CAS E IS THAT FOR THE FIRST TIME IN THIS ASST YEAR HE WAS DOING UNSYSTEMATIC SPECULATIVE ACT IVITY WHICH EARNED INCOME 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 PROVISIONS AR E ONLY FOR ASSESSEES WHO ARE EARNING INCOME UNDER THE HEAD BUSINESS OR PROFESSION. WE NOTE THAT SEC. 44AA OR SEC. 7 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 7 44AA(2)(II) OF THE ACT CASTS A DUTY UPON THE ASSESS EE WHO ARE INTO BUSINESS OR PROFESSION AND SUCH ASSESSEES ARE BOUND TO MAINTA IN BOOKS OF ACCOUNT AS STIPULATED THEREIN. FOR APPRECIATING THIS SUBMISSION LET US G O THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECH NICAL CONSULTANCY OR INTERIOR DECORATION OR ANY OTHER PROFESSION AS IS NOTIFIED B Y 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 THIS ACT. (2) EVERY PERSON CARRYING ON BUSINESS OR PROFESSION [NOT BEING A PROFESSION REFERRED TO IN SUB-SECTION (1)] SHALL, (I) IF HIS INCOME FROM BUSINESS OR PROFESSION EXCEEDS [ ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVER OR GROSS RECEIP TS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THREE YEARS 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 EXC EED [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVER OR GRO SS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION ARE OR IS LIKELY TO E XCEED [TEN LAKH] RUPEES, [DURING SUCH PREVIOUS YEAR; OR (III) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE D EEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER [SECTION 44AE] [OR SECT ION 44BB OR SECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CL AIMED HIS INCOME TO BE LOWER THAN THE 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 D EEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER SECTION 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFITS AND GAINS SO DEEMED TO BE TH E PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX DURING SUCH PREVIOUS YEAR,] 8 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 8 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 T HE BUSINESS OR PROFESSION CARRIED ON BY ANY CLASS OF PERSONS, PRESCRIBE, BY RULES, TH E BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INVENTORIES, WHEREVER NECESSAR Y) TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2), THE PARTI CULARS TO BE CONTAINED THEREIN AND THE FORM AND THE MANNER IN WHICH AND THE PLACE AT W HICH THEY SHALL BE KEPT AND MAINTAINED. (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 AN D OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (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 KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH MAY ENABLE THE LD AO TO COMPU TE THE TOTAL INCOME. WE NOTE THAT ASSESSEE IN THE STATEMENT OF TOTAL INCOME FILE D BEFORE THE LD AO HAS SHOWN INCOME ONLY UNDER TWO HEADS (I) SALARY INCOME (II) INCOME FROM OTHER SOURCES. 6. WE NOTE THAT THE LD AO HAS ACCEPTED THE AFORESAI D STATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING THE CLAIM OF THE ASSE SSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCOME OTHER THAN FROM SALARY SHOULD BE FR OM INCOME FROM BUSINESS. THE CONFUSION THAT HAS ARISEN IN THIS CASE, WE NOTE IS ON THE MISDIRECTION OF LD AO IN THE ASSESSMENT PROCEEDINGS WHEREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE LD AO HAS OBSERVED DURING SEARCH AND SEIZURE OPERATION, SHRI MANOJ BE SWAL HAD MADE A CONSOLIDATED DISCLOSURE OF RS.32 CRORE VIDE HIS DIS CLOSURE PETITION. OUT OF THIS CONSOLIDATED DISCLOSURE, THE ASSESSEE OWNED UP RS. 2 CR. IN THE DISCLOSURE PETITION SHRI MANOJ BESWAL IT WAS STATED THAT THE SOURCE OF SUCH UNDISCLOSED INCOME WAS OUT OF COMMODITY PROFIT. IT HAS BEEN SUBMITTED THAT THE A MOUNT HAS ALREADY BEEN DISCLOSED IN 9 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 9 HIS INCOME & EXPENDITURE ACCOUNT FOR THE AY 2013-14 UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES. VE RIFICATION OF ACCOUNTS CONFIRMS HIS CLAIM. THIS OBSERVATION IS FLAWED BECAUSE, WE NOTE THAT LD AO GOT CARRIED AWAY BY PERUSAL OF THE INCOME & EXPENDITURE ACCOUNT FOR AY 2013-14 SUBMITTED BY THE ASSESSEE BEFORE