Lalit Johari, Jodhpur V. ACIT, Central Circle-2,Jodhpur Present Juridiction The Dy.CIT, Central Circle-1(4), Ahmedabad

ITA 493/AHD/2023

AI Insights

This case involves an appeal by Lalit Johri against a penalty of Rs. 3,85,00,000 imposed under section 271AAB of the Income Tax Act, 1961, following a search and seizure operation. During the operation, Lalit Johri admitted to undisclosed investments and income, which he subsequently declared in his tax return for the assessment year 2014-15. The Assessing Officer levied a penalty, treating the declared income as undisclosed. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal. The Tribunal found that the penalty was not justified as the income declared did not meet the definition of 'undisclosed income' under the Act, and thus, the penalty was set aside.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131571 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 04-09-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 08-06-2023
• Other Referred Cases: Muninaga Reddy Vs ACIT, CIT Vs SSA's Emerald Meadows, Ravi Mathur vs. DCIT, Mothukuri Somabrahman Vs ACIT, Central Circle-2 Vs Marvel Associates, Manish Agarwal Vs DCIT, DCIT Vs Subhas Chandra Agarwal, Anuj Mathur Vs DCIT, Silver& Art Palace, Jaipur Vs DCIT, Suresh Chand Mittal Vs DCIT, Shri Padam Chand Punglia Vs ACIT, Rajendra Kumar Gupta Vs DCIT, Bhagwati Colonizers (P) Ltd Vs ITO, Collector, Land Acquisition Vs. Mst Kartiji, ANAND SHANKAR MITTAL vs. DEPUTY COMMISSIONER OF INCOME TAX, Vijayeswari Textiles Ltd VS CIT, MAX Data Pvt Ltd Vs CIT, Sandeep Chandak Vs Principle CIT Kanpur, PCI Vs Sandeep Chandal, Harshad Shantilal Mehta Vs Custodian and Others, Shri Ramamoorthy Sridharan Vs Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Document seized; Principle of natural justice; Reasonable cause; Tax effect; Condonation of delay; Documents seized; Set aside
• Section: 132; 2; 143(3); 153A; 69B; 274; 251; 246A; 73; 13; 158BFA

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH Before: Ms. Suchitra Kamble, Judicial Member Lalit Joh ri, 65-B, Bank Colony , Rai Ka Bagh, Jod hpur PAN: AGFP J5 542H (Appellant) Vs The ACIT, Cen tral Circle-2, Jo dhpu r Present Jurisdiction The Dy. CIT, Central Circle-1(4), Ah med abad (Resp ondent) Asses see b y : Shri Rajendra Jain, A.R. Revenue by : M s. S aumy a Pa ndey Ja in, Sr. D. R. Date of hearing : 05-09 -2 023 Date of pronouncement : 15-09 -2 023 आदेश/ORDER This is an appeal filed against the order dated 24-05-2023 passed by ld. CIT(A) for assessment year 2014-15. 2. The grounds of appeal are as under:- ITA No. 493/Ahd/2023 Assessment Year 2014-15 I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 2 Grounds of Appeal Tax effect relating to each Ground of appeal (see note below 1. That the appellate order dt. 24.05.2023 passed by the Ld CIT confirming penalty order dt 27.06.2017 passed under sec 271AAB by the ACIT, Central Circle-2, Jodhpur is bad in law and on facts. Rs. 3850000/- 2. That the Ld CIT, in the facts and circumstances of the case, erred in not condoning delay of 565 days in filing of appeal before him which otherwise is condonable in the facts and circumstances of the appellant's case. Rs. 3850000/- 3. That in the facts and in the circumstances of the case, levying penalty of Rs. 3850000/- under sec 271AAB of the IT Act, 1961 vide order dt 27.06.2017 Rs. 3850000/- 4. That the appellant craves leave to add. Alter and or delete any ground/grounds to this appeal on or before it is finally heard. That the appellant prays for justice. Total tax effect (see note below) Rs.3850000.00 3. Search action u/s. 132 of the Income Tax Act was carried out on 08- 05-2014 by Investigation Wing of the Income Tax Department at the business/residential premises of Jodhpur based Shekhawati Art Export group consisting of Shri Vinod Johari, his family members and their business concerns, wherein several incriminating documents along with other valuables were found/seized from the various premises group searched. During the course of search and seizure operation at the residential premises of the assessee, a note book was found and seized as per Annexure As Exhibit 03, to the Panchnama dated 10-05-2014. On the basis I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 3 of entries in the said note book Shri Lalit Johari and his father Shri Vinod Johari admitted undisclosed investment of Rs. 70,00,000/- in the