DCIT, CC-2(2), KOLKATA, Kolkata V. Manish Agarwala, Guwahati

ITA 1479/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1669 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• 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

1 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 1479/KOL/2015 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(2), KOLKATA VS. MANISH AGARWALA (PAN:AFFPA9784F) APPELLANT RESPONDENT DATE OF HEARING 14.11.2017 DATE OF PRONOUNCEMENT 09.02.2018 FOR THE APPELLANT SHRI SAURABH KUMAR, ADDL. CIT, DR FOR THE RESPONDENT SHRI MIRAJ D. SHAH, AR ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE 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 REFERRED TO A S 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 SHRI MANISH AGARWALA IS ONE OF THE KEY PERSONS O F THIS GROUP. IN THE PENALTY ORDER, THE AO NOTES THAT DURING THE COURSE OF POST SEARCH OPER ATION, THE ASSESSEE ADMITTED AN UNDISCLOSED INCOME OF RS.3,00,00,000/- FOR THE AY U NDER CONSIDERATION IN THE FORM OF COMMODITY PROFIT VIDE A CONSOLIDATED DISCLOSURE PET ITION FILED BY SHRI MANOJ BESWAL, CHAIRMAN OF NEZONE GROUP. FURTHER, THE AO ACKNOWLE DGES THAT THE ASSESSEE HAS FILED HIS RETURN OF INCOME FOR AY 2013-14 ON 29.09.2013 DECLA RING A TOTAL INCOME OF RS.3,44,65,120/-. ACCORDING TO AO, ON VERIFICATION OF ACCOUNTS, HE NOTICED THAT THE ASSESSEE FOR THE RELEVANT YEAR DISCLOSED A SUM OF RS.3,00,00 ,000/- AND HAD SHOWN THE SAME UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF CO MMODITIES. THEN THE AO NOTES THAT THE RETURN WAS SELECTED FOR SCRUTINY AND ASSES SMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 29.08.2014 ON A TOTAL INCOME OF RS.3,44,65,1 20/- (ON THE SAME INCOME RETURNED BY 2 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 THE ASSESSEE IN THE ROI) AND PENALTY PROCEEDINGS WE RE INITIATED U/S. 271AAB OF THE ACT ON THE AMOUNT DISCLOSED DURING SEARCH OF RS. 3 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 N OTE HAS BEEN REPRODUCED BY THE AO IN THE ORDER PASSED U/S. 271AAB OF THE ACT DATED 24.02 .2015. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO IMPOSED PENALTY U/S. 271AAB(1)(A) OF THE ACT BY OBSERVING THAT THE ENTIRE UNDISCLOSED INCOME CAN ON LY 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. AGGR IEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DELETED THE PENALTY BY O BSERVING 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 AR DURING THE A PPELLATE PROCEEDINGS. I FIND THAT THE AO HAS ARRIVED AT THE CONCLUSION THAT HAD THERE BEEN N O 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 ASS ESSEE (BUT NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS ON DAY TO DAY BASIS). THE AO HAS NOT B ROUGHT ON RECORD ANYTHING TO PROVE THE INTENTION OF THE ASSESSEE TO DO SO. ON THE OTHER H AND, THE AR HAS EMPHASIZED THAT KEEPING PAPERS/DOCUMENTS CONTAINING ASSESSEES INCOME IN TH E SAFE CUSTODY IN THE OFFICE PREMISES SHOWS THAT THE ASSESSEE HAD NO INTENTION TO CONCEAL HIS INCOME. THE INCIDENCE OF NOT MAKING ENTRIES 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 P ENALIZED. I THINK, THERE IS NO DOUBT THAT NOT MAKING ENTRIES IN THE REGULAR BOOKS OF ACCOUNTS OF THE INCOME EARNED BY THE ASSESSEE, IS A MISTAKE ON THE PART OF THE ACCOUNTANT . BUT FOR TH IS, 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 NO T JUSTIFIED. IT IS SO, BECAUSE IT DOES 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 OPERAT ION, THE ASSESSEE 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 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 REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO HAS ACCEPTED THAT DURING SEARCH THE ASSESSEE HAS ADMITTED U/S. 132(4) OF