DCIT, Cental Circle -2(2), Kolkata, Kolkata V. M/s/ Aryan Minning & Trading Corporation Ltd, Kolakta

ITA 1601/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3848 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Search and seizure; Document seized; Opportunity of being heard; Principle of natural justice; Rule of consistency; Reasonable cause; Block assessment; Right to appeal; Documents seized
• Section: 271(1)(c); 143(3); 153A; 145; 132; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA BEFORE SH. A.T.VARKEY, JUDICIAL MEMBER & SH. A.L.SAINI, ACCOUNTANT MEMBER ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) ORDER PER A.T.VARKEY, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 17.04.2017 PASSED BY CIT(A)-21, KOLKATA FOR AY 2012-13 IS AGAINST THE ACTION OF LD.CIT(A) IN DELETING THE PENALTY LEVIED BY THE AO U/S 271AAB OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). 2. BRIEF FACTS OF THE CASE ARE THAT SEARCH & SEIZURE OPERATION U/S 132 OF THE ACT WERE DRAWN IN THE NAME OF M/S. ARYAN MINING & TRADING CORPORATION PVT. LTD. AND OTHERS ON 13.09.2012 AND ON SUBSEQUENT DAYS. DURING THE COURSE OF SEARCH, SH. PRADEEP KUMAR SARAF HAS GIVEN STATEMENT U/S 132(4) OF THE ACT AND AN AMOUNT OF RS.59,09,00,000/- WAS OFFERED TO TAX IN THE RELEVANT AY 2012-13. IN THE ASSESSMENT FRAMED U/S 143(3), THE AO NOTED THAT THE MAIN BUSINESS ACTIVITY OF THE GROUP IS THAT DCIT, CENTRAL CIRCLE-2(2), AAYAKAR BHAWAN, POORVA, 110 SHANTIPALLY, KOLKATA-700107. V S M/S. ARYAN MINING & TRADING CORPORATION LTD., P-1, HIDE LANE, 8 TH FLOOR, KOLKATA-700073. PAN-AADCA7247B (APPELLANT) (RESPONDENT) APPELLANT BY SH. A.K.SINGH, CIT DR RESPONDENT BY SH. A.K.TULSYAN, FCA & MS. SIKHA AGARWAL, ACA DATE OF HEARING 27.12.2018 DATE OF PRONOUNCEMENT 01.02.2019 ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 2 THEY ARE OWNERS OF MANGANESE, IRON ORE MINES AND MINING & SELLING OF SUCH ORES. THE AO NOTED THAT THAT THE KEY PERSON OF THE GROUP IS SH. PRADEEPKUMAR SARAF WHO HAD OFFERED ADDITIONAL INCOME ON ACCOUNT OF STOCK VALUATION OF RS.59,09,00,000/- FOR AY 2012-13.THE AO FURTHER NOTED THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS.4,29,12,93,850/- WHICH INCLUDED THE OFFERED INCOME OF RS.59,09,00,000/-. THEREAFTER, THE ASSESSMENT WAS COMPLETED ON 28.04.2014 DETERMINING THE TOTAL INCOME OF RS.4,34,83,03,850/- AFTER MAKING CERTAIN ADDITIONS. THEREAFTER, PENALTY PROCEEDINGS WAS INITIATED ON THE DISCLOSED AMOUNT OF RS.59,09,00,000/- U/S 271AAB OF THE ACT. 3. DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED SUCH OFFERING OF RS. 59,09,00,000/- WAS ON ACCOUNT OF SUB GRADE FINES. IN THE COURSE OF SEARCH AN INTERNAL IN-HOUSE DEPARTMENTAL (ASSESSEES OWN) SURVEY REPORT (NOT PREPARED BY THE INCOME TAX DEPT) WAS FOUND REGARDING SUB-GRADE SCREEN FINES LYING IN THE MINES. IT WAS ALSO EXPLAINED THAT SUB-GRADE SCREEN FINES COMES AUTOMATICALLY WHILE CONTRACTING HIGH GRADE OF IRON ORE. SO, ACCORDING TO ASSESSEE, IT HAS NO SEPARATE COST OF RAISING AS IT COMES AUTOMATICALLY AS WASTE PRODUCT. SINCE THE COST OF RAISING FINES IS NIL, THE ASSESSEE HAS NOT CONSIDERED THE SAME IN THE CLOSING STOCK. HOWEVER TO AVOID DISPUTE, THE ASSESSEE MADE A DISCLOSURE BY ESTIMATING THE RAISING COST AT RS.250 / - PER MT. HENCE, ACCORDING TO ASSESSEE, SUCH SUO MOTO OFFERING OF RS. 59,09,00,000/ - DOES NOT COME UNDER THE PURVIEW OF 'UNDISCLOSED INCOME' AS EXPLAINED IN EXPLANATION (C) OF SECTION 271AAB AND HENCE THE PENALTY PROVISION CANNOT BE INVOKED ON SUCH FIGURE OF RS. 59,09,00,000/-. FURTHER, SUCH SUO MOTO OFFERING OF RS. 59,09,00,000/- HAS BEEN MADE IN ORDER TO AVOID UNNECESSARY LONG DRAWN LITIGATIONS WITH THE DEPARTMENT AND TO DEMONSTRATE UTMOST COOPERATIVE ATTITUDE WITH THE DEPARTMENT. HOWEVER, THE ASSESSING OFFICER DID NOT PAY ANY HEED TO SUCH SUBMISSION AND WENT ON TO PASS AN ORDER U/S 271AAB OF THE ACT CONSIDERING THE OFFERED AMOUNT OF RS. 59,09,00,000/- AS UNDISCLOSED INCOME AND IMPOSED A PENALTY OF RS.59,09,00,000/-. IN THE PENALTY ORDER THE AO HAS BROUGHT IT ON RECORD THAT THE CONTENTION OF THE ASSESSEE THAT THE AFORESAID AMOUNT OF RS.59,09,00,000/- IS NOT UNDISCLOSED INCOME IS CONTRARY TO THE FACT THAT THE SAID ADDITIONAL INCOME WAS DISCLOSED IN THE COURSE OF SEARCH AND THE SAME WAS ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 3 OFFERED FOR TAXATION IN THE RETURN. THE AO ALSO STATED THAT SINCE SEARCH & SEIZURE PROCEEDINGS WAS CONDUCTED AGAINST THE ASSESSEE, PROVISIONS OF SECTION 271AAB OF THE ACT IS APPLICABLE. HE ALSO STATED THAT THE CONDITIONS LAID DOWN IN SECTION 271AAB (I)(A) ARE FULFILLED AND THEREFORE IT IS A FIT CASE FOR IMPOSITION OF PENALTY U/S 271AAB OF THE TAX ACT 1961. 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO WAS PLEASED TO DELETE THE SAME BY HOLDING AS UNDER:- '1 HAVE CONSIDERED THE FINDINGS GIVEN BY THE AO IN THE PENALTY ORDER AND SUBMISSIONS MADE BY THE AR DURING THE APPELLATE PROCEEDINGS. THE AO HAS IMPOSED THE PENALTY IN A ROUTINE MANNER. I FIND THAT THE DISCLOSURE HAS BEEN MADE ON THE BASIS OF SURVEY REPORT PREPARED BY THE COMPANY TO ASCERTAIN THE STOCK OF IRON ORE FINES LYING IN THE MINES AREA AS THE SAME ARE NOW USABLE BY MANUFACTURES HAVING PELLETING FACILITIES. PREVIOUSLY THE FINES WERE WASTE PRODUCTS USED FOR LAND FILLING AND MAKING ROADS AND SUBSEQUENTLY THE SALE OF FINES ARE ACCOUNTED IN THE BOOKS OF ACCOUNTS ON CASH BASIS YEAR AFTER YEAR. RAISING COST OF FINES HAS BEEN TAKEN AS 'NIL' BECAUSE THE SAME GET AUTOMATICALLY GENERATED WHILE MINING THE SEIZED ORE AND OTHER PRODUCTS. I FIND THAT EVERY YEAR THE ASSESSEE COMPANY SUBMITS REPORT TO THE DIRECTOR GENERAL OF MINES IN WHICH THE QUANTITY OF PRODUCTION OF SIZED ORE AND FINES ARE REPORTED. THUS' THE SAID SEIZED DOCUMENT IS PART OF REGULAR BOOKS OF ACCOUNTS AND NOT AN INCRIMINATING DOCUMENT. I FIND THAT THE ASSESSEE MADE A DISCLOSURE BY TAKING ESTIMATED AMOUNT OF RS.250/- PER MT OF IRON ORE FINES. I FIND THAT THE AO HAS TAKEN THE UNDISCLOSED INCOME OF THE ASSESSEE ON THE AMOUNT DECLARED SUO MOTO BY THE ASSESSEE (FOR WHICH NO INCRIMINATING EVIDENCE, PAPERS / DOCUMENTS, STOCK, CASH ETC WERE FOUND DURING THE SEARCH OPERATION IN ORDER TO BUY PEACE OF MIND AND AVOID ANY FURTHER LITIGATION. THE ASSESSEE HAS BROUGHT ON RECORD THE CASE LAW OF DILIP N SHROFFVS CIT (2007) 291 ITR 519 (SC). IN THIS CASE LAW THE HON'BLE SUPREME COURT HAS HELD THAT IMPOSITION OF PENALTY IS NOT AUTOMATIC. LEVY OF PENALTY IS NOT ONLY DISCRETIONARY IN NATURE, BUT SUCH DISCRETION IF REQUIRED TO BE EXERCISED ON THE PART OF THE ASSESSING OFFICER KEEPING THE RELEVANT FACTORS IN MIND. THE AR HAS ALSO BROUGHT ON RECORD THE CASE OF PUNJAB TYRES (PUNJAB TYRES [1986] 162 ITR 517 (MADHYA PRADESH), THE HON'BLE HIGH COURT OF MADHYA PRADESH) IN WHICH IT WAS HELD THAT WHEN SURRENDER IS MADE TO PURCHASE PEACE OR FOR OTHER SIMILAR REASON, SURRENDER CANNOT AMOUNT TO ADMISSION, CONSTITUTING EVIDENCE OF CONCEALMENT IN PENALTY PROCEEDINGS. THE AR HAS