construction of factory building and also undisclosed advance of Rs. 3,15,00,000/- for purchase of land. They admitted that the said amount of Rs. 3,85,00,000/- as undisclosed income of Shir Lalit Johari for the financial year 2013-14 relevant to assessment year 2014-15 and voluntarily offered the same for taxation for assessment year 2014-15. The said amount was dully reflected in the return of income of Shri Lalit Johri for the relevant assessment year 2014-15. Total income of Rs. 3,85,03,500/- was declared by the assessee in the return of income for the relevant assessment year including the undisclosed income of Rs. 3,85,00,000/- surrendered at the time of search on 08-05-2014 by Shri Lait Johari. Assessment u/s. 153A r.w.s. 143(3) dated 23-12-2016 was completed and return of income of Rs. 3,84,03,500/-. Penalty proceedings under sub-section (1) of section 271AAB was also initiated separately in respect of the surrendered amount of Rs. 3,85,00,000/- by issuing notice u/s. 274 r.w.s. 271AAB(1) of the Act on 27- 12-2016. The assessee filed reply dated 31-01-2017. After taking cognizance of the reply, the Assessing Officer levied penalty @ 10% of undisclosed income thereby imposing penalty of Rs. 3,85,00,000/-. 4. Being aggrieved by the penalty order, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee. 5. The ld. Departmental Representative submitted that during the course of search and seizure at the residential premises of assessee, a note book found and seized as per Annexure As Exhibit 03 to the panchnama dated 10- I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 4 05-2014 on the basis of entries in the said note book of Shri Lalit Johari and his father, Shri Vinod Johari admitted undisclosed investment of Rs. 70,00,000/- in the factor building construction and advance for purchase of land. The assessee surrendered Rs. 3,85,00,000/- for assessment year 2014- 15. Further, the assessee submitted that the assessee’s case falls under clause (a) of sub-section (1) of section 271AAB of the Income Tax Act, 1961. The notice has been issued u/s. 271AAB(1) under sub-clause (a) has not been mentioned and accordingly penalty proceedings has to be deleted as per provisions of section to clause (a) of sub-section (1) of section 271AAB. 6. The ld. Authorized Representative relied upon the following case laws:- 1. Muninaga ReddyVs ACIT (2017) 396 ITR 0398 (Karn) 2. CIT Vs SSA's Emerald Meadows 242 Taxman 150 (SC) 3. Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018 4. Mothukuri Somabrahman Vs ACIT (ITA No. 126/Vizag/2017 dated 16.03.2018 5. Central Circle-2 Vs Marvel Associates (ITA No. 147/Vizag/2017) 6. Manish Agarwal Vs DCIT (ITA No. 1479/Kol/2015) dated 09.02.2018) 7. DCIT Vs Subhas Chandra Agarwal (ITA No. 1470/Kol/2015) Dated 19.02.2018 8. Anuj Mathur Vs DCIT (ITA No 971/JP/2017 Dated 13.06.2018) 9. Silver& Art Palace, Jaipur Vs DCIT, Central Circle-4, Jaipur (ITA No 236/JP/2018 dated 11.02.2019) 10. Suresh Chand Mittal Vs DCIT CC-2(ITA No 931/JP/2017 order dated 02.07.2018 ) I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 5 11. Shri Padam Chand Punglia Vs ACIT, CC-1, Jaipur ITA 112/JP/2018 decided on 05.04.2019 12. RajendraKumarGupta, Jaipur Vs DCIT (ITA 359/JP/2017) 13. Bhagwati Colonizers (P) Ltd Vs ITO ITA 169/Asr/2015 dt 25.11.2019 7. The Authorized Representative has also submitted written submission as follow:- “FACTS:- 1 The Asst Commissioner of Income Tax, Central Circle-2, Jodhpur passed an order u/s 271AAB on 27.06.2017 for the Asst Year 2014-15 levying a penalty of Rs 3850000/- under Clause (a) of sub sec 1 to the above sec 271AAB. The facts of the case are that a search took place in the case of the assessee u/s 132 on 08.05.2014 along with M/S Shekhawati Art Exports consisting of two partners namely Shri Vinod Johari and the assessee Shri Lalit Johari. 