THE ACT THE IN COME FROM SPECULATIVE TRADING. THE UNDISPUTED FACTS THE AO HAS GIVEN FINDING PERTAININ G TO THIS CASE 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 3 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 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 ACT AND THEREAFTER LEVI ED 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 VER Y SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIRMED THE LEVY OF PENAL TY AND CONTENDED BEFORE US THAT PENALTY U/S. 271AAB OF THE ACT IS MANDATORY AND THEREFORE, ACCORDING TO LD. DR, THE LD. CIT(A) ERRED IN DELETING THE PENALTY BY STATING THAT THE A SSESSEE 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 UNDISCLOSED INCOME FO UND DURING SEARCH. ON THE OTHER HAND, LD. AR SHRI MIRAZ D. SHAH, SUPPORTING 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 WH ICH HE IS GOING TO RAISE HAS BEEN TAKEN UP BEFORE THE AO ALSO, HOWEVER, ACCORDING TO LD. CO UNSEL, 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 I T SHOULD BE CONSTRUED 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 SHAL L. SO, ACCORDING TO HIM, IT IS THE DISCRETION 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 B ECAUSE WHEN A SIMILAR 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 HELD THAT THE PROVISIONS OF SEC. 271AAB OF THE ACT ARE NOT MANDAT ORY, WHICH MEANS THAT PENALTY NEED NOT BE LEVIED IN EACH AND EVERY CASE WHEREVER THE ASSES SEE 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 NOT SHALL. MAY CANNOT BE EQUATED WITH S HALL ESPECIALLY IN PENALTY PROCEEDING. USING THE WORD MAY IN OUR OPINION, GIVES A DISCRETION TO THE AO TO LEVY THE 4 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 PENALTY OR NOT TO LEVY, EVEN IF THE ASSESSEE HAS MA DE THE DEFAULT 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 PROC EEDING FURTHER, WE NOTE THAT THE EX PARTE ORDER PASSED BY THE COORDINATE BENCH RELIED UPON BY LD. DR, 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 BESWAL RESPECTIVELY FOR THE ASSESSMENT YEAR 2013-14 ON THE GROUND THAT NOTICE WAS NOT SERVED ON THE ASSESSEE F OR THE HEARING AND ON CERTAIN FACTUAL ERROR THAT HAD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECTION RAISED BY THE LD. AR WAS THAT THE NOTICE OF HEARING WAS NOT S ERVED ON THE ASSESSEE FOR THE HEARING SCHEDULED ON 06.11.2017 AND HENCE, THE ASSESSEE COU LD NOT BE PRESENT ON THE SAID DATE BY WAY OF PERSONAL APPEARANCE. THE SECOND OBJECTION RA ISED 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 THEREFO RE MANDATED TO MAINTAIN BOOKS OF ACCOUNTS IN TERMS OF SECTION 44AA OF THE ACT AND TH EREBY INFERRING THAT THE ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES TRADING BUSINE SS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. BASED ON THIS CRUCIAL FIND ING, THE TRIBUNAL HAD CONCLUDED 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 UNDISCLOSED INCOME FOR WHICH PENALTY U/S 271AAB OF THE ACT IS EXIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR DREW OUR ATTENTION TO THE COMP UTATION OF THE TOTAL INCOME WHEREIN THE ASSESSEE HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES. WE ALSO FIND THAT THE LD. AO HAD ALSO SPEC IFICALLY STATED 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. 