HIM, WHEREIN IT WAS SHOWN IN THE IN COME SIDE THAT IS RIGHT HAND COLUMN AS INCOME FROM SPECULATIVE BUSINESS FROM SALE OF C OMMODITIES AND LEFT HAND SIDE COLUMN REFLECTS THE EXPENDITURE; AND LD AO CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCLOSED UNDER THE HEADING INCOME OUT OF SPECULATI VE BUSINESS FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HE AD UNDER WHICH IT HAS TO BE TAXED IS NOT BASED ON THE NOMENCLATURE OF RECEIPT OF INCOME SHOWN IN INCOME & EXPENDITURE ACCOUNT. ALL THE INCOMES OF REVENUE NATURE WILL BE POSTED IN THE RIGHT HAND SIDE COLUMN OF INCOME IN THE INCOME & EXPENDITURE ACCO UNT AND THE DESCRIPTION GIVEN THEREIN CANNOT DETERMINE THE HEAD OF INCOME PRESCRI BED UNDER CHAPTER IV OF THE ACT. THEREFORE, THE OBSERVATION OF THE LD AO IN ASSESSME NT ORDER IN THE LIGHT OF HIS ACTION OF ACCEPTING THE STATEMENT OF TOTAL INCOME FILED BY TH E ASSESSEE ALONG WITH RETURN WHICH WITHOUT BEING CONTESTED, IS ERRONEOUS, UNLESS THE L D 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 ACT , THE TOTAL INCOME OF AN ASSESSEE/INDIVIDUAL/COMPANY IS CHARGEABLE TO TAX U/ S. 4 OF THE ACT. THE TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 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/I NDIVIDUAL/COMPANY TO HAVE FIVE DIFFERENT SOURCES OF INCOME, EACH ONE OF IT WILL BE CHARGEABLE TO TAX UNDER THE ACT. PROFITS AND GAINS OF BUSINESS OR PROFESSION IS ONLY ONE OF THE HEADS UNDER WHICH AN ASSESSEES INCOME IS LIABLE TO BE ASSESSED TO TAX. IF AN ASSESSEE HAS NOT COMMENCED BUSINESS THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE ASSESS EE COMMENCES ITS BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED AS H ELD BY THE HONBLE SUPREME COURT 10 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 10 IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. VS . CIT (1997) 227 ITR 172 (SC). IT HAS BEEN FURTHER HELD THAT WHEN THE QUESTION IS WHE THER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTION FROM THAT RECEIPT IS PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. FURTHER, THE HONBLE APEX COURT HELD THAT THE QUESTION AS TO WHETHER A PRINCIPAL RECEIPT IS OF TH E 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 INTERPRE TATION OF THE TERM INCOME GIVEN IN A LARGE NUMBER OF DECISIONS OF THE HONBLE SUPREME CO URT, HIGH COURT AND PRIVY COUNCIL. AFTER TAKING NOTE OF THE APEX COURT ORDER AS ABOVE, WE NOTE THAT THE LD AO IN THE ASSESSMENT ORDER AFTER HAVING ACCEPTED THE STAT EMENT OF TOTAL INCOME (SUPRA) AND THE RETURN WHEREIN THE ASSESSEE HAS SHOWN THE INCOME FR OM COMMODITIES UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER PERUSA L OF INCOME & EXPENDITURE ACCOUNT DETERMINE THE CHARACTER OF TRANSACTION IN THE PENALTY PROCEEDINGS AS INCOME FROM BUSINESS OR PROFESSION WHICH APPROACH/ACTION IS ERRONEOUS. WE NOTE THAT THE ASSESSEE IN HIS STATEMENT OF TOTAL INCOME ALONG WITH RETURN HAS CLASSIFIED HIS INCOME UNDER TWO HEADS (I) SALARY A ND (II) FROM OTHER SOURCES AND THE INCOME OF RS. 2 CR. AS INCOME FROM OTHER SOURCES, W HICH WE FIND THE LD AO HAS NOT CONTESTED IN THE ASSESSMENT ORDER, HAS THUS CRYSTAL LIZED AND THE NECESSARY INFERENCE DRAWN IS THAT ASSESSEE AN INDIVIDUAL WHO WAS ADMITT EDLY A SALARIED PERSON ENGAGED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION (THAT TOO FOR THE FIRST TIME) IN AN ACTIVITY FROM WHICH HE DERIVED I NCOME FROM OTHER SOURCES ARE NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT WHICH ARE APP LICABLE ONLY IF THE ASSESSEE WAS ENGAGED IN BUSINESS OR PROFESSION. HOWEVER, WE FUR THER NOTE THAT THE TRANSACTIONS WHICH YIELDED INCOME, THE ASSESSEE HAD IN FACT MAIN TAINED RECORDS FROM WHICH THE LD AO WAS ABLE TO DEDUCE THE TRUE INCOME AND EXPENDITU RE OF THE ASSESSEE. WE NOTE THE LD AO IN THE ASSESSMENT ORDER HAS ACCEPTED THE RETURNE D INCOME COMPRISING OF INCOME FROM SALARY AND INCOME FROM OTHER SOURCES BY OBSERV ING AS UNDER : TOTAL INCOME ASSESSED AS PER RETURN RS.1,98,79,990 /-. 