2. During the course of search and seizure operation at the residential premises of the assesses, a note book was found as Per Annexure AS Exhibit 03, and seized on dated 08/05/2014 placed at paper Book page No.01 to 08. On the basis of entries in the said note book Shri Lalit Johari and his father Shri Vinod Johari admitted undisclosed investment of Rs. 70,00,000/- in the construction of factory building and also undisclosed advance of Rs. 3,15,00,000/- for purchase of land. They admitted the said amount of Rs. 3,85,00,000/- as undisclosed investment of Shri Lalit Johari for the FY. 2013-14 relevant to AY. 2014-15 and voluntarily offered the same far taxation for AY 2014-15. The copy of the statement so recorded under sec 132(4) of Shri Lalit Johari is enclosed at Paper Book Page No. 09 to 10. The said amount was duly reflected in the return of income of Sh. Lalit Johri for the relevant AY 2014-15 Total income of Rs. 3,84,03,500/- was declared by the assessee in the return for the relevant AY 2014-15 including the income of Rs 385,00,000/- surrendered at the time of search on 09/05/2014 by Shri Lalit Johari I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 6 3. The assessee preferred appeal before the CIT (A) with a delay of 565 days in filing the said appeal and therefore requested the CIT(A) to admit the appeal by condoning the said delay and admitting and hearing thereof on its merit The said appeal was accompanied with an affidavit by the appellant stating the reason for filing the appeal with the above delay. The CIT however rejected the request of the appellant for condonation of delay in filing the appeal. The CIT, however, decided the appeal on its merit also and confirmed the penalty levied u/s 271AAB by the assessing officer vide his appellate order 24.05.2023. Aggrieved from the said appellate order dt 24.05.2023, the appellant preferred appeal before your honour challenging the said order rejecting the request of the appellant for condonation of delay and also challenged the said order for confirming the action of the assessing officer for levying penalty of Rs 38,50,000/- u/s 271AAB on merits for the relevant Asst. Year. Ground No. 2-Request for delay condonation in filing appeal before CIT (A) and rejection thereof. In this case the CIT (A) has rejected the ground taken for condonation of delay in filing the appeal vide his appellate order dt 24.05.2023, it would be quite appropriate first to agitate and make submissions on this issue and then to submit for legal and factual grounds taken in Appeal Memo before your honour. (a) it has been alleged by the AO that since the assessee had voluntarily surrendered Rs. 38500000/ (Rs 7000000/ in construction of factory building and undisclosed advances of Rs. 31500000/ for purchase of land) as his additional income for the FY 2013-14 relevant to Asst Year 2014-15. during search operation as per his statement recorded u/s 132(4) of the IT Act, 1961 and the assessee also had taken this surrendered income in the return filed for the AY 2014-15, paid taxes and interest thereon before the specified date for the specified previous year and therefore the AO held that the assessee's case is covered by the provisions of sec 271AAB (1)(a) of the IT Act, 1961 and levied a penalty @10% treating the surrendered income as undisclosed income. (b) The undersigned AR on receipt of the penalty order could not advise the appellant for filing appeal against the said penalty order I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 7 since the AR was under a wrong impression that the provisions of sec 271AAB are of mandatory in nature. Although the levy of penalty u/s 271AAB was not mandatory, the AO proceeded to levy the penalty without appreciating the definition of "Undisclosed Income" as appearing in Explanation (c) to sec 271AAB As soon as subsequent interpretation coming into the knowledge of the AR that the levy of penalty u/s 271AAB is not mandatory and that as per the surrender made by the assessee and as per factual position obtaining in the assessee's case, there was no undisclosed income as per its definition given in Explanation (c) to sec 271AAB and no penalty u/s 271AAB is attracted in the assessee's case, the AR realized the mistake and immediately advised the assessee to file the appeal with a request of condonation of delay and there was no fault on the part of the assessee to decide for not to file the appeal on receipt of the penalty order as it is purely a technical matter and the assessee has to rest upon the advice of the counsel. Thus in this case there was a plausible and reasonable cause for filing the appeal with delay of 565 days as stated above for which a request by way of grounds No. 3 in appeal memo Le. Form 35 supported with an affidavit has been made before CIT for condonation of the said delay and for admission of the appeal for hearing on its merit. It was therefore very humbly submitted before the CIT (A) that the above said delay being attributed