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 THAT THE FINDING RECOR DED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 THAT THE ASSESSEE IS MANDATED TO M AINTAIN BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS FACTUALLY INCORRECT AND DESERVES TO BE R ECTIFIED. THIS MISTAKE OF PRIMARY FACT HAD LEAD TO A CONCLUSION OF UPHOLDING THE LEVY OF PENAL TY U/S 271AAB OF THE ACT. HENCE, IN THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE AFORESAI D MISTAKE OF PRIMARY FACT RIGHTLY POINTED OUT BY THE LD. AR , WE DEEM IT FIT TO RECALL TH E ORDERS OF THIS TRIBUNAL DATED 10.11.2017 IN THE CASE OF AFORESAID ASSESSEES. IN THE AFORESAID SCENARIO, THE LEGAL POSITION IS T HAT AN ORDER WHICH HAS BEEN RECALLED FOR DE NOVO ADJUDICATION, IS NO ORDER IN THE EYES O F LAW AND SO IT CANNOT BE TREATED AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD. D R IN RESPECT OF ASSESSEES IN THE SAME GROUP CONCERN CASES AS DECIDED BY THE TRIBUNAL NO L ONGER SURVIVES AND CANNOT BE TREATED AS COVERED AGAINST THE ASSESSEE. 5. THE THIRD CONTENTION OF THE LD. AR IS THAT THE A SSESSEE 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, UNDISPUTEDLY THE ASSESSEE WAS ENGAGED FOR THE FIRST TIME 5 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 THIS AY ONLY IN TRADING OF COMMODITIES, THAT TOO WH ICH 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 HEAD INCOME FROM OTHER SOURCES, WHICH, ACCORDING TO LD. AR WAS ACCEPTED AS SUCH BY THE AO AND DREW OUR ATTENTION T O PAGE ONE OF ASSESSMENT ORDER, (NOT THE PENALTY ORDER) WHEREIN WE NOTE THAT THE AO HAS ACKN OWLEDGED THAT THE ASSESSEE OWNED UP RS. 3 CR. AS HIS INCOME FROM COMMODITY PROFIT AND I T HAS BEEN DISCLOSED IN HIS INCOME AND EXPENDITURE FOR AY 2013-14 UNDER THE HEAD INCOME O UT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES, AND THEREAFTER THE AO CONFIRMED TH E ASSESSEES CLAIM AND THEREAFTER TOTAL INCOME WAS ASSESSED BY THE AO AS PER THE RETURN SUB MITTED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS DISCERNED FROM ASSESSMENT ORDER , THE ASSESSEES CASE IS THAT FOR THE FIRST TIME IN THIS AY HE WAS DOING UNSYSTEMATIC SPECULATI VE ACTIVITY 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 STIPULATED IN SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT BECAUSE, THESE PROVISIONS ARE ONLY FOR ASSESSEE S WHO ARE EARNING INCOME UNDER THE HEAD BUSINESS OR PROFESSION. WE NOTE THAT SEC. 44AA O R 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 AS STIPULATED THEREIN. FOR APPRECIATING THIS SUBMISSION LET US GO THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ANY OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFICIAL GAZETTE SH ALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFIC ER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. (2) EVERY PERSON C ARRYING 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 RECEIPTS, AS THE CAS E MAY BE, IN BUSINESS OR PROFESSION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THRE E 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 EXCEED [ONE LAK H TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION ARE OR IS LIKELY TO EXCEED [TEN LAKH] RUPEES, [DURING SUCH PR EVIOUS 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 SECTION 44BB OR S ECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CLAIMED HIS INCOME TO BE LOWER THAN THE PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS, AS THE CA SE MAY BE, DURING SUCH [PREVIOUS YEAR; OR]] 6 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 (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 THE PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TA X 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 W ITH 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, THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INVENTORIES, WHEREVER NECESSARY) TO BE KEPT AND MAI NTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2), THE PARTICULARS TO BE CONTAINED THEREIN AND TH E FORM AND THE MANNER IN WHICH AND THE PLACE AT WHICH 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 AND OTHER DOC UMENTS 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 AO TO COMPUTE THE TO TAL