BROUGHT ON RECORD THE CASE LAW OF SUNDHARSAN SILK AND SAREES, 300 ITR 30 (SUPREME COURT) IN THIS CASE, THE HONBLE SUPREME COURT HAS HELD THAT IF THE APPELLANT OFFERS ANY AMOUNT FOR TAXATION FOR THE PURPOSE OF PURCHASING PEACE AND ASSESSMENT HAS BEEN MADE BASED UPON THE AFORESAID OFFERINGS, EVEN IF NO ASSURANCE IN WRITING IS GIVEN BY THE SEARCHING PARTY, IT MAY BE CLEARLY INFERRED THAT SUCH AN INDUCEMENT MUST HAVE BEEN GIVEN BY THE SEARCHING PARTY. WHEN ONLY PARTIAL EVIDENCE OR NO EVIDENCE IN SUPPORT OF CONCEALMENT WAS DETECTED DURING THE SEARCH, WHY WOULD A PERSON GO TO OFFER A HIGHER AMOUNT UNLESS HE WAS PROMISED SOME RECIPROCAL BENEFITS LIKE NOT BEING VISITED BY PENALTY. THUS, IT WAS HELD THAT ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 4 WHERE ADDITIONS HAVE BEEN MADE BASED ON ASSESSEE'S OWN OFFERINGS, PENALTY PROVISION SHALL NOT LIE . .......I FIND THAT DURING THE SEARCH AND SEIZURE OPERATION U/S 132 IN THIS CASE NO INCRIMINATING EVIDENCES REGARDING CONCEALMENT / UNDISCLOSED INCOME IN THE FORM OF CASH SEIZURE / PAPERS / DOCUMENTS / STOCK ETC. WERE FOUND AND SEIZED. NOTHING INCRIMINATING EVIDENCES WERE FOUND REGARDING RS.59,09,00,000/- WORKED OUT BY APPLYING ESTIMATED RATE ON THE QUANTITY OF IRON ORE FINES CLAIMED TO BE PART OF THE REGULAR PRODUCTION AND WAS OFFERED FOR TAXATION BY THE ASSESSEE SUOMOTO IN ORDER TO BUY PEACE OF MIND EVEN THE SAME WAS NOT TAKEN AS PER THE ACCOUNTING PRINCIPLE AS THE SAME IS BY PRODUCT/WASTE AND ITS COST IS NIL. I ALSO FIND THAT NEITHER THE OFFICERS IN THE INVESTIGATION WING IN THE POST SEARCH INVESTIGATION NOR THE ASSESSING OFFICER DURING ASSESSMENT PROCESS FOUND ANY DISCRIMINATING EVIDENCE OF UNDISCLOSED INCOME OTHER THAN THE STATEMENT OF THE ASSESSEE FOR MAKING THE DISCLOSURE OF RS.59,09,00,000/-. FURTHER, I FIND THAT THE AO HAS LEVIED PENALTY U/S 271AAB(L)(A). THIS SECTION READS LIKE SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. UNDISCLOSED INCOME HAS BEEN DEFINED IN THE EXPLANATION TO SECTION 271AAB. THUS, IT IS CLEAR THAT IN ORDER TO LEVY PENALTY TWO THINGS ARE ESSENTIAL (1) UNDISCLOSED INCOME AND (2) SPECIFIED PREVIOUS YEAR. HERE IN THIS CASE RS.50,09,00,000/- WAS OFFERED FOR TAXATION BY THE ASSESSEE SUOMOTO IN THE STATEMENT RECORDED AT THE TIME OF SEARCH. FROM THE RATIO DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF SUDARSHAN SILK &SARIES (SPUTA), IT IS CLEAR THAT ONLY THE STATEMENT OF THE ASSESSEE WITHOUT ANY CORROBORATING EVIDENCE CANNOT BE THE ONLY BASIS FOR LEVYING PENALTY. THE HONBLE SUPREME COURT HAS ALSO CATEGORICALLY DECIDED THE RATIO THAT PENALTY CANNOT BE LEVIED ON THE AMOUNT OFFERED BY THE ASSESSEE IN ORDER TO BUY PEACE OF MIND [IN THE CASE OF SUDARSHAN SILK & 5ARIES (SUPRA). THUS, RESPECTFULLY FOLLOWING THE RATIO DECIDED BY THE HONBLE SUPREME COURT, THE AO IS DIRECTED TO DELETE THE PENALTY O/S 271AAB(L) ON THE SUO MOTO DISCLOSURE OF RS.59,09,00,000/-. ACCORDINGLY, ASSESSEE'S APPEAL ON GROUND NO. 1 IS ALLOWED. 5. AGGRIEVED BY THE AFORESAID ACTION OF THE CIT(A), THE REVENUE IS BEFORE US. 6. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD.CIT DR VEHEMENTLY ASSAILED THE ACTION OF LD CIT(A) AND SUPPORTED THE ACTION OF THE AO BY RELYING ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF ACIT VS SANDEEP CHANDAK(405 ITR 648) AND WANT US TO REVERSE THE ORDER OF LD CIT(A) AND RESTORE THE ORDER OF AO. 7. PER CONTRA, THE LD AR CONTENTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MINING AND SELLING OF IRON AND MANGANESE ORES. ACCORDING TO HIM, THE ASSESSEE RAISES FROM MINES IRON ORES LUMPS & FINES WITH VARYING IRON (FE) CONTENT. ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 5 WHILE PROCESSING IRON ORE LUMPS, SUB GRADE SCREEN FINES ARE AUTOMATICALLY GENERATED ALONG WITH SIZED ORE. SUB GRADE SCREEN FINES ARE THE FINES GENERATED IN THE SCREENING PROCESS WITH LOW FE CONTENT AND THATS WHY IT IS CALLED SUB-GRADE SCREEN FINES. IT WAS BROUGHT TO OUR NOTICE THAT SINCE SUB-GRADE SCREEN FINES ARE A BY-PRODUCT WITH LOW FE CONTENT, NO COST IS SEPARATELY ATTRIBUTABLE FOR ITS RAISING. THEREFORE, IN THE REGULAR BOOKS OF ACCOUNTS, THE ASSESSEE REPORTS THE FINES AT NIL VALUE. IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS MAINTAINS STOCK REGISTER AT THE MINES SITES WHEREIN ALL THE DETAILS OF THE PRODUCTION OF IRON ORE LUMPS, SIZED ORES AND FINES ARE RECORDED ALONG WITH THE DETAILS OF RAISING OF IRON ORES DONE AND DISPATCHES MADE FROM THE MINES. THUS, ACCORDING TO THE ASSESSEE COMPANY, THE FULL QUANTITIES OF IRON ORES RAISED BY THE ASSESSEE ARE DULY ACCOUNTED IN THE STOCK REGISTER MAINTAINED IN THE NORMAL COURSE OF BUSINESS. OUR ATTENTION WAS DRAWN TO THE IMPORTANT FACT THAT THE ASSESSEE HAS REPORTED TO THE DIRECTOR GENERAL OF MINES IN THE STATUTORY FORM H-1 IN WHICH THE QUANTITY OF PRODUCTION OF SIZED ORES AND SUB-GRADE FINES ARE REPORTED AND LD.AR DREW OUR ATTENTION TO PAPER BOOK PAGE NO.64 TO 87 I.E. FORM H-1 WHICH WAS DULY FILED BY THE ASSESSEE COMPANY WITH THE DIRECTOR GENERAL OF MINES IN RESPECT OF SIZED ORE AND SUB-GRADE FINES. ACCORDING TO ASSESSEE, THE FORM H-1 WHICH IS FILED BEFORE THE DIRECTOR GENERAL OF MINES IS AS PER THE STOCK REGISTER MAINTAINED BY THE ASSESSEE COMPANY AT THE MINING SITE. IT WAS BROUGHT TO OUR NOTICE THAT THE OFFICERS OF THE MINING DEPARTMENT REGULARLY VISIT MINE HEADS FOR INSPECTION AND TO VERIFY THE STOCK REGISTER MAINTAINED BY THE ASSESSEE COMPANY. THUS, IT WAS CONTENDED BY THE LD.AR THAT THE STOCK OF SCREEN FINES ARE PROPERLY MAINTAINED AND ARE PART OF REGULAR BOOKS OF ACCOUNTS (STOCK REGISTER MAINTAINED BY THE ASSESSEE COMPANY). OUR ATTENTION WAS DRAWN TO THE DETAILS OF STOCK AS PER FORM H-1FOR F.Y. 2010-11 (A.Y. 2011-12) AND F.Y 2011-12 (A.Y.2012-13) WHICH IS REPRODUCED HEREUNDER:- GRADE (% OF FE CONTENT) OPENING STOCK OF MINE-HEAD PRODUCTION DISPATCHES FROM MINE-HEAD CLOSING STOCK AT MINE-HEAD (1)LUMPS: (A) 58% TO BELOW 60% 6,578,840 6,407.440 171.400 (B) 60% TO BELOW 62% 5.440 520,214.400 519,816.550 403,290 (C) 62% TO BELOW 65% 3,712,980 531,866.250 531,004.660 4,574,570 ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 6 TOTAL (LUMP) 10,297.260 1,052,080.650 1,057,228.650 5,149.260 (2) FINES (A) BELOW 55% 2,004,540.558 567,595.100 170,884.410 2,401,251.248 (B) 55% TO BELOW 58% 5,470.400 5,470.400 (C) 60% TO BELOW 62% 566,838.900 31,528.110 535,310.790 (D) 62% TO BELOW 65% 351,972,590 227,558.330 277,133.320 302,397.600 TOTAL (FINES) 2,355,513.148 1,367,462.730 479,545.840 3,244,430,038 GRAND TOTAL 2,366,810.41 2,419,543.38 .6,774.49 3,249,579.30 8. ACCORDING TO LD AR, FROM A PERUSAL OF THE AFORESAID CHART CLEARLY SHOWS THAT THE FINES BELOW 55% HAD BEEN DULY RECORDED AND REPORTED TO THE STATUTORY AUTHORITIES WHICH REGULATED ASSESSEES MINING OPERATIONS. THESE DOCUMENTS ACCORDING TO HIM THEREFORE SHOW THAT THE ASSESSEE HAD BEEN MAINTAINING STOCK REGISTER OF THE FINES BELOW 55% AND THAT IS WHY IT WAS ABLE TO FILE THE DETAILS OF STOCK AS PER FORM H-1 FOR A.Y. 2011-12 & 2012-13 BEFORE THE DIRECTOR GENERAL OF MINES. THE LD AR POINTED OUT THAT FOR AY 2011-12, THE FORM H-1 WAS SENT ON 24.10.2011 AND FORM H-1 FOR AY 2012-13 ON 03.07.2012 WHICH MEANS THAT STOCK OF THE FINES BELOW 55%, FOR BOTH THESE YEARS WAS REPORTED TO THE DIRECTOR GENERAL OF MINES BEFORE THE DATE OF SEARCH ON 13.09.2012 (BEFORE TWO MONTH IN RESPECT TO 2012-13). 9. THE LD AR FURTHER CONTENTED THAT THE ASSESSEE COMPANY HAS BEEN CONSISTENTLY TREATING THE VALUE OF THE IRON ORE FINES FE CONTENT BELOW 55% AT NIL, SINCE IT WAS TREATED AS WASTE /BY PRODUCT AND WHEN THE SALE OF THIS FINES TAKES PLACE, IT IS READILY OFFERED AS INCOME WHICH PRACTICE THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING AND HAS BEEN ACCEPTED AS SUCH BY THE DEPARTMENT IN RESPECT OF AY 2009-10, FOR WHICH SCRUTINY ASSESSMENT WAS CONDUCTED U/S 147/143(3) AND ORDER WAS PASSED ON 18.03.2016 WHICH IS PLACED AT PAGE 62 OF THE PAPER BOOK. IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN AY 2011-12, THE SAME PRACTICE WAS CONSISTENTLY FOLLOWED AND THE VALUE OF FINES BELOW 55% FE CONTENT WAS TAKEN AS NIL AND WHENEVER SALES MATERIALIZED, THE SAID INCOME WAS OFFERED FOR TAXATION. ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 7 10. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE DIFFERENT KIND OF IRON ORES WITH FE CONTENT ARE MINED/RAISED BY THE ASSESSEE COMPANY AND EXCEPT FOR THE FINES WHICH ARE BELOW 55%, THE ASSESSEE HAS BEEN MAINTAINING STOCK AND ITS VALUE AND DREW OUR ATTENTION TO THE CHARTS (INFRA) WHICH IS REPRODUCED AS UNDER:- FY 2010-11 SIZE SUM OF QTY SUM OF EX MINES CLO (5 TO 18 MM) 342928.000 1628161248 CRUSHED / NATURAL FINES 367872. 490 592158647 LUMP (40TO 200 MM) 363597.780 1175929751 LUMP (10 TO 40 MM) 205952.220 551160356 SUB GRADE LUMP 17335.410 9480637 SUB GRADE SCREEN FINES 50962.250 50387491 GRAND TOTAL IRON 1348648.150 4007278129 LUMP-MN 16688.560 145804116 GRAND TOTAL 1365336.710 4153082244.920 FY 2011-12 ITEM SUM OF QTY SUM OF EX MINES CLO (5 TO 18 MM) 350190.659 2044751679 CRUSHED FINES / NATURAL FINES 308650.225 752024712 LUMP ( 40 TO 200 MM) 290260.845 1393258339 LUMP (10 TO 40 MM) 409618.244 1669747493 SUB GRADE LUMP ( 40 TO 200 MM) 4912.050 6385665 SUB GRADE LUMP (10 TO 40 MM) 1495.390 1944007 SUB GRADE SCREEN FINE 170884.410 248187824 TOTAL IRON 1536011.823 6116299719 LUMP-MN 4853.130 29462041 GRAND TOTAL 1540864.953 6145761760.085 ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 8 11. IT WAS ALSO BROUGHT TO OUR NOTICE THAT SINCE THE FINES BELOW FE CONTENT 55% WAS TREATED AS WASTE, IT USED TO BE ACCUMULATED AND THUS GOT PILED UP FOR YEARS IN THE MINING AREAS OF THE ASSESSEE COMPANY. AND THESE WERE USED FOR LAND FILLING OR TO MAKE ROADS WITHIN MINES AND WHENEVER SALES TOOK PLACE IT WAS DULY RECORDED IN THE BOOKS ON CASH BASIS. SINCE THE STOCKS OF SUB GRADE IRON ORE FINES WERE GETTING PILED UP FOR YEARS DUE TO ABSENCE OF DEMAND, ITS VALUE WAS NEVER ACCOUNTED IN THE BOOKS. HOWEVER IN RECENT TIMES DUE TO SHORTAGE OF QUALITY ORE, EVEN THE SUB GRADE FINES WERE ATTRACTING REGULAR ORDERS AND THEREFORE THE MANAGEMENT OF THE ASSESSEE COMPANY WAS CONTEMPLATING TO ACCOUNT THE SAME IN ITS FINANCIAL ACCOUNTS AND, THEREFORE, AN INTERNAL SURVEY WAS CONDUCTED BY THE ASSESSEE COMPANY ITSELF TO QUANTIFY THE ACTUAL QUANTITY AND VALUE OF THE FINES AVAILABLE IN STOCK AT THE MINES. THE INTERNAL AUDIT/SURVEY BY THE ASSESSEE COMPANY HAD PRESENTED ITS REPORT AND WAS IN POSSESSION OF THE COMPANYS SENIOR MANAGEMENT WHEN THE SEARCH TOOK PLACE ON 13.09.2012 AND THIS WAS SEIZED AND MARKED AS PKS/1. IT WAS BROUGHT TO OUR NOTICE THAT THIS REPORT IS NOTHING BUT A PRINT OUT OF AN EMAIL SENT BY THE SENIOR STAFF OFFICER OF THE COMPANY TO SH. PRADEEP KUMAR SARAF TO APPRISE HIM ABOUT THE STOCK TAKING OF SUB GRADE FINES AT THE MINING SITE AND REQUESTING HIM TO DECIDE AS TO WHETHER TO VALUE OF THE STOCK OF SUB-GRADE FINES IS TO BE ACCOUNTED OR NOT. SO, WHEN THE SEARCH PARTY TOOK THE STATEMENT OF SH. PRADEEP KUMAR SARAF U/S 132(4) DURING THE SEARCH ON 13.09.2012, THE DISCLOSURE OF RS.61 CRORES WHICH INCLUDED THE VALUATION OF SUB-GRADE FINES/STOCK TO THE TUNE OF RS.59,09,00,000/- WAS MADE BY HIM. AND THE SAID INCOME WAS DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME, AND THIS WAS THE BASIS ON WHICH PENALTY U/S 271AAB OF THE ACT WAS INITIATED AND LEVIED ON THE ASSESSEE. THEREFORE, THE VOLUNTARY STATEMENT RECORDED U/S. 132(4) OF FINES, STOCK WHICH WAS RECORDED IN THE BOOKS OF THE ASSESSEE, BEFORE SEARCH CANNOT FALL IN THE KEN OF UNDISCLOSED INCOME AS DEFINED IN SUB CLAUSE (C) UNDER EXPLANATION TO SEC. 271AAB OF THE ACT. AND SO ACCORDING TO LD. AR, IN NO WAY PENALTY U/S. 271AAB OF THE ACT IS LEVIABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. AND THE LD. CIT(A) HAS RIGHTLY APPRECIATED THE FACTS AND DELETED THE ATTENTION. IN RESPECT TO THE REVENUES RELIANCE ON THE ORDER OF THE HONBLE ALLAHABAD HIGH COURT IN SANDEEP CHANDAK (SUPRA) HE DISTINGUISHED IT, WHICH WE WILL STATE INFRA. THUS, ACCORDING TO LD AR, THE ADDITIONAL INCOME OF RS.59,09,00,000/- OFFERED IN THE STATEMENT U/S 132(4) ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 9 WAS BY WAY OF VALUATION OF CLOSING STOCK OF SUB-GRADE FINES WHICH FORMED PART OF THE REGULAR STOCK RECORDS AND HENCE DID NOT QUALIFY AS UNACCOUNTED STOCK WHICH MAY BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. THEREFORE THE ORDER OF LD CIT(A) DELETING THE PENALTY DOES NOT BE DISTURBED. 12. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD, CONSIDERED THE APPLICABLE LEGAL PROVISIONS AND SCRUTINIZED THE JUDICIAL PRECEDENTS RELIED UPON. THE SUM AND SUBSTANCE OF THE ISSUE TO BE ADJUDICATED IN THE PRESENT APPEAL IS WHETHER THE INCOME OFFERED BY THE ASSESSEE IN ITS RETURN FOR AY 2012-13 BEING THE VALUE OF CLOSING STOCK OF SUB-GRADE FINES HAVING COST OF RS.59,09,00,000/- CAN BE CONSIDERED TO BE UNDISCLOSED INCOME FOUND IN THE COURSE OF SEARCH SO AS TO WARRANT PENALTY U/S 271AAB OF THE ACT. BEFORE DEALING WITH THIS ISSUE, IT WILL BE APPROPRIATE TO DISCUSS THE RELEVANT FACTUAL BACKGROUND. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN OPERATING MINES IN THE STATE OF ORISSA AND THE ASSESSEE EXTRACTS IRON ORE AS WELL AS MANGANESE ORE. THE ORE EXTRACTED FROM THE WOMB OF THE MOTHER EARTH IS A NATURAL PRODUCT, WHICH CANNOT STRAIGHTAWAY BE USED FOR INDUSTRIAL PURPOSES. IN THE CIRCUMSTANCES THEREFORE THE ORE EXTRACTED FROM THE WOMB OF THE MOTHER EARTH, WHICH IS CALLED RUN-OF-THE-MINES (ROM) IS REQUIRED TO BE PROCESSED. FURTHER THE PROCESSED ORE IS REQUIRED TO BE SEGREGATED ACCORDING TO THE SIZES AND FOR SUCH PURPOSE THE PROCESSED ORE CALLED AS LUMPS IS REQUIRED TO BE SCREENED AND WASHED WITH THE USE OF MACHINERY CALLED WASHERIES. THE END PRODUCT IS THE LUMP ORE, WHICH IS SEGREGATED ACCORDING TO THE SIZES AS ALSO ACCORDING TO THE FE CONTENT AND SUCH FINISHED PRODUCT I.E., IRON ORE IS SOLD BY THE MINES. IN THIS PROCESS HOWEVER CERTAIN DUST-LIKE ORE IS PRODUCED WHICH IS KNOWN IN THE MINING PARLANCE AS FINES. SUCH FINES ARE CONSIDERED TO BE WASTE GENERATED IN THE PROCESS OF MINING OF ORES. SINCE THE FE CONTENT IN MUCH OF THE FINES IS BELOW 55% WHICH IS THRESHOLD FOR MARKETABLE FINES, STOCK OF FINES HAVING SUB 55% FE CONTENT WAS ALWAYS CONSIDERED AS WASTE AND THERE BEING NO REALIZABLE VALUE, TAKEN IN THE BOOKS AT NIL VALUE. IT IS HAS BEEN THE ASSESSEES CONTENTION BEFORE THE LOWER AUTHORITIES THAT SINCE FINES GENERATED IN THE PROCESS OF MINING WAS IN THE NATURE OF WASTE HAVING NO REALIZABLE MARKET VALUE IN THE PAST, SUCH FINES WERE STORED IN THE FORM OF DUMPS OR USED FOR MAKING OF INTERNAL ROADS ETC. WITHIN ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 10 THE MINING AREAS. FOR SUCH REASON IN THE FINANCIAL BOOKS THE PRODUCTION OF FINES WAS NEVER RECOGNIZED AND NO COST FOR EXTRACTION OF SUB-GRADE FINES WAS ATTRIBUTED. THE LD. AR HOWEVER BROUGHT TO OUR ATTENTION THAT THE PRODUCTION OF SUB-GRADE FINES WAS ALWAYS REPORTED TO THE INDIAN BUREAU OF MINES WHICH IS THE CONTROLLING AUTHORITY FOR OPERATION OF MINES IN INDIA TO WHOM EVERY MINE OWNER IS REQUIRED TO FURNISH THE PRODUCTION DETAILS AT PERIODIC INTERVALS. DRAWING ATTENTION TO ANNUAL PRODUCTION RETURNS FILED IN FORM H-1, THE LD. AR BROUGHT TO OUR ATTENTION THAT AS OF 01/04/2011 WHICH WAS THE OPENING DAY OF THE PREVIOUS YEAR RELEVANT TO THE AY 2012-13, THE STOCK OF FINES AT THE MINE-HEAD WAS 23,56,513 MT OUT OF WHICH 20,04,540 MT WAS STOCK OF SUB-GRADE FINES WHICH DID NOT FIND MENTION IN THE ANNUAL AUDITED ACCOUNTS OF THE ASSESSEE COMPANY. THE REMAINING FINES WHICH WERE NOT IN THE NATURE OF SUB-GRADE FINES WERE ACCOUNTED IN THE STOCK RECORDS AS WELL AS FINANCIAL RECORDS AND ITS VALUE WAS DULY INCLUDED IN THE VALUE OF OPENING STOCK. THE LD. AR BROUGHT TO OUR ATTENTION THAT IN THE ASSESSMENT ORDER U/S 153A/143(3) FOR THE AY 2011-12 THE AO HAD ACCEPTED THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE WHERE UNDER THE VALUE / COST OF EXTRACTING SUB-GRADE FINES IN STOCK WAS TAKEN AT NIL. WE FIND THAT THE SAID METHOD OF ACCOUNTING WAS CONSISTENTLY FOLLOWED IN ALL THE PAST YEARS AND IN NONE OF THE ASSESSMENT ORDERS PASSED FOR ANY OF THE PRECEDING YEARS THE AO HAD DISPUTED OR QUESTIONED THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE IN RESPECT OF SUB-GRADE FINES. THE LD. AR ALSO BROUGHT TO OUR ATTENTION THAT AS AND WHEN THE SUB-GRADE FINES WERE SOLD THE ENTIRE SALE PROCEEDS WERE CONSIDERED AS INCOME IN THE YEAR OF SALE AND THIS METHOD WAS ALSO REGULARLY FOLLOWED AND ACCEPTED BY THE REVENUE IN THE PAST AS WELL AS IN THE RELEVANT YEAR UNDER CONSIDERATION. WE THEREFORE FIND THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING A PARTICULAR METHOD OF STOCK VALUATION IN PREPARATION OF ITS ANNUAL FINANCIAL ACCOUNTS. AS PER THE METHOD CONSISTENTLY FOLLOWED AND ACCEPTED BY THE REVENUE, THE STOCK OF SUB-GRADE FINES WAS ALWAYS VALUED AT NIL ALTHOUGH THE DETAILS OF SUCH STOCKS WERE REGULARLY REPORTED BY THE ASSESSEE TO THE INDIAN BUREAU OF FINES IN THE PRESCRIBED FORM. WE THEREFORE FIND THAT THE ASSESSEE FOLLOWED A PARTICULAR METHOD IN RESPECT OF REPORTING OF STOCK OF SUB-GRADE FINES IN ALL THE PAST ASSESSMENTS AND FOLLOWING SUCH CONSISTENT METHOD, IN THE ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2012 ALSO, THE VALUE OF STOCK OF SUB-GRADE FINES WAS TAKEN AT NIL. ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 11 13. SECTION 145A OF THE INCOME-TAX ACT, WHICH DEALS WITH THE METHOD OF VALUATION OF STOCK FOR THE PURPOSES OF SECTION 145 OF THE ACT, REQUIRES THE ASSESSEE TO FOLLOW ANY OF ACCEPTED METHODS OF STOCK VALUATION ON THE CONDITION THAT THE METHOD ONCE ADOPTED MUST BE FOLLOWED CONSISTENTLY. WE THEREFORE FIND THAT FOLLOWING THE CONSISTENT METHOD OF VALUATION FOLLOWED IN THE PAST AND ACCEPTED BY THE REVENUE EVEN IN THE FINANCIAL ACCOUNTS FOR THE YEAR ENDING 31.03.2012, THE ASSESSEE HAD VALUED THE STOCK OF SUB- GRADE FINES AT NIL. HAVING REGARD TO THESE FACTS THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ACCOUNTS AND FIND MERIT IN THE LD. ARS SUBMISSIONS THAT NO UNDISCLOSED INCOME COULD BE INFERRED MERELY BECAUSE IN THE ACCOUNTS THE VALUE OF STOCK OF SUB-GRADE FINES WAS TAKEN AS NIL. 14. WE NOTE THAT THE DEPARTMENT HAS BEEN CONSISTENTLY ACCEPTING THE ASSESSEE'S METHOD OF ACCOUNTING EMPLOYED WHEREBY IT VALUED THE SUB-GRADE FINES IN STOCK AT NIL AND THE GROSS PROCEEDS REALIZED ON SALE WAS ASSESSED BY WAY OF INCOME IN THE YEAR ON SALE WHICH IS EVIDENT FROM THE INCOME-TAX ASSESSMENTS FRAMED FOR THE ALL THE PRECEDING YEARS. THEREFORE FOLLOWING THE RULE OF CONSISTENCY WE DO NOT FIND ANY INFIRMITY IN THE ASSESSEES STAND REGARDING VALUATION OF SUB-GRADE FINES AT NIL. FOR THAT WE RELY ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT REPORTED IN 193 ITR 321 (SC), WHEREIN IT WAS HELD. THAT : AS WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND THE PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD. NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 15. IT IS ALSO MATERIAL TO TAKE NOTE OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM V. CIT REPORTED IN 24 ITR 481, APPROVING THE UNDERLYING RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER, AND THAT IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IN THAT JUDGMENT THE HONBLE APEX COURT ALSO OBSERVED THAT THE VALUATION OF CLOSING STOCK CANNOT BE CONSTRUED TO BE A SOURCE OF INCOME BECAUSE FOR THE SIMPLE REASON THAT THE VALUE OF INVENTORY ADOPTED AT THE END OF ONE PREVIOUS YEAR CONSTITUTES THE VALUE OF OPENING INVENTORY FOR THE SUBSEQUENT ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 12 PREVIOUS YEAR AND THEREFORE ALLOWABLE AS DEDUCTION IN THE SUBSEQUENT YEAR. THE RELEVANT EXTRACTS FROM THIS JUDGMENT IS REPRODUCED BELOW: 16. FROM THE FOREGOING DECISIONS OF THE JUDICIAL AUTHORITIES WE FIND THAT IN THE ASSESSEES CASE, IT ALWAYS REPORTED THE DETAILS OF PRODUCTION AS WELL AS INVENTORY OF SUB-GRADE FINES TO THE INDIAN BUREAU OF MINES AS REQUIRED UNDER THE RELEVANT LAWS GOVERNING THE ASSESSEES MINING OPERATIONS AND SUCH DETAILS WERE AVAILABLE IN PUBLIC DOMAIN. IN RESPECT OF PRODUCTION AND STOCK OF SUB-GRADE FINES APPROPRIATE STOCK RECORDS WERE ALSO MAINTAINED AT THE MINES. HOWEVER IN THE FINANCIAL ACCOUNTS THE STOCK OF SUB-GRADE FINES WAS NOT SEPARATELY DISCLOSED FOR THE REASON THAT NO SEPARATE AND IDENTIFIABLE COST WAS INCURRED BY THE ASSESSEE FOR EXTRACTING SUB-GRADE FINES, NOT HAVING ANY READY MARKET. HOWEVER AS AND WHEN ANY PRICE WAS ACTUALLY REALIZED, THE ENTIRE SALE PROCEEDS WERE ACCOUNTED AS INCOME IN THE YEAR OF SALE. THIS ACCOUNTING PRACTICE AND METHOD OF VALUATION REGULARLY FOLLOWED BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE IN ALL THE PAST ASSESSMENTS FRAMED U/S 143(3) OR 153A AS THE CASE MAY BE. 17. FROM THE DOCUMENTS ON RECORD WE FIND THAT THE ISSUE WITH REGARD TO ADDITION ON ACCOUNT OF VALUATION OF INVENTORY OF SUB-GRADE FINES AROSE PRIMARILY BECAUSE OF THE LETTER DATED 01/06/2012 WHICH WAS FOUND AND SEIZED IN THE COURSE OF SEARCH ON 13/09/2012 BEARING ID MARK PKS-1 PAGES 1 TO 5. THE SAID LETTER WAS ADDRESSED TO THE MANAGEMENT OF THE COMPANY BY MR. RAJ AGARWAL, THE MINES MANAGER AT NARAYANPOSHI IRON ORE MINES. IN THIS LETTER THE MINES, MANAGER HAD INFORMED THE MANAGEMENT THAT TILL FINANCIAL YEAR 2011-12 THE SUB-GRADE FINES WERE NOT MUCH IN DEMAND DUE TO LOW FE CONTENT AND ALMOST ENTIRE SUB-GRADE FINES GENERATED WERE STOCKED IN THE MINES ONLY. HOWEVER SINCE IN THE RECENT TIMES THERE WAS A DEMAND FOR SUB-GRADE FINES AS WELL, HE HAD BROUGHT TO THE ATTENTION OF THE MANAGEMENT THAT THE COST ASSOCIATED WITH RAISING OF SUB-GRADE FINES COULD BE SEPARATELY RECOGNIZED IN THE BOOKS AND THE STOCK OF SUCH SUB-GRADE FINES COULD BE DISCLOSED IN THE ACCOUNTS AS A SEPARATE ITEM OF INVENTORY. THE MINES, MANAGER HAD ALSO GIVEN BRIEF ESTIMATE OF COSTS WHICH COULD BE REASONABLY ALLOCATED TOWARDS EXTRACTING OF SUB-GRADE FINES. IN THE SAID LETTER, THE MINE, MANAGER HAD ESTIMATED THE PER TON COST FOR PRODUCTION OF SUB-GRADE ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 13 FINES AT RS.168.59 WHICH PRIMARILY CONSISTED OF DIRECT COSTS ASSOCIATED WITH EXCAVATION AND SCREENING AND NO INDIRECT COSTS WERE CONSIDERED. IN THE COURSE OF SEARCH THESE DOCUMENTS WERE CONFRONTED TO SHRI PRADEEP KR. SARAF, MD OF THE ASSESSEE COMPANY. FOR THE SAKE OF BREVITY THE RELEVANT QUESTIONS AND ANSWERS PERTAINING TO THIS ISSUE ARE EXTRACTED BELOW: Q-9 AS PER THE SEIZED DOCUMENTS VIDE ID MARK, PKS/1 PAGES 1 TO 5, IT WAS FOUND THAT A SURVEY WAS CONDUCTED BY MINES DEPARTMENTS AND IT WAS FOUND THAT TOTAL QUANTITY AS ON 16.05.2012 OF 2206030 MT. OF SUB GRADE SCREEN FINES WAS LYING IN NARAYANPOSHI IRON ORE MINES. HOWEVER, YOU HAVE TAKEN CLOSING STOCK VALUE OF THIS SUB GRADE FINES AS NIL. FURTHER, YOU HAVE MADE YOUR OWN CALCULATION AND PRODUCTION COST OF SUB GRADE SCREEN FINES WAS TAKEN AS 168.59 PER TON. PLEASE EXPLAIN. ANS- THE QUANTITY OF SUB GRADE SCREEN FINES MENTIONED IN THE SEIZED DOCUMENTS IS CORRECT BUT THIS IS A MATERIAL WHICH HAS NO RAISING COST. IT IS A MATERIAL WHICH HAS NO RAISING COST. IT COMES AUTOMATICALLY WITH HIGH GRADE OF IRON ORE WHICH IS SOLD IN THE OPEN MARKET AS SUCH IT HAS CORRECTLY BEEN TAKEN AS NIL VALUE. BUT WE DO NOT WANT TO DISPUTE MISTAKENLY VALUATION MADE BY OUR STAFF IN THE SAID DOCUMENTS AND WE ADMIT THE SAME AND WILL BE ACCOUNTED IN OUR BOOKS OF ACCOUNTS I.E. ARYAN MINING & TRADING CORPORATION (P) LTD. Q-10 WHY NOT OTHER EXPENSES WERE INCLUDED IN COST OF PRODUCTION OF SUB GRADE SCREEN FINES. PLEASE RECONCILE YOUR COST OF PRODUCTION AFTER ADDING OF OTHER EXPENSES. ANS- AS ALREADY EXPLAINED TO THE ANSWER IN THE Q.NO..9 AT THE BEST THE TOTAL VALUE OF THE SUB GRADE SCREEN FINES CAN BE RS.250 PER MT. CONSIDERING ALL THE COST OF WHATEVER THE NATURE. Q-11 DO YOU WANT TO ADD, ALTER OR MODIFY THE STATEMENT? ANS- YES, ON BEHALF OF ARYAN MINING & TRADING CORPORATION (P) LTD., I MAKE A DISCLOSURE OF AN ADDITIONAL INCOME OF RS.61/- (SIXTY ONE) CRORE ON ACCOUNT OF THE VALUE OF SUB GRADE SCREEN FINES AS MENTIONED IN THE SEIZED DOCUMENTS PKS/1, PAGE NO.1 TO 5 AND FURTHER SUB GRADE SCREEN FINES GENERATED DURING THE CURRENT YEAR UP TO DATE OF AROUND 2,30,000 MT. THE YEAR WISE BREAK-UP IS AS UNDER: F.Y 2011-12 - 55.15 CRORE (2206000 MT @ 250 PER TON) F.Y 2012-13 - 5.85 CRORE (230000 MT APPROX) TOTAL - 61.00 CRORES (RS. SIXTY ONE CRORES) 18. FROM THE FOREGOING IT THEREFORE TRANSPIRES THAT SAVE & EXCEPT THE LETTER DATED 01/06/2012 WHICH THE DIRECTOR OF THE ASSESSEE RECEIVED FROM THE MINES MANAGER, NO OTHER INCRIMINATING DOCUMENT WAS FOUND OR UNEARTHED AS A RESULT OF SEARCH CONDUCTED U/S 132 OF THE ACT ON THE BASIS OF WHICH IT COULD BE HELD THAT AS A RESULT OF SEARCH ANY UNDISCLOSED OR UNDECLARED ASSET BELONGING TO THE ASSESSEE WAS FOUND. THE ISSUE RELATED ONLY TO DETERMINATION OF COST OF EXTRACTION AND PRODUCTION OF SUB-GRADE FINES WHICH ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 14 WERE REGULARLY ACCOUNTED IN THE STOCK RECORDS OF THE ASSESSEE BUT IN THE FINANCIAL ACCOUNTS THE VALUE OF STOCK WAS ALWAYS REPORTED AT NIL. THE ISSUE AT HAND WAS THEREFORE DETERMINATION AND VALUATION OF INVENTORY OF SUB-GRADE FINES FOR THE PURPOSES OF REPORTING IT IN ANNUAL FINANCIAL ACCOUNTS SO AS TO ASCERTAIN THE PROFITS. HOWEVER AS HELD BY THE HONBLE APEX COURT IN THE CASE OF CHAINRUP SAMPATRAM V. CIT (SUPRA), THE VALUATION OF INVENTORY COULD NOT ITSELF BE CONSTRUED TO BE A SEPARATE & IDENTIFIABLE SOURCE OF INCOME. FROM THE RECORDED STATEMENT U/S 132(4), IT APPEARED THAT THE DIRECTOR HAD ADMITTED TO ACCOUNT INVENTORY VALUE AT THE RATE OF RS.250 PER TON IN THE BOOKS, WHICH WOULD HAVE CONSEQUENTIAL EFFECT ON THE DETERMINATION OF COMPANYS INCOME FOR AY 2012-13 AND 2013-14. WE ALSO NOTE THAT EVEN IN THE ORDER U/S 143(3) DATED 28.04.2014, IT WAS NOT THE AOS FINDING THAT THE SUM OF RS.59,09,00,0000/- VOLUNTARY OFFERED AS INCOME BY THE ASSESSEE REPRESENTED UNDISCLOSED INCOME WHICH WAS UNCOVERED AS A RESULT OR CONSEQUENCE OF THE SEARCH. THE RELEVANT FINDINGS OF THE AO IN PARA 7.1 TO 7.3 OF THE ASSESSMENT ORDER U/S 143(3) WAS AS FOLLOWS: 7.1 THE SUBMISSION MADE BY THE ASSESSEE WAS CONSIDERED. THE MAIN PROCESS INVOLVE IN THE RAISING OF IRON ORE ARE EXCAVATION, RAISING, SCREENING AND CRUSHING. THE SUB-GRADE SCREEN FINES ARE AUTOMATICALLY GENERATED WITH HIGH GRADE IRON ORE EITHER AT THE TIME OF RAISING OR CRUSHING. THE SUB-GRADE FINES DID NOT HAVE MARKET EARLIER AND AS SUCH IT WAS DUMPED BY THE ASSESSEE AT ITS MINING SITES WITHOUT MAKING VALUATION OF THE SAME. THE ENTIRE PROCESS COST WAS ABSORBED BY THE HIGH VALUE MARKETABLE ORES AND NO COST WAS APPORTIONED FOR BEING ATTRIBUTABLE TO THE SUB-GRADE SCREEN FINES. AS THE COST WAS 'NIL', THE VALUATION OF SUB-GRADE SCREEN FINES STOCK WAS ALSO BEING TAKEN AS NIL. THE SALES OF SUB-GRADE SCREEN FINES ARE MADE AND REFLECTED IN THE ACCOUNTS. 7.2 HOWEVER, DURING THE F.Y.2012-13, THE MANAGEMENT OF THE ASSESSEE COMPANY DECIDED TO QUANTIFY THE STOCK OF SUB-GRADE SCREEN FINES AND ESTIMATE ITS APPROXIMATE COST. A SURVEYOR WAS APPOINTED FOR THAT PURPOSE. THE A/R OF THE ASSESSEE COMPANY EXPLAINED THAT THE SEIZED DOCUMENT CONTAINED, THE QUANTIFICATION AND ESTIMATED APPORTIONMENT OF COST OF SUB-GRADE SCREEN FINES AS EVALUATED BY THE SURVEYOR. THE STOCK OF SUB-GRADE SCREEN FINES WAS ESTIMATED AT 22,06,030 MT AND APPORTIONED COST ATTRIBUTABLE TO-THE SUB-GRADE FINES AT RS.168.59/- PER METRIC TONNE. THE BREAK-UP OF THE SAME SUBMITTED BY THE A/R IS RS.145.54 AS COST INCURRED UP TO THE PROCESS OF SCREENING PLUS ALLOCATION OF OVERHEAD OF RS.23.05/- TOTALLING TO RS.168.59/- PER MT. THE SUBMISSION MADE BY THE AR IS BASED ON ESTIMATION ONLY. THEREFORE, APPORTIONMENT OF PROCESS COST ATTRIBUTABLE TO THE SUB-GRADE SCREEN FINES AT RS.168.59 PER MT IS NOT ACCURATE OR FREE FROM ERROR. HENCE, TO TAKE A MORE REALISTIC APPORTIONMENT OF COST ATTRIBUTABLE TO THE PRODUCTION OF SUB-GRADE SCREEN FINES, THE COST IS TAKEN AT RS.250/- PER METRIC TONNES. 