to the wrong advice given by the counsel and no fault or negligence is found on the part of the assesse and therefore it may kindly be condoned and the appeal may please be admitted for hearing on its merit. The reliance was placed on the decisions of PEOPLE EDUCATION & ECONOMIC DEVELOPMENT SOCIETY (PEEDS) vs INCOME TAX OFFICER (2006) 100 ITD 0087 (TM) placed at Paper Book page No.11 to 27, EDITH WILKINS HOPE FOUNDATION vs. DIRECTOR OF INCOME TAX (EXEMPTION) (2008) 111 ITD 0097 placed at Paper Book page No.28 to 34, INTERNATIONAL SOCIETY FOR KRISHNA CONSCIOUSNESS vs. DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS) (2008) 15 DTR 0633 placed at Paper Book page No 35 to 41,INCOME TAX OFFICER vs SECOND LEASING (P) LTD (2007) 18 SOT 0557 placed at Paper Book page No.42 to 46 (c) The CIT (A) relied upon various decisions cited in the appellate order dt 24.05.2023 which only dictate the principle governing the criteria on the basis of which the courts may condone the delay and I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 8 accordingly since there was no negligence on the part of the appellant to file the appeal with delay and the said delay was attributed purely with the lapse on the part of the tax consultant, the delay in the facts and circumstance was liable to be condoned and the CIT was not at all justified in rejecting the request for condonation of delay in the facts and circumstances of the case. (d) The Hon'ble Supreme Court in the case of Collector, Land Acquisition Vs. Mst Kartiji (1987) 167 ITR 471(SC) placed at Paper Book page No. 47 to 49, held that when the cause of substantial justice is pitted against pedantic rules, the former should prevail. The said decision has been followed by the Hon'ble ITAT, Jaipur Bench in the case of ANAND SHANKAR MITTAL vs. DEPUTY COMMISSIONER OF INCOME TAX (2010) 34 DTR 0589 placed at Paper Book page No.50 to 59 and SMT VARANANDHINI RAGHAVAN. vs. INCOME TAX OFFICER (2008) 15 DTR 0140 placed at Paper Book page No.60 to 65. (e) The ITAT Mumbai Bench while dealing with the case of STERLITE INDUSTRIES (INDIA) LTD vs ADDITIONAL COMMISSIONER OF INCOME TAX (2006) 6 SOT 0497 (Headnote placed at Paper Book page No.66 to 67) held "that The Courts and the quasi judicial bodies are empowered to condone the delay if a litigant satisfies the Court that there were sufficient reasons for availing the remedy after expiry of the limitation. Such reasoning should be to the satisfaction of the Court The expression "sufficient cause or reason" as provided in sub- s (5) of s 253 is used in identical position in the Limitation Act and the CPC it is an admitted position that the words "sufficient cause" appearing in sub-s (5) of s. 253 should receive a liberal construction so as to advance substantial justice In every case of delay there can be some lapse of the litigant concerned. That alone is not enough to turn down the pleas and to shut the doors against him. If explanation does not smack mala fide or does not put forth as a dilatory strategy the Court must show utmost consideration of such litigant. Therefore, taking into consideration the overall facts and circumstances, the delay in filing the cross-objection is condoned." (f) There is one more aspect which needs to be considered by the Hon'ble Bench that the CIT did not stop with his decision rejecting the request for condonation of delay but also adjudicated on the grounds I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 9 to the appeal on its merit in the appellant's case The observations of the Hon'ble Madras High Court in the case of Vijayeswari Textiles Ltd VS CIT (2002) 176 CTR (Mad) 74 as referred to in the case of M/s Bhagwati Colonizers Pvt. Ltd Vs ITO (ITAT Amritsar) ITA No. 169/Asr/2015 dt 22.10.2019 (Placed at Page No. 252 to a272 of the Paper Book) are quite relevant to be quoted here as under in the above connection: “7. Matters relating to condonation of delay are indeed discretionary and are normally left to the Tribunal and this court will not ordinarily interfere with the discretion. In this case, as we have already pointed out, the Tribunal did not stop with the order declining to condone the delay, but considered the matter on merits and has practically treated the appeal as being properly before it and has answered the question brought before it with reference to the material placed on record. It is in the circumstances, we hold