INCOME. WE NOTE THAT ASSESSEE IN THE STATEMENT OF TOTAL INCOME FILED BEFORE THE AO H AS SHOWN INCOME ONLY UNDER TWO HEADS (I) SALARY INCOME (II) INCOME FROM OTHER SOURCES. WE WOULD LIKE TO REPRODUCE THE SUMMARY OF TOTAL INCOME OF THE ASSESSEE FILED ALONG WITH TH E 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 S TATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING THE CLAIM OF THE ASSESSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCOME OTHER THAN FROM SALARY SHOULD BE FROM INCOM E FROM BUSINESS. THE CONFUSION THAT HAS ARISEN IN THIS CASE, WE NOTE IS ON THE MISDIREC TION OF AO IN THE ASSESSMENT PROCEEDINGS WHEREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE A O HAS OBSERVED DURING SEARCH AND SEIZURE OPERATION, SHRI MANOJ BESWAL HAD MADE A CON SOLIDATED DISCLOSURE OF RS.32 CRORE VIDE HIS DISCLOSURE PETITION. OUT OF THIS CONSOLID ATED DISCLOSURE, THE ASSESSEE OWNED UP RS. 3 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 AMOUNT HAS ALREADY BEEN DISCLOSED IN HIS INCOME & EXPENDITURE ACCOUNT FOR THE AY 2013-14 UNDER THE 7 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES. VERIFICATION OF ACCOUNTS CONFIRMS HIS CLAIM. THIS OBSERVATION IS FLAWED BECAUSE, WE NOTE THAT AO GOT CARRIED AWAY BY PERUSAL OF THE INCOME & EXPENDITUR E ACCOUNT FOR AY 2013-14 SUBMITTED BY THE ASSESSEE BEFORE HIM, WHEREIN IT WAS SHOWN IN THE INCOME SIDE THAT IS RIGHT HAND COLUMN AS INCOME FROM SPECULATIVE BUSINESS FROM SA LE OF COMMODITIES AND LEFT HAND SIDE COLUMN REFLECTS THE EXPENDITURE; AND AO CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCLOSED UNDER THE HEADING INCOME OUT OF SPECULATIVE BUSINES S FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HEAD 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 RIG HT HAND SIDE COLUMN OF INCOME IN THE INCOME & EXPENDITURE ACCOUNT AND THE DESCRIPTION GI VEN THEREIN CANNOT DETERMINE THE HEAD OF INCOME PRESCRIBED UNDER CHAPTER IV OF THE ACT. T HEREFORE, THE OBSERVATION OF THE AO IN ASSESSMENT ORDER IN THE LIGHT OF HIS ACTION OF ACCE PTING THE STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE ALONG WITH RETURN WHICH WITHOUT BEING CONTESTED, IS ERRONEOUS, UNLESS THE AO WAS ABLE TO NEGATE THE CLAIM OF THE ASSESSEE BY BRI NGING THE INCOME FROM COMMODITY TRANSACTIONS AS PART OF BUSINESS INCOME. IT SHOULD BE REMEMBERED THAT UNDER THE INCOME TAX ACT 1961, THE TOTAL INCOME OF AN ASSESSEE/INDIV IDUAL/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/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 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 UNL ESS THE ASSESSEE COMMENCES ITS BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. VS. C IT (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 PRIN CIPLES OF 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 8 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND INTERPRETATION OF THE TERM INCOME GI VEN IN A LARGE NUMBER OF DECISIONS OF THE HONBLE SUPREME COURT, HIGH COURT AND PRIVY COUNCIL . AFTER TAKING NOTE OF THE APEX COURT ORDER AS ABOVE, WE NOTE THAT THE AO IN THE ASSESSME NT ORDER AFTER HAVING ACCEPTED THE STATEMENT OF TOTAL INCOME (SUPRA) AND THE RETURN WH EREIN THE ASSESSEE HAS SHOWN THE INCOME FROM COMMODITIES UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER PERUSAL OF INCOME & EXPENDITURE ACCOUNT DETERMINE THE CHARAC TER 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 AND (II) FROM OTHER SOURCES AND THE INCOME OF RS. 3 CR. AS INCOME FROM OTHER SOURCES, WHICH WE FIND THE AO HAS NOT CONTESTED IN THE ASSESSMENT ORDER, HAS THUS CRYSTALLIZED AND THE NECESSARY INFE RENCE DRAWN IS THAT ASSESSEE AN INDIVIDUAL WHO WAS ADMITTEDLY A SALARIED PERSON