7 .3 THE QUANTIFICATION OF SUB-GRADE SCREEN FINES AS ON L6-05-2012 WAS 22,06,030 MT. HOWEVER, THE AR OF THE ASSESSEE FURNISHED THE ACTUAL BREAK-UP OF THE STOCK OF SUB-GRADE SCREEN FINES AS ON 3L-03-2012 AT 23,63,615 MT. THE VALUATION OF THE SAME @ RS.250/- PER MT COMES TO RS.59,09,03,750/- AND THE SAME IS CONSIDERED AS UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 2012-13 IN THE HANDS OF THE ASSESSEE COMPANY. ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 15 19. FROM THE FOREGOING FINDINGS OF THE AOS ORDER WE NOTE THAT EVEN IN AOS OPINION THE ADDITION OF RS.59,09,00,000/- WAS PRINCIPALLY MADE ON ACCOUNT OF INVENTORY VALUATION IN RESPECT OF 23,63,615 MT OF SUB-GRADE FINES. WE ALSO NOTE THAT THERE IS NO EVIDENCE ON RECORD THAT AT THE TIME OF SEARCH, THE SEARCH PARTY HAD CARRIED OUT PHYSICAL INSPECTION OF THE INVENTORY AND RESULT THEREOF WAS COMPARED WITH THE STOCK RECORDS AND CONSEQUENTLY EXCESS QUANTITY OR UNACCOUNTED STOCK WAS FOUND. IT CANNOT THEREFORE BE HELD THAT THE ADDITION OF RS.59,09,00,000/- WAS RESULT OF THE DETECTION OF UNACCOUNTED OR UNRECORDED OR UNDISCLOSED STOCK, PRODUCED OUTSIDE THE REGULAR BOOKS. ON THE CONTRARY WE FIND THAT THE ENTIRE ADDITION ON ACCOUNT OF VALUATION WAS PROMPTED AS A RESULT OF THE LETTER OF MINES MANAGER DATED 01/06/2012 WRITTEN PURSUANT TO THE PHYSICAL STOCK TAKING CARRIED OUT AT THE MINES BY THE COMPANY ITSELF. WE ALSO FIND THAT FOR THE FY 2011-12, THE ASSESSEE HAD FILED ITS ANNUAL RETURN WITH DIRECTOR GENERAL OF MINES ON 03/07/2012 WHICH WAS PRIOR TO THE DATE OF SEARCH I.E. 13/09/2012. FROM THE ANNUAL RETURNS FOR FYS 2010-11 & 2011-12 WHICH ARE AT PAGES 64 TO 87 OF PAPER-BOOK, WE NOTE THAT IN THESE RETURNS APART FROM REPORTING THE PRODUCTION QUANTITIES OF SIZED ORES AND FINES; THE ASSESSEE HAD ALSO REPORTED THE PRODUCTION AND STOCK OF SUB-GRADE FINES FOR THE RESPECTIVE FINANCIAL YEARS. FROM THESE FIGURES WE NOTE THAT AS ON THE 1 ST DAY OF THE RELEVANT FINANCIAL YEAR I.E. 01/04/2011, THE ASSESSEE WAS ALREADY HOLDING SUB-GRADE FINES OF 20,04,540 MT IN STOCK, WHICH WENT UP TO 2363615.16 MT BY 31/03/2012. EVEN THOUGH AS ON 31/03/2011,QUANTITY OF SUB- GRADE FINES IN STOCK REPORTED TO DG, MINES WAS 20,04,540 MT, THE SAME AO ACCEPTED ITS VALUATION AT NIL IN THE ASSESSMENT ORDER FRAMED U/S 153A/143(3) FOR AY 2011-12. HOWEVER WITH REFERENCE TO LETTER DATED 01/06/2012 AND THE STATEMENT RECORDED U/S 132(4) AND WITH REFERENCE TO THE SUO-MOTO OFFER MADE WHILE FILING OF RETURN, THE AO ASSESSED THE VALUE OF ENTIRE 23,63,615.15 MT AT THE RATE OF RS.250/TON AS INCOME OF THE ASSESSEE FOR AY 2012-13. WE THEREFORE FIND THAT SAVE & EXCEPT FOR VOLUNTARY OFFER MADE BY THE ASSESSEE THERE WAS NO INCRIMINATING MATERIAL FOUND AS A RESULT OF WHICH ANY NEW UNDISCLOSED ASSET OR INCOME WAS DISCOVERED IN THE COURSE OF SEARCH. HAD IT BEEN A CASE THAT UNACCOUNTED OR UNDISCLOSED STOCK WAS FOUND AS A RESULT OF OR IN THE COURSE OF SEARCH CARRIED OUT AT THE ASSESSEES PREMISES ON 13/09/2012 THEN IN SUCH CASE, VALUE OF SUCH UNDISCLOSED STOCK WOULD HAVE BEEN ASSESSED AS UNDISCLOSED ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 16 INCOME FOR THE AY 2013-14 BEING THE PREVIOUS YEAR OF ITS DISCOVERY AND NOT AY 2012-13. WE HOWEVER FIND THAT THE IMPUGNED ADDITION OF RS.59,09,00,000/- IS BASED ON THE QUANTITY OF STOCK OF SUB-GRADE FINES REPORTED TO DG, MINES BY THE ASSESSEE ON 03/07/2012 IN PRESCRIBED FORM H1. THE SAID ANNUAL RETURN IN FORM H1 WAS FILED IN COMPLIANCE WITH THE MINING REGULATIONS GOVERNING OPERATIONS OF ASSESSEES MINE AND THEREFORE SUCH RETURN CAME WITHIN THE EXPRESSION OTHER DOCUMENTS MAINTAINED IN REGULAR COURSE OF BUSINESS AS USED IN EXPLANATION (C) TO SECTION 271AAB OF THE ACT. WE ALSO NOTE THAT FOR THE PURPOSES OF REPORTING THE PRODUCTION QUANTITIES TO THE MINING AUTHORITIES THE ASSESSEE REGULARLY MAINTAINED STOCK REGISTER, WHICH INTER ALIA INCLUDED THE RECORDS MAINTAINED FOR PRODUCTION OF SUB-GRADE FINES AS WELL. WE FIND THAT IT WAS NOT EVEN THE AOS CASE THAT THE VALUE OF 23,63,615 MT WITH REFERENCE TO WHICH ADDITION OF RS.59,09,00,000/- WAS MADE, WAS IN THE NATURE OF UNDISCLOSED STOCK WHICH WAS PRODUCED ONLY DURING FY 2011-12 RELEVANT TO AY 2012-13. IN THE LIGHT OF THE AFORESAID FACTS, THE QUESTION ARISES WHETHER THE INCOME OF RS.59,09,00,000/- ASSESSED IN THE ORDER U/S 143(3)/153A COULD BE HELD TO BE UNDISCLOSED INCOME WITHIN THE MEANING ASSIGNED TO THAT EXPRESSION IN EXPLANATION (C) TO SECTION 271AAB OF THE ACT. 20. THE EXPRESSION UNDISCLOSED INCOME FOR THE PURPOSES OF LEVY OF PENALTY U/S 271AAB HAS A DEFINITE AND SPECIFIC MEANING AND THE SAID WORD OR EXPRESSION DOES NOT HAVE ANY LOOSE OR COLLOQUIAL MEANING. UNLESS AND UNTIL INCOME OFFERED TO TAX BY AN ASSESSEE COMES WITHIN THE MISCHIEF OF UNDISCLOSED INCOME AND THAT TOO OF THE SPECIFIED PREVIOUS YEAR IT IS NOT OPEN FOR THE AO TO INVOKE PROVISIONS OF SECTION 271AAB OF THE ACT. WE FURTHER NOTE THAT THE EXPRESSION UNDISCLOSED INCOME HAS BEEN DEFINED IN CLAUSE (C) AND THE SAID CLAUSE READS AS FOLLOWS: 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, 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 ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 17 (B) OTHERWISE NOT BEEN DISCLOSED TO THE PRINCIPAL CHIEF COMMISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL COMMISSIONER OR COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT 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. 21. FROM THE FOREGOING DEFINITION OF UNDISCLOSED INCOME WE FIND THAT THIS EXPRESSION IS GIVEN A DEFINITE AND PRECISE MEANING AND THE WORD HAS NOT BEEN DESCRIBED IN AN INCLUSIVE MANNER SO AS TO ENABLE THE TAX AUTHORITIES TO GIVE WIDER OR ELASTIC MEANING WHICH WOULD ENABLE THEM TO BRING WITHIN ITS AMBIT THE SPECIES OF INCOME NOT SPECIFICALLY COVERED BY THE DEFINITION. FROM BARE PERUSAL OF THE DEFINITION OF THE WORD UNDISCLOSED INCOME WE FIND THAT IN ORDER TO BRING A RECEIPT OR SPECIE OF INCOME WITHIN THE MEANING OF THE SAID EXPRESSION, IT IS OBLIGATORY FOR THE AO TO DEMONSTRATE AND PROVE THAT THE INCOME IS REPRESENTED EITHER WHOLLY OR PARTLY BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING FOUND IN THE COURSE OF SEARCH U/S 132 AND WHICH WAS NOT 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 DISCLOSED TO THE COMMISSIONER BEFORE THE DATE OF SEARCH. FROM THE BARE PERUSAL OF THE ASSESSMENT ORDER AND THE PENALTY ORDER, WE NOTE THAT THE ASSESSEE HAD VOLUNTARILY INCLUDED RS.59.09 CRORES ON ACCOUNT OF VALUATION OF SUB-GRADE FINES AS ITS INCOME FOR AY 2012- 22. WE HOWEVER FIND THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO WHICH IN ANY MANNER EVEN SUGGESTED LET ALONE PROVED WITH COGENT MATERIAL THAT THE SAID INCOME WAS ACTUALLY REPRESENTED EITHER WHOLLY OR PARTLY BY ANY SUM OF MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING AND WHICH WAS FOUND AS A RESULT OF SEARCH BUT THE ENTIRE ADDITION WAS MADE WITH REFERENCE TO STOCK OF 23,63,615 MT OF SUB- GRADE FINES REPORTED IN ORDINARY COURSE OF BUSINESS TO DG, MINES IN STATUTORY FORM H1. SINCE NO SUM OF MONEY, BULLION, VALUABLE, STOCK OR ARTICLE EQUIVALENT TO RS.59.09CRORES WAS DISCOVERED BY THE REVENUE IN THE COURSE OF SEARCH, THE ADDITIONAL ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 18 REQUIREMENT OF THE SAME BEING FOUND NOT RECORDED IN THE BOOKS OR OTHER DOCUMENTS WAS REDUNDANT. IN ANY CASE HOWEVER WE FIND THAT THE ASSESSEE REGULARLY MAINTAINED STOCK RECORDS IN RESPECT OF SUB-GRADE FINES AND DETAILS THEREOF WERE ALSO REGULARLY REPORTED TO THE INDIAN BUREAU OF MINES IN FORM H1, WHICH FOR THE RELEVANT YEAR WAS SUBMITTED PRIOR TO THE DATE OF SEARCH ON 03/07/2012. IN THE CIRCUMSTANCES THE STOCK OF 23,63,615 MT OF SUB-GRADE FINES IS FOUND TO HAVE BEEN RECORDED PRIOR TO THE DATE OF SEARCH IN OTHER DOCUMENTS MAINTAINED BY THE ASSESSEE IN REGULAR COURSE OF ITS BUSINESS. WE THEREFORE FIND THAT THE CONDITIONS PRESCRIBED IN FIRST LIMB OF CLAUSE (I) OF CLAUSE (C) OF EXPLANATION WERE NOT SATISFIED. 23. IN THIS REGARD WE RELY ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF DCIT VSMANISH AGARWALA IN ITA NO. 1479/KOL/2015 FOR AY 2013-14 DATED 09.02.2018 WHEREIN THIS TRIBUNAL HELD THAT ANY ENTRIES WHICH ARE FOUND IN OTHER DOCUMENTS MAINTAINED IN REGULAR COURSE OF BUSINESS, IT DOES NOT COME WITHIN THE KEN OF UNDISCLOSED INCOME AS DEFINED IN CLAUSE (C) OF EXPLANATION TO SECTION 271AAB OF THE ACT. 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE SEARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEE'S TRANSACTIONS IN SPECULATIVE COMMODITY FROM THE DRAWER OF ASSESSEE'S ACCOUNTANT FROM WHICH THE AO COULD COMPUTE 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 PROCEEDINGS WHICH FACT HAS BEEN TAKEN NOTE OF AND CONCURRED BY THE LD. CIT(A). THEREAFTER, THE LD. AR DREW OUR ATTENTION TO THE DEFINITION OF UNDISCLOSED INCOME GIVEN UNDER SECTION 271AAB WHICH READS AS UNDER: 'PENALTY WHERE SEARCH HAS BEEN INITIATED. '271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 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 UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE-- ******** EXPLANATION - FOR THE PURPOSES OF THIS SECTION, - (A) .......... (B) .......... (C) 'UNDISCLOSED INCOME' MEANS-- ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 19 (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, 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 CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT 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.' ACCORDING TO THE LD. AR, FROM THE FACTS AND CIRCUMSTANCES 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 ASSESSEE'S 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 ASSESSEE'S TRANSACTIONS (IN THIS CASE, THE SPECULATIVE TRANSACTION) HAS BEEN FOUND TO BE RECORDED IN THE 'OTHER DOCUMENTS' WHICH IS (RETRIEVED FROM THE ASSESSEE'S 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 '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 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 COMMODITY PROFIT RECORDED IN THE OTHER DOCUMENT MAINTAINED BY THE ASSESSEE WHICH WAS RETRIEVED 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 UPHOLD THE ORDER OF THE LD. CIT(A) ON THE AFORESAID REASONING RENDERED BY US. 24. WE NOTE THAT IT HAS BEEN THE SUBMISSION OF THE AO AS WELL AS THE LD. DR BEFORE US THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY AND AUTOMATIC AND THEREFORE IN THE MATTER OF LEVY OF PENALTY THE AO HAD NO DISCRETION ONCE THE ASSESSEE ADMITS OF ANY UNDISCLOSED INCOME IN HIS STATEMENT U/S 132(4) OF THE ACT. SUCH A VIEW GOES AGAINST THE WORDS USED IN SECTION 271AAB AND SECTION 274 OF THE ACT. FOR SAYING SO WE NOTE THAT IF THE INTENTION OF THE LEGISLATURE TO LEVY THE PENALTY WAS MANDATORY AND AUTOMATIC THEN THE RIGHT OF APPEAL U/S 246A WOULD NOT HAVE BEEN PROVIDED FOR BY THE LEGISLATURE AGAINST THE ORDER OF PENALTY PASSED U/S 271AAB OF THE ACT. WE ALSO NOTE THAT WHILE ENACTING SECTION 271AAB THE LEGISLATURE HAS CONSCIOUSLY USED THE ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 20 WORD MAY IN CONTRADISTINCTION TO THE WORD SHALL IN THE OPENING WORDS OF SECTION 271AAB OF THE ACT. THE CHOICE OF THE EXPRESSION MAY AND NOT SHALL IN THE OPENING SECTION OF 271AAB SHOWS THAT THE LEGISLATURE DID NOT INTEND TO MAKE THE LEVY OF PENALTY STATUTORY, AUTOMATIC AND BINDING ON THE AO BUT THE AO WAS GIVEN DISCRETION IN THE MATTER OF LEVY OF PENALTY. OUR FOREGOING VIEW FINDS SUPPORT IN THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AT VISHAKHAPATNAM IN THE CASE OF ACIT VS MARVEL ASSOCIATES (170 ITD 353) WHICH INTURN RELIED ON HONBLE ANDHRA PRADESH HIGH COURT RATIO IN RADHA KRISHNA VIHAR (INFRA). THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN THE SAID DECISION ARE RELEVANT IN THIS REGARD: 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, THE WORDS USED ARE 'AO MAY DIRECT' AND 'THE ASSESSEE SHALL PAY BY WAY OF PENALTY'. SIMILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE ACT, 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 SECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CLEAR INTENTION TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROCEDURE FOR LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. THEREFORE, FROM PLAIN READING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSEE, THE PENALTY CANNOT BE MANDATORY 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 OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JUSTICE. HON'BLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNAVIHAR IN ITTA NO.740/2011 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 OF THE ACT THAT ARE 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 PENALTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHORITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE FACTS 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. 