that the Tribunal was in error in not condoning the delay. The question regarding the correctness of the Tribunal's holding that the delay is not to be condoned is therefore answered in favour of the assessee and against the Revenue...” According to the ratio of the above said decision, if the appeal is adjudicated on merits, then refusing to condone the delay is an error. In the above case the delay was attributed to the lapse on the part of the advocate was condoned since there was no negligence established on the part of the assessee. In view of the above, your honour is requested please to cancel the decision of the CIT as far as the rejection of the ground for condonation of delay in filing the appeal by the appellant is concerned and decide this appeal before your honour on its merit and oblige. 5. The written submissions for the other effective grounds are as under- GROUNDS OF APPEAL 1 (a) in the first ground of appeal, the appellant challenged that the appellate order dt 24.05.2023 as passed by the CIT confirming the penalty order dt 27.06.2017 passed u/s 271AA8 (1)(a) is bad in law I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 10 and on facts in as much as the same has been initiated with an illegal notice (Copy enclosed at Page No. 67A of the Paper Book) having been issued u/s 271AAB (1) without mentioning the sub clause thereof under which the assessee's case falls although in the caption of the notice, sub clause (a) is mentioned, the same is missing in the body of the notice making it an invalid notice. Further the notice issued u/s 271AAB does not specify the grounds specifically for rebuttal by the appellant as to which surrender of income fits into the definition of the Undisclosed Income as per the definition thereof given in the Explanation (c) to sec 271AAB which made the notice illegal. The reliance is placed to the decision in the following cases. -Muninaga Reddy vs. ACIT 396 ITR 398 (Karnataka)- Head Note placed at PB Page No. 68 to 70. -CIT vs. SSA's Emerald Meadows 242 Taxman 150 (SC)- placed at PB Page No. 71 to 75. -Ravi Mathur vs. DCIT ITA No. 969/JP/2017 dated 13.06.2018 placed at PB No.76 to 94. (b) Further as would reveal from the following submissions for other grounds here in under that the proceedings u/s 271AAB have been dealt with by the AO and confirmed by the CIT as if these provisions are mandatory for levy of penalty in search cases where the surrender of income is made in the search in the statement recorded u/s 132(4) and such income is taken into the return filed for the specified previous year, taxes and interest paid for on or before the specified date without appreciating the definition of "Undisclosed Income" provided under Explanation (c) to sec 271AAB. The proceedings were completed by the Assessing Officer and an order u/s 143(3) r/w sec 153A of the Act was passed accepting the returned income. Simultaneously penalty proceedings were also initiated u/s 271AAB of the IT Act, 1961 by issuance of a notice on 23.12.2016 and a further notice dt. 23.05.2017 and subsequently penalty was imposed u/s 271AAB(1)(a) of the IT Act at the rate of 10% amounting to Rs. 3850000/- vide penalty order dt. 27.06.2017 which was wrongly confirmed by the CIT. ©Sec 271AAB of the Act contains the word 'may' which means discretion is vested with the Assessing Officer whether to levy penalty I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 11 or not. Secondly, the intention of the legislature is clear by making the order passed u/s 271AAB as appealable order by amending sub clause (8) of Clause (hb) of sec 246A w.e.f 01.07.2012 that it is discretionary and not mandatory to give relief to the assessee. It is settled position of law that penalties are not compulsory, not mandatory but are always discretionary considering the overall facts and circumstances of the case. (d) it is further submitted before your honour that the provisions of section 271AAB of the Act a parmateria with that of section 15ana of the Act relating to block aneximent and accordingly the love of penalty under section 271AAR is not mandatory but discretionary When there is reasonable cause the penalty o not exigible. The words used in section 271AAB of the Act and the words used in section 158BFA(2) of the Act are identical fence, the penalty under section 271AAB of the Act is not automatic and it is on the merits of each case for ready reference section 