ENGAGED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION (THAT TOO FOR T HE FIRST TIME) IN AN ACTIVITY FROM WHICH HE DERIVED INCOME FROM OTHER SOURCES ARE NOT REQUIRE D TO MAINTAIN BOOKS OF ACCOUNT WHICH ARE APPLICABLE ONLY IF THE ASSESSEE WAS ENGAGED IN BUSINESS OR PROFESSION. HOWEVER, WE FURTHER NOTE THAT THE TRANSACTIONS WHICH YIELDED IN COME, THE ASSESSEE HAD IN FACT MAINTAINED RECORDS FROM WHICH THE AO WAS ABLE TO DEDUCE THE TR UE INCOME AND EXPENDITURE OF THE ASSESSEE. WE NOTE THE AO IN THE ASSESSMENT ORDER H AS ACCEPTED THE RETURNED INCOME COMPRISING OF INCOME FROM SALARY AND INCOME FROM OT HER 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 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. THUS FROM A PERUSAL OF THE ASSESSMENT OR DER, IT IS NOT IN DISPUTE THAT ASSESSEE IS NOT ENGAGED IN ANY BUSINESS. AND THE AO CANNOT CHAN GE THE CHARACTER OF INCOME IN A DERIVATIVE PROCEEDING WHICH IS AN OFF-SHOOT OF ASSE SSMENT PROCEEDINGS I.E. THE PENALTY PROCEEDINGS WITHOUT CONTESTING AND MAKING A FINDING AGAINST THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER AS DISCUSSED ABOVE. 9 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE SE ARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TRANSACTIONS IN SPECULATI VE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE AO COULD COMPU TE THE INCOME OF THE ASSESSEE FROM THE SAID TRANSACTION WHICH AMOUNT ASSESSEE DECLARED DURING SEARCH AND WHICH WAS DULY RETURNED AND WHICH FIGURE WAS ACCEPTED BY THE 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 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 HA S 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 HI M, (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) . ( C ) 'UNDISCLOSED INCOME' MEANS ( I ) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESE NTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS ( A ) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR ( B ) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL C HIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] COMMISS IONER BEFORE THE DATE OF SEARCH; OR ( II ) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESE NTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECORDED IN THE BOOK S OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPE CIFIED 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 CIRCUMS TANCES 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) OF 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 10 ITA NO.1479/KOL/2015 MANISH AGARWALA, AY, 2013-14 IMPORTANT TO ADJUDICATE THIS ISSUE. THEREFORE, THE QUESTION IS WHEN THE SEARCH TOOK PLACE, THE ASSESSEES TRANSACTIONS (IN THIS CASE, THE SPECULAT IVE TRANSACTION) HAS BEEN FOUND TO BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEVED FROM THE ASSESSEES ACCOUNTANT S 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 INCOM E 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 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. 3 CR. WHICH WAS COMMODI TY PROFIT RECORDED IN THE OTHER DOCUMENT MAINTAINED BY THE ASSESSEE WHICH WAS RETRI EVED DURING SEARCH CANNOT BE TERMED AS UNDISCLOSED INCOME IN THE DEFINITION GIVEN U/S . 271AAB 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 ASSESSEE. THEREFORE, WE UPHO LD 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. ORDER IS PRONOUNCED IN THE OPEN COURT ON 9 TH FEBRUARY, 2018 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 9TH FEBRUARY, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT D CIT, CENTRAL CIRCLE-2(2), KOLKATA. 2 RESPONDENT SHRI MANISH AGARWALA, 7202, NEHA APA RTMENT, SATI JAYANTI ROAD, ATHGAON, GUWAHATI-781001 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECRETARY