SHRI RAM DAS SONKIA, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

ITA 295/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8310 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Jaipur
• Assessment Year: 2015-2016
• Appeal Filed On: 28-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: RAJNIKANT BATRA
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Salary income; Document seized; Opportunity of being heard; Principle of natural justice; Transactions in derivatives; Source of fund; Question of law; Initiation of penalty proceedings; Reasonable cause; Documents seized; Set aside; CHAPTER IV
• Section: 69; 132; 271(1)(c); 2; 44AD; 139; 143(3); 153A; 69B; 292BB; 274; 44BB; 139(1); 44AB; 73; 13; 158BFA; 22; 20

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 295/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2015-16. SHRI RAM DAS SONKIA, PITALIYON KA CHOWK JOHARI BAZAR, JAIPUR. CUKE VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AJTPS 9679 M VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.R. SHARMA (CA) & SHRI RAJNIKANT BATRA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27.03.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 11/04/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13 TH DECEMBER, 2017 OF LD. CIT (A)-4, JAIPUR ARISING FR OM THE PENALTY ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT FOR THE ASSESSMENT YE AR 2015-16. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT THE NOTICE ISSUED BY ASSESSING OFFICER FO R INITIATING THE PENALTY U/S 271AAB OF THE I.T. ACT, 1961 IS NOT IN ACCORDANCE WITH LAW NOT BEING SPECIFICALLY POINTING OUT THE DE FAULT FOR WHICH THE LD. A.O. SOUGHT TO IMPOSE PENALTY U/S 271AAB. 2. THAT WITHOUT PREJUDICE TO THE GROUND NO. (1) ABO VE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A ) IS WRONG, UNJUST AND HAS ERRED IN LAW IN CONFIRMING PENALTY O F RS. 2 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 70,20,000/- IMPOSED BY THE LD. ASSESSING OFFICER U/ S 271AAB OF THE IT ACT, 1961. 3. THAT THE APPELLANT CRAVES THE PERMISSION TO ADD TO OR AMEND TO ANY OF THE ABOVE GROUNDS OF APPEAL OR TO WITHDRAW A NY OF THEM. GROUND NO. 1 IS REGARDING VALIDITY OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE IT ACT FOR WANT OF SPECIFYING THE DEFAULT AS PER CLAUSE (A) TO (C) OF SECTION 271AAB( 1) OF THE IT ACT. 2. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FR OM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES BESIDES PROFIT FROM PARTN ERSHIP FIRM. A SEARCH AND SEIZURE ACTION UNDER SECTION 132(1) OF THE I.T. ACT WAS CARRIED OUT ON 15 TH OCTOBER, 2014 IN CASE OF SURANA GROUP, JAIPUR IN WHICH THE C ASE OF ASSESSEE WAS ALSO COVERED. IN THE COURSE OF SEARCH AND SEIZURE ACTIO N, CERTAIN DOCUMENTS WERE FOUND AND SEIZED MARKED AS ANNEXURE-2 OF EXHIBIT-2 CONTAI NING THE ENTRIES OF ADVANCES FOR LAND. IN THE STATEMENT RECORDED UNDER SECTION 132( 4) OF THE ACT THE ASSESSEE OFFERED AN ADDITIONAL INCOME OF RS. 7,02,00,000/- A S RECORDED IN THE SEIZED DOCUMENT. THE ASSESSEE FILED HIS RETURN OF INCOME U NDER SECTION 139(1) ON 30 TH SEPTEMBER, 2015 DECLARING TOTAL INCOME OF RS. 8,12, 64,560/- INCLUDING THE AMOUNT OF RS. 7,02,00,000/- DISCLOSED DURING THE COURSE OF SEARCH AND SEIZURE ACTION. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 153B(1)(B) OF THE ACT ON 14 TH DECEMBER, 2016 ACCEPTING THE RETURNED INCOME. THE AO INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271AAB BY ISSUING SHOW CAUSE NOTICES DATED 22 ND DECEMBER, 2016 AND THEREAFTER ON 15 TH MAY, 2017. THE ASSESSEE FILED HIS REPLY TO THE SHOW CAUSE NOTICE BUT THE SAME WAS NOT ACCEPTED BY THE AO AND CONSEQUENTLY A PENALTY OF RS. 70,20,000/- WAS IMPOSED UNDER SECTIO N 271AAB OF THE ACT WHILE 3 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. PASSING THE ORDER DATED 14 TH JUNE, 2017. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BEING WRONG, UNWARRANTED AND BAD IN LAW. HOWEVER, THE LD. CIT (A) HAS CONFIRMED THE LEVY OF PENALTY BY HO LDING THAT THE PENALTY UNDER SECTION 271AAB IS MANDATORY IN NATURE. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE AO WHILE ISSUING THE SHOW CAUSE NOTICE UNDER SECTION 274 READ WITH S ECTION 271AAB HAS NOT SPECIFIED THE DEFAULT OF THE ASSESSEE IN TERMS OF CLAUSE (A) TO (C) OF SECTION 271AAB OF THE ACT. THEREFORE, THE INITIATION OF PENALTY PROCEEDINGS IS ILLEGAL DUE TO SHOW CAUSE NOTICE IS DEFECTIVE. THEREFORE, THE NOTICES WERE ISSUED IN R OUTINE MANNER WITHOUT MENTIONING UNDER WHICH CLAUSE OF SECTION 271AAB(1) OF THE ACT THE ASSESSEE IS LIABLE FOR PENALTY. HE HAS REFERRED TO THE PROVISIONS OF SECT ION 271AAB(1) AND SUBMITTED THAT THERE ARE THREE CLAUSES (A) TO (C) AND EACH CLAUSE OF SUB-SECTION (1) PROVIDES THE CIRCUMSTANCES AND VIOLATION ATTRACTING THE PENALTY @ 10%, 20% AND 30% OF UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY OTHERWISE THE PRINCIPLES OF NATURAL JUSTICE ARE VIOLATED. EVEN IN THE ASSESSMENT ORDER THE AO HAS NOT SPECIFIED UNDER WHICH CLAUSE THE PENALTY IS LIABLE TO BE IMPOSED BUT THE AO HAS MENTIONED THAT THE PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE ACT ARE BEI NG INITIATED. THERE IS NO APPLICATION OF MIND AT THE TIME OF ISSUING THE SHOW CAUSE NOTICES AS THE AO HAS NOT SPECIFIED THE UNDISCLOSED INCOME ON WHICH THE ASSES SEE IS REQUIRED TO SHOW CAUSE. EVEN THE AO HAS NOT GIVEN ANY GROUND FOR LEVY OF PE NALTY FOR WHICH THE ASSESSEE COULD PUT HIS DEFENCE. THUS IN THE ABSENCE OF SPE CIFIC CHARGE AGAINST THE ASSESSEE, THE ASSESSEE WAS NOT GIVEN THE PROPER OPPORTUNITY T O COUNTER THE SHOW CAUSE NOTICE ISSUED BY THE AO AS WELL AS TO FILE THE COGENT REPL Y TO THE SAME. IN THE ABSENCE OF 4 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. ANY GROUNDS SPECIFIED IN THE SHOW CAUSE NOTICE AS W ELL AS ANY AMOUNT TO BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE PURPO SE OF LEVY OF PENALTY UNDER SECTION 271AAB, THE INITIATION OF PENALTY IS NOT VA LID AND, THEREFORE, THE CONSEQUENTIAL ORDER PASSED UNDER SECTION 271AAB OF THE ACT IS ALSO LIABLE TO BE QUASHED. IN SUPPORT OF HIS CONTENTION, HE HAS RELIE D UPON THE FOLLOWING DECISIONS :- CIT VS. MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (KARNATAKA) MUNINAGA REDDY VS. ACIT 396 ITR 398 (KARNATAKA) CIT VS. SSAS EMERALD MEADOWS 73 TAXMANN.COM 248 (SC) RAVI MATHUR VS. DCIT ITA NO. 969/JP/2017 DATED 13.06.2018. APART FROM THE ABOVE DECISIONS, THE LD. A/R HAS ALS O REFERRED TO A SERIES OF DECISIONS ON THIS POINT THAT PENALTY PROCEEDINGS UNDER SECTIO N 271AAB IS NOT MANDATORY BUT DISCRETIONARY AND THE AO HAS TO TAKE A DECISION BY CONSIDERING THE REPLY AND EXPLANATION OF THE ASSESSEE AND GIVING A FINDING WH ETHER THE INCOME DISCLOSED BY THE ASSESSEE DURING THE SEARCH AND SEIZURE ACTION I S UNDISCLOSED INCOME AS PER THE DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 2 71AAB OF THE IT ACT. 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY IN NATURE AND, THEREFOR E, THE AO IS NOT REQUIRED TO SPECIFY THE CLAUSE AS PER SUB-SECTION (1) OF SECTIO N 271AAB OF THE ACT IN THE SHOW CAUSE. HE HAS REFERRED TO THE EXPLANATORY NOTE OF FINANCE BILL, 2012 WHEREBY THE PROVISIONS OF SECTION 271AAB IS INSERTED IN THE STA TUTE AND SUBMITTED THAT THE 5 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. LEGISLATURE HAS MADE IT CLEAR THAT THE PENALTY UNDE R SECTION 271AAB IS MANDATORY IN NATURE. THE LD. D/R HAS SUBMITTED THAT THE ASSESSE E WAS VERY WELL AWARE ABOUT THE DEFAULT AND THE NATURE OF INCOME HE HAS DISCLOSED A ND SURRENDERED DURING THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE IT A CT. THE SURRENDER IN QUESTION WAS MADE BECAUSE THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE OF THE INVESTMENT IN QUESTION. IT IS A CLEAR CASE OF UNDISCLOSED INCO ME DETECTED DURING THE COURSE OF SEARCH AND SEIZURE ACTION AND, THEREFORE, THE SURRE NDER MADE BY THE ASSESSEE HIMSELF IS SELF-EXPLANATORY TO THE NATURE OF INCOME SURRENDERED BY THE ASSESSEE. THE LD. D/R HAS CONTENDED THAT THE ASSESSEE HAS PAR TICIPATED IN THE PENALTY PROCEEDINGS AND HAS NOT RAISED ANY OBJECTION OR HAS DEMANDED BEFORE THE AO ABOUT HIS UNAWARENESS OF THE NATURE OF DEFAULT ATTRACTING THE LEVY OF PENALTY UNDER SECTION 271AAB. IT IS NOT THE CASE OF THE ASSESSEE THAT THE DISCLOSURE WAS TAKEN UNDER COERCION AND FURTHER THE ASSESSEE HAS OFFERED THE S AID AMOUNT TO TAX IN THE RETURN OF INCOME WHICH RULES OUT THE SCOPE OF ANY PRESSURE OR COERCION BY THE SEARCH TEAM FOR TAKING DISCLOSURE FROM THE ASSESSEE. THUS THE OBJE CTION RAISED BY THE ASSESSEE THAT THE AO HAS NOT SPECIFIED THE CLAUSE UNDER SECTION 2 71AAB(1) OF THE ACT HAS NO MERIT WHEN THE ASSESSEE HIMSELF HAS EXPLAINED THE NATURE OF INCOME DISCLOSED AND SURRENDERED AND ALSO PAID THE TAX ON THE SAME. THE LD. D/R HAS SUBMITTED THAT AS PER THE EXPLANATORY NOTE OF FINANCE BILL, 2012, THE PROVISIONS OF SECTION 271AAB ARE MANDATORY IN NATURE AND THE AO HAS NO DISCRETION BU T THE ASSESSEE SHALL PAY THE PENALTY IN ADDITION TO THE TAX ON THE UNDISCLOSED I NCOME SURRENDERED UNDER SECTION 132(4) OF THE ACT. HE HAS RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 4.1. THE LD. D/R HAS ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN CASE OF PRINCIPAL CIT VS. SANDEEP CHANDAK AND OT HERS DATED 27 TH NOVEMBER, 2017 6 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. IN I.T. APPEAL NO. 122, 128 AND 129 OF 2017 AND SUB MITTED THAT EVEN OTHERWISE IF THE SHOW CAUSE NOTICE DOES NOT MENTION THE SECTION CORRECTLY IT WILL NOT BE INVALID AS THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE ACT. THE LD. D/R HAS ALSO RELIED UPON THE DECISION OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. AMIT AGARWAL, 88 TAXMANN.COM 288. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF SEARCH AND SEIZURE AC TION UNDER SECTION 132 OF THE ACT CONDUCTED ON 15 TH OCTOBER, 2014, THE ASSESSEE DISCLOSED INCOME OF RS . 7,02,00,000/- IN HIS STATEMENT MADE UNDER SECTION 1 32(4) OF THE ACT. THE SAID DISCLOSURE WAS MADE IN PURSUANT TO THE ENTRIES ON A CCOUNT OF ADVANCES FOR LAND IN THE SEIZED DOCUMENTS. THE DETAILS OF THE UNDISCLOS ED INCOME SURRENDERED BY THE ASSESSEE ARE AS UNDER :- A NNEXURE/EXHIBIT NO. RELEVANT PAGE NO. AMOUNT PARTICULARS ANN. A - 2 EXHIBIT NO.2 1 - 6 6,52,00,000/ - ADVANCES FOR LAND ANN. A - 2 EXHIBIT NO.2 1 - 6 50,00,000/ - ADVANCES FOR LAND TOTAL AMOUNT 7,02,00,000/ - IT IS PERTINENT TO NOTE THAT THE DISCLOSURE OF ADDI TIONAL INCOME IN THE STATEMENT RECORDED UNDER SECTION 132(4) ITSELF IS NOT SUFFICI ENT TO LEVY THE PENALTY UNDER SECTION 271AAB OF THE ACT UNTIL AND UNLESS THE INCO ME SO DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME DEFIN ED IN THE EXPLANATION TO SECTION 271AAB(1) OF THE ACT. THEREFORE, THE QUESTION WHET HER THE INCOME DISCLOSED BY THE ASSESSEE IS UNDISCLOSED INCOME IN TERMS OF THE DEFI NITION UNDER SECTION 271AAB OF THE ACT HAS TO BE CONSIDERED AND DECIDED IN THE PEN ALTY PROCEEDINGS. SINCE THE ASSESSEE HAS OFFERED THE SAID INCOME IN THE RETURN OF INCOME FILED UNDER SECTION 7 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 139(1) OF THE ACT, THEREFORE, THE QUESTION OF TAKIN G ANY DECISION BY THE AO IN THE ASSESSMENT PROCEEDINGS ABOUT THE TRUE NATURE OF SUR RENDER MADE BY THE ASSESSEE DOES NOT ARISE AND ONLY WHEN THE AO HAS PROPOSED TO LEVY THE PENALTY THEN IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS OF SECTIO N 271AAB THAT THE SAID INCOME DISCLOSED BY THE ASSESSEE IN THE STATEMENT UNDER SE CTION 132(4) IS AN UNDISCLOSED INCOME AS PER THE DEFINITION PROVIDED UNDER SECTION 271AAB. THEREFORE, THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB HAS TO EXAMINE ALL THE FACTS OF THE CASE AS WELL AS THE BASIS OF THE SURRENDER AND THEN ARRIVE TO THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION O F UNDISCLOSED INCOME AS STIPULATED IN THE EXPLANATION TO THE SAID SECTION. THEREFORE, WE DO NOT AGREE WITH THE CONTENTION OF THE LD. D/R THAT THE LEVY OF PENALTY UNDER SECTI ON 271AAB IS MANDATORY SIMPLY BECAUSE THE AO HAS TO FIRST ISSUE A SHOW CAUSE NOTI CE TO THE ASSESSEE AND THEN HAS TO MAKE A DECISION FOR LEVY OF PENALTY AFTER CONSID ERING THE FACT THAT ALL THE CONDITIONS PROVIDED UNDER SECTION 271AAB ARE SATISF IED. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAVI MATHUR VS. DCIT (SUPRA) IN PARA 4 TO 6 AS UNDER :- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. A SEARCH WAS CONDUCTED UNDER S ECTION 132 OF THE IT ACT ON 30 TH OCTOBER, 2014 AT THE PREMISES OF THE ASSESSEE. TH E ASSESSEE IN HIS STATEMENT RECORDED UNDER SECTION 13 2(4) HAS DISCLOSED AN INCOME OF RS. 10,02,00,000/- IN PURSUANT TO THE ENTRIES OF ADVANCES GIVEN FOR PURCHASE OF LAND RECORDED IN THE POCKET D IARY WHICH WAS FOUND AND SEIZED DURING THE COURSE OF SEARCH AND SE IZURE ACTION. THIS IS YEAR OF SEARCH AND THE FINANCIAL YEAR WOULD END ON 31 ST MARCH, 2015. HOWEVER, THE ASSESSEE DISCLOSED THIS AMOUNT OF RS. 10,02,00,000/- 8 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. BASED ON THE ENTRIES IN THE DIARY REGARDING INVESTM ENT IN REAL ESTATE. THE DUE DATE OF FILING OF RETURN OF INCOME UNDER SE CTION 139(1) WAS 30 TH SEPTEMBER, 2015. IT IS UNDISPUTED FACT THAT THE A SSESSEE IS AN INDIVIDUAL AND WAS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT. THEREFORE, THE TRANSACTIONS RECORDED IN THE POCKET DIARY FOUND DURING THE COURSE OF SEARCH ITSELF WOULD NOT LEAD TO THE P RESUMPTION THAT THE ASSESSEE WOULD NOT HAVE OFFERED THIS INCOME TO TAX IF THE SEARCH IS NOT CONDUCTED ON 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF DO NO NOT REPRESENT THE INCOME OF THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION THOUGH THE ASSESSEE WAS REQUIRE D TO EXPLAIN THE SOURCE OF INVESTMENT IN QUESTION AND THAT SOURCE WO ULD BE THE INCOME OF THE ASSESSEE. IT IS MOST LIKELY THAT THE INVEST MENT IN QUESTION WAS MADE FROM THE UNACCOUNTED INCOME OF PRECEDING YEARS . HENCE THE INVESTMENT IN THE REAL ESTATE ITSELF WOULD NOT REVE AL THE NATURE OF INCOME AND THE SOURCE OF INCOME OF THE YEAR UNDER C ONSIDERATION. IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS OF SECT ION 271AAB THAT THE ASSESSEE ADMITTED THE UNDISCLOSED INCOME IN THE STA TEMENT UNDER SECTION 132(4). THE DEFINITION OF UNDISCLOSED IN COME IS PROVIDED IN SECTION 271AAB ITSELF AND, THEREFORE, THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB HAS TO EXAMINE ALL THE FACTS OF THE CASE AND THEN ARRIVE TO THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME AS STIPULATED IN THE EXPLANATION TO SAID SECTION. THE FIRST QUESTION ARISES IS WHETHER THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY AND CONSEQUENTIAL TO THE DISCLOSURE OF INCOME BY THE ASSESSEE UNDER SECTION 132(4) OR THE AO HAS TO TAKE A DECISION WHETHER THE GIVEN CASE HAS SATISFIED THE REQUIREMENTS FOR LEVY OF PENALTY UNDER SECTION 271A AB OF THE ACT. IN ORDER TO CONSIDER THIS ISSUE, THE PROVISIONS OF SEC TION 271AAB ARE TO BE ANALYZED. FOR READY REFERENCE, WE QUOTE SECTION 2 71AAB AS UNDER :- 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANY THING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE 9 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 49 [BUT BEFORE THE DATE ON WHICH THE TAXATION LAWS (SE COND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT 50 ], THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE U NDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; (C) A SUM 51 [COMPUTED AT THE RATE OF SIXTY PER CENT] OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY TH E PROVISIONS OF CLAUSES (A) AND (B). 52 [(1A) THE ASSESSING OFFICER MAY, NOTWITHSTANDING AN YTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE DATE ON WHICH THE TAXATION LAWS (S ECOND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF THIRTY PER CENT OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF THE ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR 10 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF SIXTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED UNDER THE PROVI SIO NS OF CLAUSE (A).] (2) NO PENALTY UNDER THE PROVISIONS OF 53 [ SECTION 270A OR] CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF T HE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1) 52 [OR SUB-SECTION (1A)]. (3) THE PROVISIONS OF SECTIONS 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNISHING O F RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 OR THE DATE ON WHICH THE PERIOD SPECIFIED IN THE NO TICE ISSUED UNDER SECTION 153A FOR FURNISHING OF RETURN OF INCOME EXPIRES, AS THE CASE MAY BE; (B) 'SPECIFIED PREVIOUS YEAR' MEANS THE PREVIOUS YEAR (I) WHICH HAS ENDED BEFORE THE DATE OF SEARCH, BUT THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 FOR SUCH YEAR HAS NOT EXPIRED BEFORE THE DATE OF SEARCH AND THE ASSESSEE HAS NOT FURNISHED THE RETURN OF INCOME FOR THE PREVIOUS YEAR BEFORE THE D ATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER V ALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 , WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOO KS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE 54 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR 54 [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SE ARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPE CT OF AN EXPENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED.] THE SECTION BEGINS WITH THE STIPULATION THAT THE AO MAY DIRECT THE ASSESSEE SHALL PAY BY WAY OF PENALTY IF THE CONDITI ONS AS PRESCRIBED UNDER CLAUSES (A) TO (C) ARE SATISFIED. AS PER SUB -SECTION (3) OF SECTION 271AAB THE PROVISIONS OF SECTION 274 AND 275 AS FAR AS MAY BE APPLIED IN RELATION TO THE PENALTY REFERRED IN THIS SECTION WHICH MEANS THAT 11 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. BEFORE IMPOSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A SHOW CAUSE NOTICE AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LEVY OF PENALTY U/S. 271AAB IS N OT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISION TO IMPOSE THE PENAL TY AFTER GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FO R NOT FULFILLING THE CONDITIONS AS PRESCRIBED U/S 271AAB OF THE ACT IS R EQUIRED TO BE CONSIDERED BY THE AO AND PARTICULARLY WHETHER THE E XPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPL IANCE OF THE SAME IS DUE TO THE REASON BEYOND THE CONTROL OF THE ASSE SSEE. THEREFORE, THE PENALTY U/S 271AAB IS NOT A CONSEQUENTIAL ACT BUT T HE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANATION AND REPLY OF THE ASSESS EE HAS TO TAKE A DECISION. THIS REQUIREMENT OF GIVING AN OPPORTUNIT Y OF HEARING ITSELF MAKES IT CLEAR THAT THE PENALTY U/S 271AAB IS NOT M ANDATORY BUT THE AO HAS TO TAKE A DECISION BASED ON THE FACTS AND CI RCUMSTANCES OF THE CASE OTHERWISE THERE IS NO REQUIREMENT OF ISSUING A NY NOTICE FOR INITIATION OF PROCEEDINGS BUT THE LEVY OF PENALTY W OULD BE CONSEQUENTIAL AND ONLY COMPUTATION OF THE QUANTUM WAS TO BE DONE BY THE AO AS IN THE CASE OF LEVY OF INTEREST AND FEE U/S 234A TO E. EVEN THE QUANTUM OF PENALTY LEVIABLE U/S 271AAB IS ALSO SUBJECT TO T HE CONDITION PRESCRIBED UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) AND THE AO HAS TO AGAIN GIVE A FINDING FOR LEVY OF PENALTY @ 10% O R 20% OR 30% OF THE UNDISCLOSED INCOME. THUS THE AO IS BOUND TO TA KE A DECISION AS TO WHAT DEFAULT IS COMMITTED BY THE ASSESSEE AND WHICH PARTICULAR CLAUSE OF SECTION 271AAB(1) IS ATTRACTED ON SUCH DEFAULT. FURTHER, MERE DISCLOSURE OF INCOME UNDER SECTION 132(4) WOULD NOT IPSO FACTO PAR TAKE THE CHARACTER OF UNDISCLOSED INCOME BUT THE FA CTS OF EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS T O ATTRACT THE PROVISIONS OF SECTION 271AAB OF THE ACT. SINCE IT IS NOT AUTOMATIC BUT THE AO HAS TO GIVE A FINDING THAT THE CASE OF THE A SSESSEE FALLS IN THE 12 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. AMBIT OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATI ON TO THE SAID SECTION. THEREFORE, THE PROVISIONS OF SECTION 271A AB STIPULATE THAT THE AO MAY COME TO THE CONCLUSION THAT THE ASSESSEE SHA LL PAY THE PENALTY. THE ONLY MANDATORY ASPECT IN THE PROVISIO N IS THE QUANTUM OF PENALTY AS SPECIFIED UNDER CLAUSES (A) TO (C) OF SE C. 271AAB(1) OF THE ACT AS 10% TO 30% OR MORE AS AGAINST THE DISCRETION GIVEN TO THE AO AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE A CT WHERE THE AO HAS THE DISCRETION TO LEVY THE PENALTY FROM 100% TO 300 % OF THE TAX SOUGHT TO BE EVADED. THUS THE AO IS DUTY BOUND TO COME TO THE CONCLUSION THAT THE CASE OF THE ASSESSEE IS FIT FOR LEVY OF PENALTY UNDER SECTION 271AAB AND THEN ONLY THE QUANTUM OF PENALTY BEING 10% OR 20% OR 30% HAS TO BE DETERMINED SUBJECT TO THE EXPL ANATION OF THE ASSESSEE FOR THE DEFAULTS. 5. BEFORE WE PROCEED FURTHER, THE DECISIONS RELIED UPON BY THE LD. D/R ARE TO BE CONSIDERED. IN THE CASE OF PRINCIPAL CIT VS. SANDEEP CHANDAK & OTHERS (SUPRA) THE ISSUE BEFORE THE HONB LE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AA B 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 C AUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS FULLY COMPREHEND ED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSES SEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HA S HELD AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTIO N OF THE NOTICE MENTIONED ONLY SECTION 271 AND NOT 271AAB. I N 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 C APTION. HOWEVER, THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE INCOME TAX ACT, 1961 BECAUSE FIRSTLY, THE ASSESSEE HAS RAISED NO OB JECTION BEFORE THE 13 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. AO IN THIS REGARD. SECONDLY, LAST LINE OF THE NOTIC E CLEARLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REP LY TO SAID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED TH E IMPLICATION OF THE NOTICE THAT IT IS FOR SECTION 271AAB. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLE S OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SU BMISSIONS 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 PENALT Y ORDER THAT THE AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE ASSESSEE. THEREFORE, IN MY OPINION, PRINCIPLE OF NATURAL JUST ICE HAS NOT BEEN VIOLATED. THUS IN VIEW OF ABOVE DISCUSSION PENALTY IMPOSED BY AO U/S 271AAB OF THE ACT IS CONFIRMED. THUS IT WAS FOUND BY THE HONBLE HIGH COURT THAT TH E MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UNDER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF TH E SAME. THE SAID DECISION WILL NOT HELP THE CASE OF THE REVENUE SO F AR AS THE ISSUE INVOLVES THE MERITS OF LEVY OF PENALTY UNDER SECTIO N 271AAB. AS REGARDS THE DECISION OF KOLKATA BENCHES OF THE TRIB UNAL IN THE CASE OF DCIT VS. AMIT AGARWAL (SUPRA), WE FIND THAT THE SAI D DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRESH O RDER DATED 14 TH 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 SECTI ON 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSI DERED BY THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACI T VS. M/S. MARVEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. 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 O F INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FURTHER STATED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT 14 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSM ENT AND ACCORDINGLY ARGUED THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MAN DATORY BUT DISCRETIONARY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGI BLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTION 158BFA(2 ) OF THE ACT AND ARGUED THAT THE WORDS USED IN SECTION 271AAB OF THE ACT AND THE WOR DS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENAL TY SECTION 271AAB OF THE ACT PENALTY IS NOT AUTOMATIC AND IT IS ON THE MERITS OF EACH CASE. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SECTION 158BFA (2) OF THE ACT A ND SECTION 271AAB OF THE ACT WHICH READS AS UNDER; 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E 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 T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF SEARCH, IN A STATEMENT UNDER SUB-S ECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AND SPEC IFIES THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED. (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT O F THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNIS HED FOR THE SPECIFIED PREVIOUS YEAR; AND 15 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER C ENT BUT WHICH SHALL NOT EXCEED NINETY PER CENT OF THE UNDISCLOSED INCOME OF THE SP ECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) O F SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDI SCLOSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A P ERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TA X 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 RE SPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HAS BEE N PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OFFERS THE MO NEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYABLE. (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RE TURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF TH AT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVI SO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PE NALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS I N EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, TH E WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENAL TY. 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 A CT, FORTIFIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. 16 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 7. THE LEGISLATURE HAS INCLUDED THE PROVISIONS OF S ECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CLEAR INTENTIO N TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROC EDURE 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 E VIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE O PPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSE E, THE PENALTY CANNOT BE MANDATORY AND IT IS ON THE BASIS OF THE FACTS AND M ERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT TO HEAR THE ASSESSEE A ND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREM ENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPOR TUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JU STICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHIL E DEALING WITH THE PENALTY U/S 158BFA HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECTION 158BFA OF THE ACT THAT A RE ENTITLED TO BE MANDATORY, THE WORDS MAY DIRECT IN SUB SECTION 2 THERE OF INTENDED TO DIRECTORY. IN OTHER WORDS, WHILE PAYMENT OF INTEREST IS MANDATORY LEVY OF PENA LTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHO RITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE F ACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH CASE. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETI ON TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION O F THE AO. HENCE WE FORTIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL ASSOCIATES. 17 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. THUS THE TRIBUNAL HAS ANALYZED ALL THE RELEVANT PRO VISIONS OF THE ACT AS WELL AS VARIOUS DECISIONS ON THIS POINT INCLUDING THE DECIS ION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF PR. CIT VS. SANDEEP CHANDAK, 405 ITR 648 (ALLAHABAD) RELIED UPON BY THE LD. D/R AND THEN ARRIVED AT THE CONCLUSION THAT THE PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETION TO T AKE A DECISION AND THE SAME SHOULD BE BASED ON JUDICIOUS DECISION OF THE AO. A CCORDINGLY FOLLOWING THE EARLIER DECISION OF THIS TRIBUNAL IN THE CASE OF RAVI MATHU R VS. DCIT (SUPRA), WE HOLD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MAN DATORY BUT THE AO HAS A DISCRETION AFTER CONSIDERING ALL THE RELEVANT ASPEC TS OF THE CASE AND THEN TO SATISFY HIMSELF THAT THE CASE OF THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME AS PROVIDED IN THE EXPLANATION TO SECTION 271AAB OF TH E ACT. 5.1. THE SECOND LIMB OF CHALLENGING THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS FOR NOT SPECIFYING THE GROUND AND DEFAULT IN THE SH OW CAUSE NOTICE ISSUED UNDER SECTION 274 HAS BEEN CONSIDERED BY THE COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF RAVI MATHUR VS. DCIT (SUPRA) IN PARA IN PAR A 7 AS UNDER :- 7. AS REGARDS THE VALIDITY OF NOTICE UNDER SECTION 274 FOR WANT OF SPECIFYING THE GROUND AND DEFAULT, WE FIND THAT WHE N THE BASIC CONDITION OF THE UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNTS DOES NOT EXISTS, THEN THE SAME HAS TO BE S PECIFIED BY THE AO IN THE SHOW CAUSE NOTICE AND FURTHER THE AO IS REQU IRED TO GIVE A FINDING WHILE IMPOSING THE PENALTY UNDER SECTION 27 1AAB. EVEN IF THE AO IS SATISFIED AND COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCOME IN THE BOOKS OF ACC OUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINTAINED IN NORMAL CO URSE RELATING TO SPECIFIED PREVIOUS YEAR, THE SHOW CAUSE NOTICE SHALL ALSO SPECIFY 18 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. THE DEFAULT COMMITTED BY THE ASSESSEE TO AT TRACT THE PENALTY @ 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME. THER E IS NO DISPUTE THAT THE AO HAS NOT SPECIFIED THE DEFAULT AND CHARG E AGAINST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UND ER SECTION 271AAB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVE N AN OPPORTUNITY TO EXPLAIN HIS CASE FOR SPECIFIC DEFAULT ATTRACTING TH E LEVY OF PENALTY IN TERMS OF CLAUSES (A) TO (C) OF SECTION 271AAB(1) OF THE ACT. THE CHANNAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V S. SHRI R. ELANGOVAN (SUPRA) AT PAGES 7 TO 10 HAS HELD AS UNDE R :- IT IS CLEAR FROM THE SUB SECTION (3) OF SECTION 271 AAB THAT SECTIONS 274 AND SECTION 275 OF THE ACT SHALL, SO FAR AS MAY BE, APPLY. SUB SECTION (1) OF SECTION 274 OF THE ACT MANDATES THAT ORDER IMPOSING PENALTY HAS TO BE IMPOSED ONLY AFTER HEARING THE ASSESSEE OR GIVING A ASSESSEE OPPORTUNITY OF HEARING. OPPORTUNITY THAT IS TO BE GIVEN TO THE ASS ESSEE SHOULD BE A MEANINGFUL ONE AND NOT A FARCE. NOTICE ISSUED TO TH E ASSESSEE REPRODUCED (SUPRA), DOES NOT SHOW WHETHER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR HAVING UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 271AAB OF THE ACT. NOTICE IN OUR OPINION WAS VAGUE. HONBLE KARNA TAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA) RELYING IN IT S OWN JUDGMENT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPR A) HAD HELD AS UNDER:- 2. THIS APPEAL HAS BEEN FILED RAISING THE FOLLOWI NG SUBSTANTIAL QUESTIONS OF LAW: (1) WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITL Y MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATED FOR FURNISH ING OF INACCURATE PARTICULARS OR THAT FOR CONCEALMENT OF I NCOME MAKES THE PENALTY ORDER LIABLE FOR CANCELLATION EVEN WHEN IT HAS BEEN PROVED BEYOND REASONABLE DOUBT THAT THE ASSESSEE HA D CONCEALED INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE P ENALTY NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) IS BAD IN LAW AN D INVALID DESPITE THE AMENDMENT OF SECTION 271(1B) WITH RETRO SPECTIVE 19 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. EFFECT AND BY VIRTUE OF THE AMENDMENT, THE ASSESSIN G OFFICER HAS INITIATED THE PENALTY BY PROPERLY RECORDING THE SAT ISFACTION FOR THE SAME? (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DECIDING THE APPEALS AGAI NST THE REVENUE ON THE BASIS OF NOTICE ISSUED UNDER SECTION 274 WIT HOUT TAKING INTO CONSIDERATION THE ASSESSMENT ORDER WHEN THE ASSESSI NG OFFICER HAS SPECIFIED THAT THE ASSESSEE HAS CONCEALED PARTICULA RS OF INCOME? 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTIO N 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE ACT) TO BE BAD IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDINGS HAD BEEN INITIATED I.E., WHETHER FOR CO NCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELI ED ON THE DECISION OF THE DIVISION BENCH OF THIS COURT RENDERED IN THE CASE O F CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 4. IN OUR VIEW, SINCE THE MATTER IS COVERED BY JUDG MENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIA L QUESTION OF LAW ARISES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE AP PEAL IS ACCORDINGLY DISMISSED. IN THE EARLIER CASE OF MANJUNATHA COTTON AND GINNIN G FACTORY (SUPRA) THEIR LORDSHIP HAD OBSERVED AS UNDER:- NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIF ICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E. SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW ; THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OF FENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON TH E ASSESSEE ; ) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW ; PENALTY PROCEEDINGS AR E DISTINCT FROM THE ASSESSMENT PROCEEDINGS : THOUGH PROCEEDINGS FOR IMP OSITION OF PENALTY EMANATE FROM PROCEEDINGS OF ASSESSMENT, THEY ARE IN DEPENDENT AND A SEPARATE ASPECT OF THE PROCEEDINGS ; THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCORREC T PARTICULARS WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE PROCEEDINGS ON THE MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT 20 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE A SSESSMENT OR REASSESSMENT CANNOT BE DECLARED INVALID IN THE PENA LTY PROCEEDINGS. VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN T HE ABOVE JUDGMENT WAS INDIRECTLY AFFIRMED BY THE HONBLE APEX COURT, WHEN IT DISMISSED AN SLP FILED BY THE REVENUE AGAINST THE JUDGMENT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA), SPECIFICALLY OBSERVING THAT THERE WAS NO M ERITS IN THE PETITION FILED BY THE REVENUE. CONSIDERING THE ABOVE CITED JUDGMEN TS, WE HOLD THAT THE NOTICE ISSUED U/S.274 R.W.S. 271AAB OF THE ACT, REP RODUCED BY US AT PARA 5 ABOVE WAS NOT VALID. EX-CONSEQUENTI, THE PENALTY OR DER IS SET ASIDE. 6. SINCE WE HAVE SET ASIDE THE PENALTY ORDER FOR TH E IMPUGNED ASSESSMENT YEAR, THE APPEAL FILED BY THE REVENUE HAS BECOME IN FRUCTUOUS. IN VIEW OF THE DECISION OF THE CHENNAI BENCH (SUPRA ), THE SHOW CAUSE NOTICE ISSUED BY THE AO IN THE CASE OF THE ASSESSEE IS NOT SUSTAINABLE. WE FURTHER NOTE THAT IN THE CASE IN HAND, THE AO IN THE SHOW CAUSE NOTICE HAS NEITHER SPECIFIED THE GROUNDS AND DEFAULT ON THE PA RT OF THE ASSESSEE NOR EVEN SPECIFIED THE UNDISCLOSED INCOME ON WHICH THE PENAL TY WAS PROPOSED TO BE LEVIED. FOR READY REFERENCE WE REPRODUCE THE SHOW CAUSE NOT ICES ISSUED BY THE AO UNDER SECTION 274 READ WITH SECTION 271AAB ON 22 TH DECEMBER, 2016 AND 15 TH MAY, 2017 AS UNDER :- NOTICE UNDER SECTION 274 READ WITH SECTION 271 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. DATED : 22.12.2016. TO, NAME SHRI RAM DAS SONKIA ADDRESS PITALIYON KA CHOWK, JOHARI BAZAR, JAIPUR. PAN AJTPS 9679 M 21 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. WHEREAS IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2015-16 PENALTY PROCEEDINGS WERE INITIATED U/S 274 AND 275 READ WITH THE SECTION U/S 271AAB OF THE IT ACT AND A PENALTY NOTICE WAS ISSUE D ACCORDINGLY. YOU ARE HEREBY ALLOWED FURTHER OPPORTUNITY OF BEING HEARD AND TO SHOW CAUSE WHY AN ORDER IMPOSING PENALTY ON YOU SHOULD N OT BE MADE U/S 271AAB OF THE INCOME TAX ACT 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AUT HORIZED REPRESENTATIVE, YOU MAY SHOW CAUSE IN WRITING ON OR BEFORE THE DATE FIXED FOR HEARING ON 11.01.2017 AT 11.00 AM WHICH WILL BE CONSIDERED BEF ORE ANY SUCH ORDER (S) IS/ARE MADE. SD/- ( KAMLESH KUMAR MEENA ) DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, JAIPUR. NOTICE UNDER SECTION 274 READ WITH SECTION 271 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961. DATE : 15-05-2017. TO, NAME M/S./SHRI/SMT. RAM DAS SONKIA ADDRESS PITALIYON KA CHOWK, JOHARI BAZAR, JAIPUR PAN AJTPS 9679 M WHEREAS IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2015-16 PENALTY PROCEEDINGS WERE INITIATED U/S 274 AND 275 READ WITH THE SECTION U/S 271AAB OF THE IT ACT AND A PENALTY NOTICE WAS ISSUE D ACCORDINGLY. YOU ARE HEREBY ALLOWED FURTHER OPPORTUNITY OF BEING HEARD AND TO SHOW CAUSE WHY AN ORDER IMPOSING PENALTY ON YOU SHOULD N OT BE MADE U/S 271AAB OF THE INCOME TAX ACT 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AUT HORIZED REPRESENTATIVE, YOU MAY SHOW CAUSE IN WRITING ON OR BEFORE THE DATE FIXED FOR HEARING ON 22 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 25.05.2017 AT 11.00 AM WHICH WILL BE CONSIDERED BEF ORE ANY SUCH ORDER (S) IS/ARE MADE. SD/- ( KAMLESH KUMAR MEENA ) DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, JAIPUR. THUS IT IS CLEAR THAT BOTH THE SHOW CAUSE NOTICES I SSUED BY THE AO FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271AAB ARE VERY V AGUE AND SILENT ABOUT THE DEFAULT OF THE ASSESSEE AND FURTHER THE AMOUNT OF U NDISCLOSED INCOME ON WHICH THE PENALTY WAS PROPOSED TO BE LEVIED. EVEN THE HONBL E JURISDICTIONAL HIGH COURT IN CASE OF SHEVATA CONSTRUCTION CO. PVT. LTD IN DBIT A PPEAL NO. 534/2008 DATED 06.12.2016 HAS CONCURRED WITH THE VIEW TAKEN BY HON BLE KARNATAKA HIGH COURT IN CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY , 359 ITR 565 (KARNATAKA) WHICH WAS SUBSEQUENTLY UPHELD BY THE HONBLE SUPREM E COURT BY DISMISSING THE SLP FILED BY THE REVENUE IN THE CASE OF CIT VS. SSAS E MERALD MEADOWS, 242 TAXMAN 180 (SC). ACCORDINGLY, FOLLOWING THE DECISION OF THE C OORDINATE BENCH AS WELL AS HONBLE JURISDICTIONAL HIGH COURT, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE INITIATION OF PENALTY IS NOT VALID AND CON SEQUENTLY THE ORDER PASSED UNDER SECTION 271AAB IS NOT SUSTAINABLE AND LIABLE TO BE QUASHED. GROUND NO. 2 IS REGARDING LEVY OF PENALTY UNDER SEC TION 271AAB OF THE ACT BEING UNJUST AND AGAINST THE PROVISIONS OF LAW. 6. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT T HE AO WHILE PASSING THE PENALTY ORDER UNDER SECTION 271AAB HAS NOT GIVEN A FINDING THAT THE INCOME DISCLOSED BY THE ASSESSEE IS AN UNDISCLOSED INCOME AS PER DEFINITION PROVIDED IN THE 23 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. EXPLANATION TO SECTION 271AAB(1) OF THE ACT. HE HA S FURTHER SUBMITTED THAT WHEN THE LEVY OF PENALTY IS NOT MANDATORY BUT TO BE IMPO SED ON MERITS OF EACH CASE, THEN THE AO IS DUTY BOUND TO FIRST HOLD THAT THE INCOME DISCLOSED BY THE ASSESSEE IS UNDISCLOSED INCOME AS PER THE PROVISIONS OF SECTION 271AAB AND THEN TAKE A DECISION OF IMPOSING THE PENALTY. HE HAS REFERRED TO THE RE LEVANT DISCLOSURE MADE BY THE ASSESSEE IN THE STATEMENT RECORDED UNDER SECTION 13 2(4) AND SUBMITTED THAT IT IS A CLEAR CASE OF OBTAINING THE DISCLOSURE FROM THE ASS ESSEE WITHOUT ANY INCRIMINATING MATERIAL DISCLOSING ANY UNDISCLOSED INCOME. THE AL LEGED SEIZED MATERIAL OF ANNEXURE A-2 EXHIBIT NO. 2 ARE NOTHING BUT CONTAINING SOME I MAGINARY NAMES AND DETAILS AND SOME FIGURES WHICH WERE SPECIFICALLY STATED BY THE ASSESSEE IN HIS STATEMENT. THE LD. A/R HAS THUS CONTENDED THAT THE SAID SEIZED DOC UMENTS ARE NOTHING BUT DUMB AND DEAF PAPERS WITHOUT INDICATING ANY UNDISCLOSED INCOME OF THE ASSESSEE. THE ASSESSEE HAS SURRENDERED THE INCOME JUST TO BUY PEA CE AND AVOID UNNECESSARY LITIGATION, HOWEVER, THERE IS NO IOTA OF EVIDENCE T HAT THE SURRENDERED INCOME WAS UNDISCLOSED INCOME OF THE ASSESSEE. ALL THE ENTRIE S IN THE SEIZED DOCUMENTS ARE WRITTEN AGAINST SOME IMAGINARY NAMES AND FIGURES AN D DO NOT REPRESENT ANY ACTUAL TRANSACTION BUT ONLY FOR SAKE OF OBTAINING THE SURR ENDER FROM THE ASSESSEE, THE SEARCH PARTY HAS FORCED UPON THESE DOCUMENTS ON THE ASSESSEE. THE LD. A/R HAS REFERRED TO THE CBDT CIRCULAR NO. 286 OF 2003 DATED 10 TH MARCH, 2003 AND SUBMITTED THAT THE CBDT EXPRESSED ITS CONCERN ABOUT THE PRACT ICE OF CONFESSION OF ADDITIONAL INCOME DURING THE COURSE OF SEARCH AND SEIZURE PROC EEDINGS WHICH DO NOT SERVE ANY USEFUL PURPOSE IN THE ABSENCE OF ANY EVIDENCE OF IN COME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED. HENCE THE LD. A/R HAS SUBMITTED THAT THE BOARD HAS TIME AND AGAIN ADV ISED THE TAXING AUTHORITIES TO 24 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. AVOID OBTAINING AN ADMISSION/CONFESSION OF UNDISCLO SED INCOME UNDER COERCIVE/UNDUE INFLUENCE. HE HAS THEN REFERRED TO THE CIRCULAR DATED 18 TH DECEMBER, 2018 AND SUBMITTED THAT THE CBDT HAS REPEATED ITS E ARLIER INSTRUCTIONS. THUS THE LD. A/R HAS SUBMITTED THAT IN THE ABSENCE OF ANY UNDISC LOSED INCOME INDICATED OR DISCOVERED ON THE BASIS OF SEIZED MATERIAL, THE DIS CLOSURE MADE IN THE STATEMENT UNDER SECTION 132(4) IS NOT SUFFICIENT TO LEVY THE PENALTY UNDER SECTION 271AAB OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE HAS RELI ED UPON THE FOLLOWING DECISIONS :- RAVI MATHUR VS. DCIT ITA NO. 969/JP/2017 DATED 13.06.2018. DINESH KUMAR AGARWAL VS. ACIT ITA NOS. 855 & 856/JP/2017 DATED 24.07.2018. RAJA RAM MAHESHWARI VS. DCIT ITA NO. 992/JP/2017 DATED 10.01.2019. M/S. RAMBHAJOS VS. ACIT ITA NO. 991/JP/2017 DATED 11.01.2019. RAJENDRA KUMAR GUPTA VS. DCIT ITA NO. 359/JP/2017 DATED 18.01.2019. THUS THE LD. A/R HAS SUBMITTED THAT EVEN IF THE SEI ZED MATERIAL DISCLOSES SOME OUT- FLOW OF FUNDS FROM THE ASSESSEES HANDS, THE SAME C ANNOT NECESSARILY BE AN INCOME OF THE ASSESSEE. THEREFORE, IN THE ABSENCE OF ANY OTHER MATERIAL OR EVIDENCE TO SHOW THE UNDISCLOSED INCOME OF THE ASSESSEE, ONLY T HE ENTRIES IN THE SEIZED MATERIAL WHICH IS DUMB AND DEAF DOCUMENT CANNOT BE THE BASIS OF LEVY OF PENALTY UNDER SECTION 271AAB OF THE IT ACT. THUS NO INCRIMINATIN G DOCUMENT WAS FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION AND THE ALLEGED SEIZED PAPERS ON THE BASIS OF WHICH SURRENDER WAS TAKEN BY THE DEPARTMENT CONTAIN S ONLY IMAGINARY NAMES AND 25 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. SOME FIGURES. NEITHER DURING THE SEARCH PROCEEDING S NOR THE AO HAS MADE ANY ENQUIRY OR INVESTIGATION REGARDING THE ENTRIES MADE IN THE SEIZED PAPERS. THE SURRENDER OF THE SAID INCOME BY THE ASSESSEE WAS JU ST TO BUY PEACE AS IT IS EVIDENT FROM THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT. THE SAID ENTRIES IN THE POCKET DIARY GIVING ADVANCES ITSELF IS NOT AN U NDISCLOSED INCOME BUT DUE TO UNDUE PRESSURE EXERTED BY THE REVENUE AUTHORITIES T O OBTAIN THE SURRENDER, THE ASSESSEE HAS MADE THE SURRENDER OF THE SAID INCOME. 7. ALTERNATIVELY, THE LD. A/R HAS FURTHER SUBMITTED THAT SINCE THE ASSESSEE IS AN INDIVIDUAL AND NOT DOING ANY BUSINESS, THEREFORE, T HE ASSESSEE IS NOT REQUIRED TO MAINTAIN REGULAR BOOKS OF ACCOUNT AS PER THE PROVIS IONS OF SECTION 44AB OF THE ACT. FROM THE ASSESSMENT ORDER IT IS CLEAR THAT THE ASSE SSEE HAS MAINTAINED A SEPARATE DIARY FOR THE INCOME SURRENDERED DURING THE COURSE OF SEARCH. THE DIARY WAS ALSO MAINTAINING AS BOOKS OF ACCOUNT. IN THIS DIARY ALL THE ENTRIES ARE FOR THE CURRENT FINANCIAL YEAR I.E. FROM 01.04.2014 TO THE DATE OF SEARCH I.E. 15.10.2014. NOTHING ADVERSE WAS FOUND WHICH SUGGEST THAT THE ASSESSEES INCOME WAS NOT DISCLOSED IN THE INCOME RECORDED IN THE SEIZED DOCUMENTS. THERE FORE, THERE IS NO MATERIAL OR EVIDENCE TO SHOW THAT THE SURRENDERED INCOME WAS UN DISCLOSED INCOME OF THE ASSESSEE. THEREFORE, IN VIEW OF THE VARIOUS DECISI ONS ON THIS POINT, THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD. CIT (A) I S NOT SUSTAINABLE IN LAW. 8. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE ASSESSEE HAS DISCLOSED UNDISCLOSED INCOME BASED ON THE SEIZED MATERIAL CON TAINING THE ENTRIES ON ACCOUNT OF ADVANCES FOR LAND. THE ENTRIES IN THE SEIZED MAT ERIAL PERTAINS TO THE SPECIFIED PREVIOUS YEAR AND, THEREFORE, ALL THE CONDITIONS AS PROVIDED UNDER SECTION 271AAB OF 26 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. THE ACT ARE SATISFIED FOR LEVY OF PENALTY. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS APPARENT FROM THE SEIZED DOCUMENTS, THE ASSESSEE DISCLOSED THE INCOME OF RS. 7,02,00,000/- ON ACCOUNT OF ADVANCES FOR LAN D. ON CAREFUL PERUSAL AND CONSIDERATION OF THE SEIZED DOCUMENTS, WE FIND THAT VARIOUS ENTRIES ARE MADE AGAINST VARIOUS NAMES FROM THE MONTH OF MAY, 2014 TO 10 TH OCTOBER, 2014. THESE ENTRIES ARE IN RESPECT OF CERTAIN AMOUNTS AGAINST SOME IMAG INARY NAMES AND THE DEPARTMENT HAS NOT MADE ANY EFFORT OR CONDUCTED ANY ENQUIRY EITHER DURING THE SEARCH AND SEIZURE ACTION OR DURING THE ASSESSMENT PROCEEDINGS OR IN THE PENALTY PROCEEDINGS TO ASCERTAIN THE PARTICULARS OF THESE P ERSONS WHETHER THESE ARE REAL EXISTING PERSONS OR ONLY FAKE NAMES ARE WRITTEN IN THE SEIZED DOCUMENTS. FURTHER, THERE IS NO DESCRIPTION OF ANY LAND FOR WHICH THE A LLEGED ADVANCES ARE FOUND TO BE NOTED IN THE SEIZED MATERIAL. APART FROM THESE ENT RIES, THERE IS NOTHING ON RECORD OR EVEN ANY ENQUIRY WAS CONDUCTED BY THE DEPARTMENT TO FIND OUT THE PARTICULARS OF THE DETAILS OR TRANSACTIONS FOR WHICH THE ALLEGED ADVAN CES WERE GIVEN BY THE ASSESSEE. THE MERE ENTRIES IN THESE DOCUMENTS DO NOT REVEAL T HE CORRECT NATURE OF TRANSACTION AND THE EXISTENCE OF THE CORRESPONDING ASSET FOR WH ICH THE ALLEGED ADVANCES WERE GIVEN. THE DEPARTMENT HAS CONCENTRATED ONLY TO OBT AIN THE SURRENDER FROM THE ASSESSEE BUT NO RELEVANT QUESTION OR ENQUIRY WAS CO NDUCTED TO FIND OUT THE PARTICULARS OF THE LAND AND THE FULL PARTICULARS OF THE PERSONS TO WHOM THE ADVANCES WERE GIVEN. IN THE ABSENCE OF THE EXISTENCE OF THE LAND FOR WHICH THE ALLEGED ADVANCES WERE GIVEN, THESE ENTRIES ALONE WOULD NOT IPSO FACTO UNDISCLOSED INCOME OF THE ASSESSEE. EVEN OTHERWISE, THESE ENTRIES ITSELF ARE NOT HAVING ANY ELEMENT OF 27 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. INCOME BUT THESE ARE ALL EXPENDITURE ENTRIES AND, T HEREFORE UNTIL AND UNLESS THE FULL PARTICULARS OF THE LAND OR THE ASSET AGAINST WHICH THE ADVANCES WERE GIVEN IS IDENTIFIED ALONG WITH THE PERSONS TO WHOM THE ADVAN CES WERE GIVEN, IT WOULD NOT BE REGARDED AS REPRESENTING THE UNDISCLOSED INCOME OF THE ASSESSEE. FURTHER, THE ADVANCES GIVEN IN THE MONTH OF MAY, 2014 MAY NOT NE CESSARILY BE REPRESENTING THE UNDISCLOSED INCOME OF THE YEAR UNDER CONSIDERATION. NEITHER ANY OTHER DOCUMENT LIKE AGREEMENT TO PURCHASE AND SALE OF LAND OR RECE IPT TO INDICATE THE REAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH THE P ERSONS WHOSE NAMES ARE RECORDED IN THE SEIZED MATERIAL ARE EITHER FOUND OR BROUGHT ON RECORD BY THE AO. THE EXISTENCE OF THE ASSET BEING LAND FOR WHICH THE ALLEGED ADVANCES WERE GIVEN IS ESSENTIAL TO ESTABLISH THAT THE ASSESSEE HAS ACTUAL LY ENTERED INTO THESE TRANSACTIONS AND PAID THE ADVANCES. IN THE ABSENCE OF SUCH FACT OR THE LAND FOR WHICH THE ADVANCES WERE GIVEN OR THE FULL PARTICULARS OF THE PERSONS TO SHOW THAT THE NAMES APPEARING IN THE SEIZED DOCUMENTS ARE REAL EXISTING PERSONS, THESE ENTRIES IN THE SEIZED DOCUMENTS WOULD NOT CONSTITUTE UNDISCLOSED I NCOME ON ACCOUNT OF ADVANCES FOR LAND. THEREFORE, WITHOUT ASCERTAINING THE FULL PARTICULARS OF THE PERSONS IN WHOSE NAMES THE ENTRIES ARE MADE, IT IS POSSIBLE THAT ALL THESE NAMES ARE IMAGINARY AND NOT THE NAMES OF ANY EXISTING PERSONS. THE VAGUE E NTRIES ITSELF DO NOT REPRESENT THE REAL TRANSACTION AND CONSEQUENTLY THE UNDISCLOSED I NCOME OF THE ASSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAJEND RA KUMAR GUPTA VS. DCIT (SUPRA) HAS CONSIDERED THE ISSUE OF OUT FLOW OF FUNDS FROM THE ASSESSEE CAN BE AN UNDISCLOSED INCOME FOR THE PURPOSE OF SECTION 271AA B OF THE ACT IN PARA 21 AS UNDER :- 28 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 21. DURING THE COURSE OF SEARCH, A NOTE BOOK (DIA RY) HAS BEEN FOUND REFERRED TO AS ANN. AS WHEREIN THERE ARE CERT AIN NOTINGS RELATING TO CASH ADVANCES GIVEN TO VARIOUS PERSONS TOTALING TO RS 82,80,000. REFERRING TO THE STATEMENT OF THE ASS ESSEE IN RESPECT OF THESE NOTINGS RECORDED U/S 132(4), LD CI T(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS GIVEN A GENER ALIZED STATEMENT WITHOUT SPECIFYING THE COMPLETE PARTICULA RS OF PERSONS TO WHOM LOANS WERE GIVEN AND ALSO FAILED TO SUBSTANTIATE THE SAME. THE SAID FINDINGS HAVE NOT BEEN DISPUTED BY THE REVENUE AND THEREFORE, MERELY BASED ON SURRENDER AND GENERALIZED STATEMENT OF THE ASSESSEE , IN ABSENCE OF ANYTHING SPECIFIC TO CORROBORATE SUCH EN TRIES, CAN IT BE SAID THAT SUCH ENTRIES/NOTINGS REPRESENT UNDISCL OSED INCOME OF THE ASSESSEE. AS PER THE DEFINITION OF UNDISCLO SED INCOME U/S 271AAB, THE SAID CASH ADVANCES CANNOT BE STATED TO BE INCOME WHICH IS REPRESENTED BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING. WHETHER IT CAN THEN BE SAID THAT SUCH UNDISCLOSED CASH ADVANCES REPRESENTS INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACT IONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 . A CASH ADVANCE PER SE REPRESENTS AN OUTFLOW OF FUNDS FROM THE ASSESSEES HAND AND AN INCOME PER SE REPRESENTS AN INFLOW OF FUNDS IN THE HANDS OF THE ASSESSEE. THEREFORE, ONCE THERE IS AN INFLOW OF FU NDS BY WAY OF INCOME, THERE CAN BE SUBSEQUENT OUTFLOW BY WAY OF A N ADVANCE TO ANY THIRD PARTY. GIVING AN ADVANCE AND INCOME THUS CON NOTES DIFFERENT MEANING AND CONNOTATION AND THUS CANNOT BE USED INT ER-CHANGEABLY. IN THE DEFINITION OF UNDISCLOSED INCOME, WHERE IT T ALKS ABOUT INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHE R DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 , WHAT PERHAPS HAS BEEN ENVISAGED BY THE LEGISLATURE IS AN INFLOW OF FUNDS IN THE HANDS OF THE ASSESSEE WHICH HAS BEEN FOUND BY W AY OF ANY ENTRY 29 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS, AND WH ICH HAS NOT BEEN RECORDED BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED BY THE ASSESSEE IN THE NORMAL COURSE AND NOT VICE-VERSA. WE ARE ALSO CONSCIOUS OF THE FACT THAT THERE ARE DEEMING PROVISIONS IN TERMS OF SECTION 69 AND 69B WHEREIN S UCH AMOUNTS MAY BE DEEMED AS INCOME IN ABSENCE OF SATISFACTORY EXPL ANATION. IN OUR VIEW, THE DEEMING FICTION SO ENVISAGED UNDER SECTIO N 69 AND SECTION 69B CANNOT BE EXTENDED AND APPLIED AUTOMATICALLY IN CONTEXT OF SECTION 271AAB. IT IS A WELL-SETTLED LEGAL PROPOSITION THA T THE DEEMING PROVISIONS ARE LIMITED FOR THE PURPOSES THAT HAVE B EEN BROUGHT ON THE STATUTE BOOK AND HAVE THEREFORE TO BE APPLIED IN TH E CONTEXT OF PROVISIONS WHEREIN THEY HAVE BEEN BROUGHT ON THE ST ATUE BOOK AND NOT OTHERWISE. IN THE INSTANT CASE, THE DEEMING PROVIS IONS CONTAINED IN SECTION 69 AND SECTION 69B COULD HAVE BEEN APPLIED IN THE CONTEXT OF BRINGING TO TAX SUCH INVESTMENTS TO TAX IN THE QUAN TUM PROCEEDINGS, THOUGH THE FACT OF THE MATTER IS THAT THE AO HAS NO T EVEN INVOKED THE SAID DEEMING PROVISIONS IN THE QUANTUM PROCEEDINGS. THEREFORE, EVEN ON THIS ACCOUNT, THE DEEMING FICTION CANNOT BE EXTE NDED TO THE PENALTY PROCEEDINGS WHICH ARE SEPARATE AND DISTINCT FROM TH E ASSESSMENT PROCEEDINGS AND MORE SO, WHERE THE PROVISIONS OF SE CTION 271AAB PROVIDE FOR A SPECIFIC DEFINITION OF UNDISCLOSED IN COME. WHERE A SPECIFIC DEFINITION OF UNDISCLOSED INCOME HAS BEEN PROVIDED IN SECTION 271AAB, BEING A PENAL PROVISION, THE SAME MUST BE S TRICTLY CONSTRUED AND IN LIGHT OF SATISFACTION OF CONDITIONS SPECIFIE D THEREIN AND IT IS NOT EXPECTED TO EXAMINE OTHER PROVISIONS WHERE THE SAME HAS BEEN DEFINED OR DEEMED FOR THE PURPOSES OF BRINGING THE AMOUNT TO TAX. IN LIGHT OF THE SAME, THE UNDISCLOSED INVESTMENT BY WA Y OF ADVANCES CAN BE SUBJECT MATTER OF ADDITION IN THE QUANTUM PROCEE DINGS, AS THE SAME HAS BEEN SURRENDERED DURING THE COURSE OF SEARCH IN THE STATEMENT RECORDED U/S 132(4) AND OFFERED IN THE RETURN OF IN COME, HOWEVER THE SAME CANNOT BE SAID TO QUALIFY AS AN UNDISCLOSED IN COME IN THE CONTEXT 30 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. OF SECTION 271AAB READ WITH THE EXPLANATION THERETO AND PENALTY SO LEVIED THEREON DESERVED TO BE SET-ASIDE. ACCORDINGLY IN VIEW OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE AS WELL AS THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE HOLD THAT THE ENTRIES IN THE SEIZED DOCUMENTS REPRESENTING THE PAYMENT ON ACCOUNT OF LA ND IN THE ABSENCE OF THE OTHER ESSENTIAL FACTS REGARDING THE PARTICULARS OF THE LA ND AS WELL AS THE PERSONS DO NOT CONSTITUTE UNDISCLOSED INCOME OF THE ASSESSEE AS DE FINED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. ACCORDINGLY, THE PENALT Y LEVIED UNDER SECTION 271AAB BY THE AO AND CONFIRMED BY THE LD. CIT (A) IS NOT SUST AINABLE AND LIABLE TO BE DELETED. 10. AS REGARDS THE ALTERNATIVE PLEA REGARDING THE R EQUIREMENT OF MAINTAINING THE REGULAR BOOKS OF ACCOUNT BY THE ASSESSEE, WE FIND T HAT THE ASSESSEE IS NOT ENGAGED IN ANY BUSINESS ACTIVITY OR ANY OTHER PROFESSIONAL ACTIVITY REQUIRING THE REGULAR BOOKS OF ACCOUNT. THE INCOME DERIVED BY THE ASSESSEE IS ONLY FROM INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES AS WELL AS T HE PROFIT FROM PARTNERSHIP FIRM FOR WHICH REGULAR BOOKS OF ACCOUNT ARE NOT REQUIRED TO BE MAINTAINED. AN IDENTICAL ISSUE WAS CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN CASE OF RAVI MATHUR VS. DCIT (SUPRA) AT PAGE 25 AS UNDER :- SINCE IN THE CASE OF ASSESSEE THE TRANSACTIONS OF INVESTMENT WERE FOUND IN THE DIARY, THEREFORE, WHETHER THESE E NTRIES IN THE DIARY CONSTITUTE UNDISCLOSED INCOME AS PER CLAUSE (C)(I) OF EXPLANATION TO SECTION 271AAB OF THE ACT. THE ASSESSEE IS AN INDI VIDUAL AND FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT REPOR TED ANY BUSINESS INCOME NOR IT WAS ASSESSED BY THE AO. THEREFORE, I T IS CLEAR THAT THE ASSESSEE WAS NOT REQUIRED BY ANY MANDATE OF LAW TO MAINTAIN REGULAR 31 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. BOOKS OF ACCOUNTS. IN THE COMPUTATION OF INCOME, T HE ASSESSEE HAS SHOWN INCOME FROM SALARY, INCOME FROM HOUSE PROPERT Y AND INCOME FROM OTHER SOURCES. THE RETURNED INCOME WAS ACCEPTE D BY THE AO WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) A ND HENCE ASSESSEES CASE DOES NOT FALL IN THE CATEGORY WHERE THE REGULAR BOOKS OF ACCOUNTS ARE MANDATORY. THE ENTRIES OF INVESTME NT IN REAL ESTATE WERE FOUND RECORDED IN THE DIARY AND IN THE ABSENCE OF ANY OTHER DOCUMENT MAINTAINED IN THE NORMAL COURSE RELATING T O THE YEAR UNDER CONSIDERATION, THE ENTRIES IN THE DIARY ARE TO BE C ONSIDERED AS RECORDED IN THE DOCUMENTS MAINTAINED IN THE NORMAL COURSE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS RECORDED THE O THER TRANSACTIONS IN THE OTHER DOCUMENTS MAINTAINED IN THE REGULAR COURS E RELATING TO THE YEAR UNDER CONSIDERATION AND ONLY THESE ENTRIES ARE RECORDED IN THE DIARY. SINCE THE LEVY OF PENALTY UNDER SECTION 271 AAB IS NOT BASED ON THE ADDITION AND ENQUIRY CONDUCTED BY THE AO IN THE ASSESSMENT PROCEEDINGS, THEREFORE, IT IS INCUMBENT ON THE AO T O CONDUCT A PROPER EXAMINATION OF FACTS, CIRCUMSTANCES AND EXPLANATION FURNISHED BY THE ASSESSEE BEFORE ARRIVING TO THE CONCLUSION THAT PEN ALTY UNDER SECTION 271AAB IS LEVIABLE AND FURTHER WHETHER IT IS 10% OR 20% OR 30% OF SUCH UNDISCLOSED INCOME. THEREFORE, THE AO IS UNDE R STATUTORY OBLIGATION TO EXAMINE ALL THE ISSUES DURING THE PRO CEEDINGS UNDER SECTION 271AAB AFTER GIVING THE ASSESSEE AN OPPORTU NITY TO EXPLAIN THE CHARGES/GROUNDS ON WHICH THE PENALTY IS PROPOSED TO BE LEVIED. HENCE IT IS A PRE-REQUISITE CONDITION THAT THE AO FIRST S PECIFY THE CHARGES AGAINST THE ASSESSEE AND TO MAKE KNOWN THE ASSESSEE OF HIS DEFAULT SO AS TO AFFORD AN OPPORTUNITY TO EXPLAIN THE DEFAULT/ CHARGES SO BROUGHT AGAINST THE ASSESSEE. WITHOUT CONSIDERING THE EXPL ANATION OF THE ASSESSEE ON THE SPECIFIC DEFAULT, THE ORDER PASSED BY THE AO UNDER SECTION 271AAB SUFFERS FROM SERIOUS ILLEGALITY AND THEREFORE NOT SUSTAINABLE IN LAW. WHEN A STRINGENT ACTION IS PRO VIDED IN THE STATUTE AGAINST THE DEFAULT COMMITTED BY THE ASSESSEE, THEN IT ALSO CAST AN 32 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. EQUALLY STRINGENT AND STRICT DUTY ON THE AUTHORITY RESPONSIBLE TO TAKE SUCH ACTION. THEREFORE, WHEN THE PROVISIONS FOR LE VY OF PENALTY UNDER SECTION 271AAB IS A SPECIFIC PROVISION TO DEAL WITH THE UNDISCLOSED INCOME AND IT PROVIDES A STRICT PENAL ACTION THEN T HE CORRESPONDING DUTY OF THE TAX AUTHORITY IS ALSO EQUALLY STRINGENT . THE AO CANNOT ESCAPE FROM FOLLOWING THE STRICT MANDATORY REQUIREM ENT OF LAW AND PARTICULARLY THE PRINCIPLE OF NATURAL JUSTICE. THE AO HAS NEITHER SPECIFIED THE GROUNDS AND CLAUSE OF SECTION 271AAB NOR HAS DEALT WITH THE SAME IN THE IMPUGNED ORDER PASSED UNDER SECTION 271AAB. THE AO HAS ALSO NOT GIVEN A FINDING THAT THE CASE OF TH E ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME PROVIDED UNDER CLAUSE (C)(I) OF EXPLANATION TO SECTION 271AAB. WHEN THE TRANSACTIO NS OF INVESTMENT IN REAL ESTATE ARE RECORDED IN THE DIARY BEING OTHE R DOCUMENTS MAINTAINED BY THE ASSESSEE FOR THE SAID PURPOSE, TH EN IN THE ABSENCE OF ANY REQUIREMENT OF MAINTAINING REGULAR BOOKS OF ACCOUNTS BY THE ASSESSEE, THE CASE OF THE ASSESSEE WOULD NOT FALL I N THE DEFINITION OF UNDISCLOSED INCOME AS PER CLAUSE (C) OF EXPLANATION TO SECTION 271AAB OF THE ACT. 9. THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. MADAN LAL BESWAL (SUPRA) HAS CONSIDERED THIS ISSUE OF THE ALLEGED INCOME FOUND RECORDED IN THE OTHER DOCUMENTS WOULD FALL IN THE DEFINITION OF UNDISCLOSED INCOME IN PARA 3 AND 4 AS UNDER :- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT T HE ISSUE INVOLVED HEREIN IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE IN THE CASE OF DCIT VS MANISH AGARWALA (ANOTHER MEMBER IN THE SAME NEZONE GROUP) IN ITA NO. 1479/KOL/2015 FOR AY 2013-14 DATED 9.2.2018 BY THE ORDER OF THIS TRIBUNAL , WHER EIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO HAS LEVIED THE PENALTY U/S. 271AAB ON THE GROUND THAT THE INCOME FROM COMM ODITY PROFIT HAS BEEN FOUND DURING SEARCH U/S.132 OF THE ACT WHICH I S NOT REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO HAS ACCEPTED T HAT DURING SEARCH 33 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. THE ASSESSEE HAS ADMITTED U/S. 132(4) OF THE ACT TH E INCOME FROM SPECULATIVE TRADING. THE UNDISPUTED FACTS THE AO HA S GIVEN FINDING PERTAINING 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 III) PAID THE TAX ALONG WITH INTEREST. BASED ON THE SAID FINDING, ACCORDING TO AO, THE ASS ESSEE SATISFIES THE CONDITIONS ENUMERATED IN SEC. 271AAB(I)(A) OF THE A CT AND THEREAFTER LEVIED TEN PERCENT OF RS.3 CR., WHICH HAVE BEEN DEL ETED BY THE IMPUGNED ORDER OF LD. CIT(A). 4. THE LD. DR BROUGHT TO OUR NOTICE THAT IN THE VE RY SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIRMED THE LEVY OF PENALTY AND CONTENDED BEFORE US THAT PENALT Y 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 THA T THE ASSESSEE DID NOT HAD ANY MENS REA NOT TO DISCLOSE THE AMOUNT I N QUESTION. ACCORDING TO HIM, PENALTY HAS TO BE MANDATORILY LEV IED U/S. 271AAB OF THE ACT ON THE UNDISCLOSED INCOME FOUND DURING S EARCH. ON THE OTHER HAND, LD. AR SHRI MIRAZ D. SHAH, SUPPORTING T HE DECISION OF LD. CIT(A) MADE CONTENTIONS THOUGH TAKEN UP BEFORE THE LD. CIT(A) BUT HAS NOT BEEN ADJUDICATED ON THOSE AVERME NTS, WHICH THE LD. AR URGES BEFORE US TO CONSIDER WHILE ADJUDI CATING THE APPEAL OF THE REVENUE. THE LD. AR ALSO POINTED OUT THAT THE CONTENTIONS WHICH HE IS GOING TO RAISE HAS BEEN TAK EN UP BEFORE THE AO ALSO, HOWEVER, ACCORDING TO LD. COUNSEL, THO SE LEGAL ARGUMENTS WERE NOT CONSIDERED BY THE AO IN THE RIGH T PERSPECTIVE. THE FIRST CONTENTION OF THE LD. AR IS THAT SINCE SE C. 271AAB OF THE ACT IS A PENALTY SECTION IT SHOULD BE CONSTRUED STR ICTLY, 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 I TS WISDOM HAS USED THE WORD MAY AND NOT SHALL. 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 S AID CONTENTION OF LD. AR BECAUSE WHEN A SIMILAR ISSUE WAS ADJUDICA TED BY ITAT LUCKNOW (THE AUTHOR OF THIS ORDER WAS A MEMBER OF T HE 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 MA NDATORY, WHICH MEANS THAT PENALTY NEED NOT BE LEVIED IN EACH AND E VERY CASE WHEREVER THE ASSESSEE HAS MADE DEFAULT AS STATED IN CLAUSES (A), (B) AND (C) OF THE ACT. SUB-SECTION (1) OF SEC. 271 AAB OF THE ACT USES THE WORD MAY NOT SHALL. MAY CANNOT BE EQ UATED WITH SHALL ESPECIALLY IN PENALTY PROCEEDING. USING THE WORD MAY IN 34 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. OUR OPINION, GIVES A DISCRETION TO THE AO TO LEVY T HE PENALTY OR NOT TO LEVY, EVEN IF THE ASSESSEE HAS MADE 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 MANDATOR Y AND IS DISCRETIONARY. BEFORE PROCEEDING FURTHER, WE NOTE T HAT 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, MA DAN LAL BESWAL AND MANOJ BESWAL RESPECTIVELY FOR THE ASSESS MENT YEAR 2013-14 ON THE GROUND THAT NOTICE WAS NOT SERVED ON THE ASSESSEE FOR THE HEARING AND ON CERTAIN FACTUAL ERROR THAT H AD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECT ION RAISED BY THE LD. AR WAS THAT THE NOTICE OF HEARING WAS NOT SERVE D ON THE ASSESSEE FOR THE HEARING SCHEDULED ON 06.11.2017 AN D HENCE, THE ASSESSEE COULD NOT BE PRESENT ON THE SAID DATE BY W AY OF PERSONAL APPEARANCE. THE SECOND OBJECTION RAISED BY THE LD. AR WAS THAT THE TRIBUNAL HAD STATED IN PARA 9 OF ITS ORDER THAT THE ASSESSEE HIMSELF HAD ACCEPTED THAT HE IS ENGAGED IN COMMODIT IES TRADING BUSINESS AND THEREFORE MANDATED TO MAINTAIN BOOKS O F ACCOUNTS IN TERMS OF SECTION 44AA OF THE ACT AND THEREBY INFERR ING THAT THE ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES T RADING BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR PR OFESSION. BASED ON THIS CRUCIAL FINDING, THE TRIBUNAL HAD CON CLUDED THAT SINCE THE TRANSACTION OF COMMODITIES TRADING HAD NOT BEEN ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH ON 01.08.2012 AND THEREBY IT TAKES THE CHARACTER OF UN DISCLOSED INCOME FOR WHICH PENALTY U/S 271AAB OF THE ACT IS E XIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR DREW OUR ATTENTION TO THE COMPUTATION OF THE TOTAL INCOME WHEREIN THE ASSESSE E HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD I NCOME FROM OTHER SOURCES. WE ALSO FIND THAT THE LD. AO HAD ALS O SPECIFICALLY STATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COL UMN NO. 10 THAT THE ASSESSEE IS HAVING ONLY SALARY INCOME AND INCOM E FROM OTHER SOURCES. WE FIND THAT DUE TO THE ABSENCE OF THE ASS ESSEE AT THE TIME OF HEARING THIS PARTICULAR FACT HAD ESCAPED TH E ATTENTION OF THE TRIBUNAL. ON PERUSAL OF THE FACT AVAILABLE ON RECOR D, WE FIND THAT THE FINDING RECORDED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 THAT THE ASSESSEE IS MANDATED TO MAINTAI N BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS FACTUALLY INCORRECT AND DESERVES TO BE RECTIFIED. THIS MISTAKE OF PRIMARY FACT HAD LEAD TO A CONCLUSION OF UPHOLDING THE LEVY OF PENALTY U/S 271AAB OF THE ACT . HENCE, IN THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE AF ORESAID MISTAKE OF PRIMARY FACT RIGHTLY POINTED OUT BY THE LD. AR , WE DEEM IT FIT TO RECALL THE ORDERS OF THIS TRIBUNAL DATED 10.11.2017 IN THE CASE OF AFORESAID ASSESSEES. 35 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. IN THE AFORESAID SCENARIO, THE LEGAL POSITION IS TH AT AN ORDER WHICH HAS BEEN RECALLED FOR DE NOVO ADJUDICATION, IS NO O RDER IN THE EYES OF LAW AND SO IT CANNOT BE TREATED AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD. DR IN RESPECT OF ASSESSEES IN THE SAME GRO UP CONCERN CASES AS DECIDED BY THE TRIBUNAL NO LONGER SURVIVES AND CANN OT BE TREATED AS COVERED AGAINST THE ASSESSEE. 5. THE THIRD CONTENTION OF THE LD. AR IS THAT THE ASSESSEE IS AN INDIVIDUAL, WHO WAS DRAWING SALARY INCOME. SO, ACCO RDING TO HIM, HE NEED NOT MAINTAIN ANY BOOKS OF ACCOUNT AS PER THE ACT. A CCORDING TO LD. AR, UNDISPUTEDLY THE ASSESSEE WAS ENGAGED FOR THE FIRST TIME THIS AY ONLY IN TRADING OF COMMODITIES, THAT TOO WHICH WAS CONDUCTE D IN A NON- SYSTEMATIC MANNER AND THE INCOME FROM IT WAS DULY O FFERED TO TAX BY THE ASSESSEE IN HIS RETURN OF INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES, WHICH, ACCORDING TO LD. AR WAS ACCEPTED A S SUCH BY THE AO AND DREW OUR ATTENTION TO PAGE ONE OF ASSESSMENT OR DER, (NOT THE PENALTY ORDER) WHEREIN WE NOTE THAT THE AO HAS ACKNOWLEDGED THAT THE ASSESSEE OWNED UP RS. 3 CR. AS HIS INCOME FROM COMMODITY PRO FIT AND IT HAS BEEN DISCLOSED IN HIS INCOME AND EXPENDITURE FOR AY 2013 -14 UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF CO MMODITIES, AND THEREAFTER THE AO CONFIRMED THE ASSESSEES CLAIM AN D THEREAFTER TOTAL INCOME WAS ASSESSED BY THE AO AS PER THE RETURN SUB MITTED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS DISCE RNED FROM ASSESSMENT ORDER, THE ASSESSEES CASE IS THAT FOR THE FIRST TI ME IN THIS AY HE WAS DOING UNSYSTEMATIC SPECULATIVE ACTIVITY WHICH EARNED INCO ME AND, IT WAS BROUGHT UNDER THE HEAD INCOME FROM OTHER SOURCES, AND SO, ACCORDINGLY, HE IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT AS STIPUL ATED IN SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT BECAUSE, THESE PROVISIO NS ARE ONLY FOR ASSESSES WHO ARE EARNING INCOME UNDER THE HEAD BUS INESS OR PROFESSION. WE NOTE THAT SEC. 44AA OR SEC. 44AA(2) (II) OF THE ACT CASTS A DUTY UPON THE ASSESSEE WHO ARE INTO BUSINESS OR PR OFESSION AND SUCH ASSESSEES ARE BOUND TO MAINTAIN BOOKS OF ACCOUNT A S STIPULATED THEREIN. FOR APPRECIATING THIS SUBMISSION LET US GO THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICA L, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROF ESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR ANY OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFICIAL GAZETTE SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND O THER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF T HIS ACT. (2) EVERY PERSON CARRYING ON BUSINESS OR PROFESSION [NOT BEIN G A PROFESSION REFERRED TO IN SUBSECTION (1)] SHALL, (I) IF HIS INCOME FROM BUSINESS OR PROFESSION EXCE EDS [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVE R OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFES SION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THREE Y EARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR; OR 36 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. (II) WHERE THE BUSINESS OR PROFESSION IS NEWLY SET UP IN ANY PREVIOUS YEAR, IF HIS INCOME FROM BUSINESS OR PROFESSION IS LIKELY TO EXCEED [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALE S, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION ARE OR IS LIKELY TO EXCEED [TEN LAKH] RUPEES, [DURING S UCH PREVIOUS YEAR; OR (III) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER [SECTIO N 44AE] [OR SECTION 44BB OR SECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CLAIMED HIS INCOME TO BE LOWER THAN TH E PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS, AS THE CASE MAY BE, DURING SUCH [PREVIOUS YEAR; OR]] (IV) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER SECTION 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFIT S AND GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME- TAX DURING SUCH PREVIOUS YEAR,] KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER D OCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. (3) THE BOARD MAY, HAVING REGARD TO THE NATURE OF THE BUSINESS OR PROFESSION CARRIED ON BY ANY CLASS OF PERSONS, PRESCRIBE, BY R ULES, THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INVENTORIES, WHEREVER NECESSARY) TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2), THE PARTICULARS TO BE CONTAINED THEREIN AND THE FORM AN D THE MANNER IN WHICH AND THE PLACE AT WHICH THEY SHALL BE KEPT AND MAINT AINED. (4) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (3), THE BOARD MAY PRESCRIBE, BY RULES, THE PERIOD FOR WHICH THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SUB-SECTI ON (1) OR SUB-SECTION (2) SHALL BE RETAINED.] SO FROM A READING OF THE ABOVE PROVISIONS WHICH CLE ARLY STIPULATES THAT ASSESSEE WHO ARE CARRYING ON BUSINESS OR PROFESSION SHALL KE EP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH MAY ENABLE THE AO TO COMPUTE THE TOTAL INCOME. WE NOTE THAT ASSESSEE IN THE STATEMENT OF T OTAL INCOME FILED BEFORE THE AO HAS SHOWN INCOME ONLY UNDER TWO HEADS (I) SALARY INCOME (II) INCOME FROM OTHER SOURCES. WE WOULD LIKE TO REPRODUCE THE SUMMA RY OF TOTAL INCOME OF THE ASSESSEE FILED ALONG WITH THE RETURN: INCOME FROM SALARY RS. 45,57,600 INCOME FROM OTHER SOURCES RS.3,00,24,047 RS.3,45,81,647 37 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. 6. WE NOTE THAT THE AO HAS ACCEPTED THE AFORESAID STATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING THE CLAI M OF THE ASSESSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCOME OTHER THAN F ROM SALARY SHOULD BE FROM INCOME FROM BUSINESS. THE CONFUSION THAT HAS ARISEN IN THIS CASE, WE NOTE IS ON THE MISDIRECTION OF AO IN THE ASSESSM ENT PROCEEDINGS WHEREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE A O HAS OBSERVED DURING SEARCH AND SEIZURE OPERATION, SHRI MANOJ BE SWAL HAD MADE A CONSOLIDATED DISCLOSURE OF RS.32 CRORE VIDE HIS DIS CLOSURE PETITION. OUT OF THIS CONSOLIDATED DISCLOSURE, THE ASSESSEE OWNED UP RS. 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 I NCOME & EXPENDITURE ACCOUNT FOR THE AY 2013-14 UNDER THE HEAD INCOME O UT 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 & EXPENDITURE ACCOUN T FOR AY 2013-14 SUBMITTED BY THE ASSESSEE BEFORE HIM, WHEREIN IT WA S SHOWN IN THE INCOME SIDE THAT IS RIGHT HAND COLUMN AS INCOME FR OM SPECULATIVE BUSINESS FROM SALE OF COMMODITIES AND LEFT HAND SI DE COLUMN REFLECTS THE EXPENDITURE; AND AO CAME TO THE CONCLUSION THAT ASS ESSEE HAS DISCLOSED UNDER THE HEADING INCOME OUT OF SPECULATIVE BUSINES S FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HEA D UNDER WHICH IT HAS TO BE TAXED IS NOT BASED ON THE NOMENCLATURE OF REC EIPT OF INCOME SHOWN IN INCOME & EXPENDITURE ACCOUNT. ALL THE INCOMES OF REVENUE NATURE WILL BE POSTED IN THE RIGHT HAND SIDE COLUMN OF INCOME IN THE INCOME & EXPENDITURE ACCOUNT AND THE DESCRIPTION GIVEN THERE IN CANNOT DETERMINE THE HEAD OF INCOME PRESCRIBED UNDER CHAPTER IV OF T HE ACT. THEREFORE, THE OBSERVATION OF THE AO IN ASSESSMENT ORDER IN THE LI GHT OF HIS ACTION OF ACCEPTING THE STATEMENT OF TOTAL INCOME FILED BY TH E ASSESSEE ALONG WITH RETURN WHICH WITHOUT BEING CONTESTED, IS ERRONEOUS, UNLESS THE AO WAS ABLE TO NEGATE THE CLAIM OF THE ASSESSEE BY BRINGIN G 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 INDIVIDUAL/COMPANY IS CHARGEABLE TO TAX U/ S. 4 OF THE ACT. THE TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SECTION 14 OF THE ACT LAYS DOWN THAT FOR THE P URPOSE OF COMPUTATION, INCOME OF AN ASSESSEE HAS TO BE CLASSIFIED UNDER FI VE HEADS. IT IS POSSIBLE FOR AN ASSESSEE/INDIVIDUAL/COMPANY TO HAVE FIVE DIF FERENT 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 T HAT UNTIL AND UNLESS THE ASSESSEE COMMENCES ITS BUSINESS, ITS INCOME FROM AN Y OTHER SOURCE WILL 38 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. NOT BE TAXED AS HELD BY THE HONBLE SUPREME COURT I N THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. VS. CIT (1997) 22 7 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 TH AT RECEIPT IS PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACT ICE. FURTHER, THE HONBLE APEX COURT HELD THAT THE QUESTION AS TO WHE THER A PRINCIPAL RECEIPT IS OF THE NATURE OF INCOME AND FALLS WITHIN THE CHA RGE OF SEC. 4 OF THE ACT IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE CO URT ON THE BASIS OF THE PROVISIONS OF THE ACT AND INTERPRETATION OF THE TER M INCOME GIVEN IN A LARGE NUMBER OF DECISIONS OF THE HONBLE SUPREME CO URT, HIGH COURT AND PRIVY COUNCIL. AFTER TAKING NOTE OF THE APEX COURT ORDER AS ABOVE, WE NOTE THAT THE AO IN THE ASSESSMENT ORDER AFTER HAVING AC CEPTED THE STATEMENT OF TOTAL INCOME (SUPRA) AND THE RETURN WHEREIN THE ASSESSEE HAS SHOWN THE INCOME FROM COMMODITIES UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER PERUSAL OF INCOME & EXPE NDITURE ACCOUNT DETERMINE THE CHARACTER OF TRANSACTION IN THE PENAL TY PROCEEDINGS AS INCOME FROM BUSINESS OR PROFESSION WHICH APPROACH /ACTION IS ERRONEOUS. WE NOTE THAT THE ASSESSEE IN HIS STATEME NT OF TOTAL INCOME ALONG WITH RETURN HAS CLASSIFIED HIS INCOME UNDER T WO 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 INFERENCE D RAWN 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 THE FIRST TIME) IN AN ACTIVITY FROM WHICH H E DERIVED INCOME FROM OTHER SOURCES ARE NOT REQUIRED TO MAINTAIN BOOKS O F ACCOUNT WHICH ARE APPLICABLE ONLY IF THE ASSESSEE WAS ENGAGED IN BUSI NESS OR PROFESSION. HOWEVER, WE FURTHER NOTE THAT THE TRANSACTIONS WHIC H YIELDED INCOME, THE ASSESSEE HAD IN FACT MAINTAINED RECORDS FROM WHICH THE AO WAS ABLE TO DEDUCE THE TRUE INCOME AND EXPENDITURE OF THE ASSES SEE. WE NOTE THE AO IN THE ASSESSMENT ORDER HAS ACCEPTED THE RETURNED I NCOME COMPRISING OF INCOME FROM SALARY AND INCOME FROM OTHER SOURCES BY OBSERVING AS UNDER : TOTAL INCOME ASSESSED AS PER RETURN RS.3,44,65,120 /-. AND FURTHER WE NOTE THAT THE AO HAD SPECIFICALLY ST ATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESS EE IS HAVING ONLY SALARY INCOME AND INCOME FROM OTHER SOURCES. THUS F ROM A PERUSAL OF THE ASSESSMENT ORDER, IT IS NOT IN DISPUTE THAT ASSESSE E IS NOT ENGAGED IN ANY BUSINESS. AND THE AO CANNOT CHANGE 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 MAKI NG A FINDING AGAINST THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER A S DISCUSSED ABOVE. 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE S EARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TRANSACTI ONS IN SPECULATIVE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE AO COULD COMPUTE THE INCOME OF THE ASSESSEE FROM THE S AID TRANSACTION WHICH AMOUNT ASSESSEE DECLARED DURING SEARCH AND WH ICH WAS DULY RETURNED AND WHICH FIGURE WAS ACCEPTED BY THE AO. A CCORDING TO LD. AR, 39 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. THE FACT THAT SEARCH HAPPENED ON 01.08.2012 NEED TO BE TAKEN NOTE OF SINCE UNDISPUTEDLY THERE WAS ENOUGH AND MORE TIME F OR THE ASSESSEE TO SUBMIT THE ACCOUNTS DURING ASSESSMENT PROCEEDINGS W HICH FACT HAS BEEN TAKEN NOTE OF AND CONCURRED BY THE LD. CIT(A). THER EAFTER, 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, NOTWITHSTAN DING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRE CT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR A FTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ******** EXPLANATION FOR THE PURPOSES OF THIS SECTION, - (A) . (B) . (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHE R VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OT HER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEA RCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] C OMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FA LSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCT ED. ACCORDING TO THE LD. AR, FROM THE FACTS AND CIRCUMS TANCES DESCRIBED ABOVE, SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINESS OR PR OFESSION, HE DOES NOT REQUIRE 40 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. TO MAINTAIN THE BOOKS OF ACCOUNT AS PER SEC. 44AA O R 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) W HICH DESCRIBES UNDISCLOSED INCOME FOR THE PURPOSES OF THIS SECTION WHICH IS VE RY IMPORTANT TO ADJUDICATE THIS ISSUE. THEREFORE, THE QUESTION IS WHEN THE SEARCH T OOK PLACE, THE ASSESSEES TRANSACTIONS (IN THIS CASE, THE SPECULATIVE TRANSAC TION) HAS BEEN FOUND TO BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEV ED FROM THE ASSESSEES ACCOUNTANTS DRAWER) AND BASED ON THAT THE ASSESSEE DECLARED RS. 3 CR. DURING SEARCH AND LATER RETURNED INCOME OF RS. 3 CR. AS IN COME 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 E NTERED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE AY 2013-14, WHICH DOCUMENT WAS RETRIEVED DURING SEARCH, HENCE, THE AM OUNT OF RS. 3 CR. OFFERED BY THE ASSESSEE DOES NOT FALL IN THE KEN OF UNDISCLOS ED INCOME DEFINED IN SEC. 271AAB OF THE ACT. SO, RS. 3 CR. WHICH WAS COMMODIT Y PROFIT RECORDED IN THE OTHER DOCUMENT MAINTAINED BY THE ASSESSEE WHICH WAS RETRIEVED DURING SEARCH CANNOT BE TERMED AS UNDISCLOSED INCOME IN THE DEF INITION GIVEN U/S. 271AAB OF THE ACT. SINCE RS. 3 CR. CANNOT BE TERMED AS UNDIS CLOSED 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. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 4. WE FIND THAT THE FACTS IN THE AFORESAID CASE AN D THE DECISION RENDERED THEREON ARE SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASES BEFORE US AND RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE APP EALS OF THE REVENUE. THEREFORE, WHEN THE ASSESSEE IS NOT REQUIRED TO MAI NTAIN THE BOOKS OF ACCOUNT AS PER SECTION 44AA, THEN THE MATTER IS REQ UIRED TO BE EXAMINED WHETHER THE ALLEGED UNDISCLOSED INCOME IS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE AS PER CLAUSE (C) T O EXPLANATION TO SECTION 271AAB. UNDISPUTEDLY THE ALLEGED INCOME WAS FOU ND RECORDED IN THE DIARY WHICH IS NOTHING BUT THE OTHER RECORD MA INTAINED IN THE NORMAL COURSE, THUS THE SAME WOULD NOT FALL IN THE DEFINIT ION OF UNDISCLOSED INCOME. ONCE THE SAID INCOME IS FOUND AS RECORDED IN THE OT HER DOCUMENTS MAINTAINED IN THE NORMAL COURSE, THEN IT CANNOT BE PRESUMED THAT THE ASSESSEE WOULD NOT HAVE DISCLOSED THE SAME IN THE R ETURN OF INCOME TO BE FILED AFTER ABOUT ONE YEAR FROM THE DATE OF SEARCH. HENCE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL A S THE VARIOUS DECISIONS ON THIS POINT, WE HOLD THAT THE PENALTY LEVIED UNDER S ECTION 271AAB IS NOT SUSTAINABLE AND THE SAME IS DELETED. 41 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR. ACCORDINGLY THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11/04/ 2019. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 11/04/2019. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI RAM DAS SONKIA, JAIPUR. 2. THE RESPONDENT THE DCIT, CENTRAL CIRCLE-2, JAI PUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 295/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 42 ITA NO. 295/JP/2018 SHRI RAM DAS SONKIA, JAIPUR.