1580FA (2) of the Act and section 271AAB of the Act are reproduced 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 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- (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 (iii) on or before the specified date-- (A) pays the far 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, I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 12 (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 () 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 1588FA(2) (2) The Assessing Officer of 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 (a) 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: I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 13 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. (e) On careful reading of section 271AAB of the Act, the words used are found to be AO may direct and the assessee shall pay by way of penalty Similar words are used in section 158BFA (2) of the Act The word may directly indicates the discretion to the AO Further, sub section (3) of section 271AAB of the Act, fortifies this view. Sub section (3) of section 271AAD reads as under: "The provisions of section 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section." 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 AP High Court in the case of Radhakrishna Vihar in ITTA No.740/2011 while dealing with the penalty u/s 1588PA held that we are of the opinion that while the words shall be liable under sub section (1) of section 1588FA 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 I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 14 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" (f) The CIT in para 73 of his appellate order has mentioned that "in a case where search has been intitiated under sec 132 on or after the 1" day of July, 2012(but before the date on which the Taxation Laws (Second 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." While so mentioning the CIT altogether left the opening words of sec 271AAB(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that" which made the initiation of the penalty proceedings provisions discretionary. It is crystal clear that the applicability of sec 271AA8 because of the word "may" has become discretionary but once the applicability of sec 271AAB is established, quantification of penalty is not discretionary which is provided at the different rates in various clauses of sec 271AAB(1)(a) (b) and (c) and have to be levied on fulfillment of conditions provided in those clauses at the those rates. The CIT therefore totally misconstrued the provisions of sec 271AAB. (g) in support of the above contentions that the levy of penalty u/s 271AAS is directory and not mandatory, the reliance is placed to the decisions of Mothukuri Somabrahman Vs ACIT (ITA No. 126/Vizag/2017 dated 16.03.2018) placed at PB page No 95 to 115 Central Circle-2 vs Marvel Associates (ITA No. 147/Vizag/2017) placed at PB page No 116 to 122. Manish Agarwal Vs DCIT (ITA No. 1479/Kol/2015) dated 09.02.2018 placed at P8 page No 123 to 130, DCIT VS Subhas Chandra Agarwal (ITA No. 1470/Kol/2015) Dated 19.02 2018 placed at PB page No 131 to 133, Ravi Mathur Vs DCIT (ITA No 969/IP/2017) dated 13.06.2018 (Supra), Anuj Mathur Vs DCIT (ITA No 971/IP/2017 Dated 13.06.2018) placed at PB page No 139 to 160, Silver & Art Palace, Jaipur Vs DCIT Central Circle-4 I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 15 Jaipur (ITA No 236/IP/2018 dated 11.02 2019) placed at PB page No 161 to 198, Suresh Chand Mittal Vs DCIT CC-2(ITA No 931/IP/2017 order dated 02.07.2018) placed at PB page No 199 to 218 and Shri Padam Chand Punglia Vs ACIT, CC-1, Jaipur ITA 112/IP/2018 decided on 05.04.2019 and placed at Paper Book Page No. 219 to 238. (h) it has been held in the above cases that mere disclosure of income under sec 132(4) would not automatically lead to levy of penalty but the assessing officer has to give a clear and specific finding that the case of the assessee falls in the ambit of undisclosed income so defined in the explanation to sec 271AAB. The facts and circumstances of each case thus needs to be closely examined by the assessing officer which shows that the levy of penalty is not automatic Once the assessing officer comes to a definite finding that the case of the assessee falls within the ambit of sec 271AA8, the quantum of penalty at the rate of 10% to 30% to