11 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 11 AND FURTHER WE NOTE THAT THE LD AO HAD SPECIFICALL Y STATED IN THE FIRST PAGE FIRST PARA OF THE ASSESSMENT ORDER THAT THE ASSESSEE IS HAVING ON LY SALARY INCOME AND INCOME FROM OTHER SOURCES. THUS FROM A PERUSAL OF THE ASSESSM ENT ORDER, IT IS NOT IN DISPUTE THAT ASSESSEE IS NOT ENGAGED IN ANY BUSINESS. AND THE LD AO CANNOT CHANGE THE CHARACTER OF INCOME IN A DERIVATIVE PROCEEDING WHICH IS AN OFF-S HOOT OF ASSESSMENT PROCEEDINGS I.E. THE PENALTY PROCEEDINGS WITHOUT CONTESTING AND MAKI NG A FINDING AGAINST THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER AS DISCUSSED A BOVE. 7. FINALLY, THE LD AR SUBMITTED THAT DURING THE SEA RCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TRANSACTIONS IN SPECULATI VE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE LD AO COULD CO MPUTE THE INCOME OF THE ASSESSEE FROM THE SAID TRANSACTION WHICH AMOUNT ASSESSEE DEC LARED DURING SEARCH AND WHICH WAS DULY RETURNED AND WHICH FIGURE WAS ACCEPTED BY THE LD AO. ACCORDING TO LD AR, THE FACT THAT SEARCH HAPPENED ON 01.08.2012 NEED TO BE TAKEN NOTE OF SINCE UNDISPUTEDLY THERE WAS ENOUGH AND MORE TIME FOR THE ASSESSEE TO SUBMIT THE ACCOUNTS DURING ASSESSMENT PROCEEDINGS WHICH FACT HAS BEEN TAKEN NO TE OF AND CONCURRED BY THE LD CITA. THEREAFTER, THE LD AR DREW OUR ATTENTION TO THE DEFINITION OF UNDISCLOSED INCOME GIVEN UNDER SECTION 271AAB WHICH READS AS U NDER: 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 WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSE SSEE 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 UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ******** EXPLANATION FOR THE PURPOSES OF THIS SECTION, - (A) . (B) . 12 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 12 (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, 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 SEAR CH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE [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 EXPENSE RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED. ACCORDING TO THE LD AR, FROM THE FACTS AND CIRCUMST ANCES DESCRIBED ABOVE, SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINESS OR PROFESSION, HE DOES NOT REQUIRE TO MAINTAIN THE BOOKS OF ACCOUNT AS PER SEC. 44AA OR SEC. 44AA(2) O F THE ACT, THEREFORE, THE ASSESSEES CASE FALLS IN THE SECOND LIMB I.E. OR OTHER DOCUMENTS AS STIPULATED U/S. 271AAB 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 ASSESSEES TRANSACTIONS (IN THIS CASE, THE SPECULATIVE TRANSACTION) HAS BEEN FOUND TO BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEVED FROM THE ASSESSEES ACCOUNTANTS DRAWER) AND BASED ON THAT THE ASSESSEE DECLARED RS. 2 CR. DURING SEARCH AND LATER RETURNED INCOME OF RS. 2 CR. AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH WAS ACCEPTED BY T HE AO IN TOTO. WE NOTE THAT SINCE THE INCOME UNDER QUESTION (RS. 2 CR.) WAS IN FACT E NTERED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE AY 2013-14, WHICH DOCUMENT WAS RETRIEVED DURING SEARCH, HENCE, THE AMOUNT OF RS. 3 CR. OFFERED BY THE ASSESSEE DOES NOT FALL IN THE KEN OF UNDISCLOSED INCOME DEFINED IN SEC. 271AAB OF THE ACT. SO, RS. 2 CR. WHICH WAS COMMODITY PROFIT RECORDED IN THE OTHE R DOCUMENT MAINTAINED BY THE 13 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 13 ASSESSEE WHICH WAS RETRIEVED DURING SEARCH CANNOT B E TERMED AS UNDISCLOSED INCOME IN THE DEFINITION GIVEN U/S. 271AAB OF THE ACT. SI NCE RS. 2 CR. CANNOT BE TERMED AS UNDISCLOSED INCOME AS PER SEC. 271AAB OF THE ACT, NO PENALTY CAN BE LEVIED AGAINST THE ASSESSEE. THEREFORE, WE UPHOLD THE ORDER OF TH E LD CITA ON THE AFORESAID REASONING RENDERED BY US. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 19.02.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 19.02.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CC-2(2), KOLKATA, AAYAKAR BHAWAN POORVA, 1 10, SHANTIPALLY, 4 TH FLOOR, KOLKATA-700107. 2. SUBHAS CHANDRA AGARWALA & SONS (HUF), RAJASTHAN CHHATRA NIWAS, NEAR RLY GATE NO-5, A.T. ROAD, GUWAHATI-781001. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 14 ITA NO.1470/KOL/2015 SUBHAS CHANDRA AGARWALA & SONS (HUF) A.YR. 2013-14 14