25. AS FAR AS TO THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF PR.CIT VS SANDEEP CHANDAK (SUPRA) IS CONCERNED, WE NOTE THAT THE FACTS OF THE PRESENT ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 21 CASE ARE MATERIALLY DISTINGUISHABLE FROM THE FACTS INVOLVED IN THAT JUDGMENT, WHEREIN THE SURRENDER AND THE SPECIFIC MANNER IN WHICH SUCH UN-DISCLOSED INCOME HAS BEEN DERIVED AND WAS NOT RECORDED IN ANY DOCUMENT BEFORE SEARCH. HOWEVER IN THE CASE IN HAND AS DISCUSSED IN THE FOREGOING, IT IS A MATTER OF RECORD THAT IN THE STOCK RECORDS REGULARLY MAINTAINED AT THE MINES, THE ASSESSEE HAD MAINTAINED PROPER QUANTITATIVE RECORDS IN RESPECT OF PRODUCTION OF SUB-GRADE FINES. WE ALSO NOTE THAT APART FROM MAINTAINING STOCK RECORDS, THE ASSESSEE ALSO REPORTED INVENTORY OF SUB-GRADE FINES HELD AT NARAYANPOSHI IRON ORE MINE AS ON 31/03/2012 IN STATUTORY FORM H1 TO THE INDIAN BUREAU OF MINES ON 03/07/2012. IN THE CIRCUMSTANCES THE INVENTORY OF SUB- GRADE FINES WHOSE VALUE WAS CONSIDERED AS ADDITIONAL INCOME CANNOT BE CONSIDERED TO BE UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH SO AS TO ATTRACT THE RIGORS OF SECTION 271AAB BECAUSE SUCH INVENTORY WAS FOUND RECORDED IN OTHER BUSINESS RECORDS REGULARLY MAINTAINED IN THE COURSE OF ASSESSEES BUSINESS. HAVING REGARD TO THESE MATERIAL FACTS THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RELIED UPON BY THE LD. DR, HAS NO APPLICATION THE FACTS OF THE INSTANT CASE. 26. WE FURTHER NOTE THAT THE COORDINATE BENCH OF THIS TRIBUNAL AT JAIPUR IN THE CASE OF SHRI RAVI MATHUR VS. DCIT IN ITA NO. 969/JP/2017 DATED 13.06.2018 AFTER TAKING NOTE OF THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT (SUPRA), HAD RECORDED FOLLOWING FINDINGS TO HOLD THAT LEVY OF PENALTY U/S 271AAB IS NOT AUTOMATIC. 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. SANDEEPCHANDAK& OTHERS (SUPRA) THE ISSUE BEFORE THE HONBLE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AAB ON ACCOUNT OF MENTIONING WRONG PROVISION OF THE ACT BEING 271(1)(C) OF THE ACT. THE HONBLE HIGH COURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO THOUGH MENTIONS SECTION 271(1) IN THE CAPTION OF THE SAID NOTICE, HOWEVER, THE BODY OF THE SHOW CAUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS FULLY COMPREHENDED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSESSEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HAS HELD AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTION 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 SECTION 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 OBJECTION BEFORE THE AO IN THIS REGARD. ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 22 SECONDLY, LAST LINE OF THE NOTICE CLEARLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REPLY TO SAID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED THE IMPLICATION OF THE NOTICE THAT IT IS FOR SECTION 271AAB. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLES OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SUBMISSIONS OF A.R IN THIS REGARD HAS ALREADY BEEN REPRODUCED ABOVE. THE A.R DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT HE WAS NOT GIVEN PROPER OPPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALTY ORDER THAT THE AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE ASSESSEE. 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 THE MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UNDER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF THE SAME. THE SAID DECISION 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. AMITAGARWAL (SUPRA), WE FIND THAT THE SAID DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRESH ORDER DATED 14TH MARCH, 2018 WAS PASSED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. D/R IS NO MORE IN EXISTENCE. 6. THE QUESTION WHETHER LEVY OF PENALTY UNDER SECTION 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSIDERED BY THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACIT VS. M/S. MARVEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE APPEAL HEARING, THE LD. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENALTY UNDER THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION OF 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 ISPARIMATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSMENT AND ACCORDINGLY ARGUED THAT THE LEVY 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 ARGUED THAT THE WORDS USED IN SECTION 271AAB OF THE ACT AND THE WORDS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENALTY 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 AND 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 HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE UNDISCLOSED 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 AND SPECIFIES THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED. . (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED INCOME WAS DERIVED; AND ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 23 (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER SUB-SECTION (4) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT 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) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN 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 BEEN 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 RETURN; AND . (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, THE WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENALTY. SIMILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE ACT, 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 SECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CLEAR INTENTION TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROCEDURE FOR LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. THEREFORE, FROM PLAIN READING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 24 IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSEE, THE PENALTY CANNOT BE MANDATORY 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 OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JUSTICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNAVIHAR IN ITTA NO.740/2011 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 OF THE ACT THAT ARE 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 PENALTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHORITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH CASE. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETION TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION OF THE AO. HENCE WE FORTIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL ASSOCIATES. 27. FOLLOWING THE DECISION (SUPRA), WE REJECT THE CONTENTION OF THE REVENUE THAT THE LEVY OF PENALTY UNDER SECTION 271AAB WAS AUTOMATIC. SINCE IN THE FOREGOING PARAGRAPHS WE HAVE HELD THAT THE INCOME OF RS.59.09CRORES OFFERED BY THE ASSESSEE WHILE FILING OF THE RETURN OF INCOME DID NOT COME WITHIN THE KEN OF UNDISCLOSED INCOME DEFINED IN CLAUSE (C) OF EXPLANATION TO SECTION 271AAB, WE HOLD THAT THE PENALTY LEVIED UNDER THAT SECTION WAS UNSUSTAINABLE AND FOR THE AFORESAID REASONING WE CONFIRM THE ORDER OF LD. CIT(A). WE ACCORDINGLY UPHOLD THE LD. CIT(A)S ORDER FOR THE AFORESAID REASONING AND REJECT THE REVENUES APPEAL. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.02.2019. SD/- SD/- (A.L.SAINI) (A.T.VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:- 01 .02.2019 *AMIT KUMAR* ITA NO.1601/KOL/2017 (ASSESSMENT YEAR-2012-13) PAGE | 25 COPY FORWARDED TO: 1. APPELLANT- DCIT, CENTRAL CIRCLE-2(2), AAYAKAR BHAWAN, POORVA, 110 SHANTIPALLY, KOLKATA-700107. 2. RESPONDENT- M/S. ARYAN MINING & TRADING CORPORATION LTD., P-1, HIDE LANE, 8 TH FLOOR, KOLKATA-700073. 3. CIT-KOLKATA 4. CIT(APPEALS)-KOLKATA 5. DR: ITAT -KOLKATA BENCHES BY ORDER AR/H.O.O ITAT, KOLKATA