be determined subject to explanation of the assessee. (i)The CIT in a very casual manner stated in his appellate order dt 24.05.2023 that the decisions relied upon by the appellant are not applicable due to different material of facts. It is submitted that there is no finding given by the CIT as to how the decisions so cited and relied upon by the appellant are not applicable to the facts of the case. (j) The CIT relied upon the decision of MAX Data Pvt Ltd Vs CIT (2014) 1 SCC 674 which case was related to sec 271(1) whereas the sec 272448 are self-contained provisions in which the specific definition of undisclosed income is provided in its explanation and the AO has to fit in the surrender made by the appellant during the search proceedings in the said definition of undisclosed income to levy penalty u/s 271AA8 Like wise the OT relied upon the decision of Hon'ble Supreme Court in the case of Sandeep Chandak Vs Principle CIT Kanpur (2018) 255 Taxman 367(SC) rejecting the SLP filed by the assessee against the decision of the Allahabad High Court in the case of PCI Vs Sandeep Chandal (2018) 405 (TB 648 (All) which has already been distinguished in the cases of Ravi Mathur Vs DCIT ITA No 963/08/2017 decided on 13.06 2018 (PB Page No 76-94) and also in Silver & Art Palace, raipur vs DC Central Circle 4 Jaipur (PB I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 16 page No 161 198) (Relevant Page 174) as the issue before the Hon'ble High Court was the defect in the notice issued under sec 271AAB on account of mentioning the wrong provisions of sec 271(1) of the Act and in that context it was held that:- “28 Since admittedly no proceedings under sec 271(1) are initiated by the assessing authority during the course of the assessment proceedings under section 143(3), the impugned penalty proceedings under sec 271AAB are fully justified and are initiated in accordance with law We find that the order of the ITAT cannot sustain, therefore, the same is set aside and the penalty orders under section 271AAB passed by the assessing authority, confirmed by the CIT (Appeals), are affirmed and are restored" The said decision therefore would not help the revenue so far as the issue involves the merit of levy of penalty u/s 271AAB 2(a) In the third ground to this appeal, the appellant challenged the levy of penalty u/s 271AAB for Rs. 3850000/- for the AY 2014-15 by the AO and confirmed by the CIT The facts of the case is that the assessee had voluntarily surrendered Rs 38500000/- (Rs. 7000000/- in construction of factory building and undisclosed advances of Rs. 31500000/- for purchase of land) as his additional income for the FY 2013-14 relevant to Asst Year 2014-15 during search operation as per his statement recorded u/s 132(4) of the IT Act, 1961 and the assessee also had taken this surrendered income in the return filed for the AY 2014-15, paid taxes and interest thereon before the specified date for the specified previous year and therefore the AO held that the assessee's case is covered by the provisions of sec 271AAB (1)(a) of the IT Act, 1961 and levied a penalty @10% treating the surrendered income as the undisclosed income which was confirmed by the CIT endorsing the view of the AO. The AO as well as the CIT had nowhere given any definite findings in their orders that whether the above surrendered income is "Undisclosed Income" for the purposes of Explanation to Sec 271AAB for levy of penalty. (b) It is submitted that the proceedings under consideration has been initiated u/s 271AAB, which is penal in nature and has to be distinguished with the assessment proceedings Tax, penalty and I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 17 interest are different concepts under the IT Act, 1961 as has been held by the Hon'ble Supreme Court in the case of Harshad Shantilal Mehta Vs Custodian and Others where it was held as under:- “Tax, penalty and interest are different concepts under the Income Tax Act. The definition of Tax under sec 2(43) does not include penalty or interest Similarly, under sec 156, it is provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shal serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax: ©It is further submitted that it has been held by various Courts that penalty proceedings is not continuation of the assessment proceedings The tribunal in the case of Shri Ramamoorthy Sridharan Vs Income Tax Officer (ITA No 181/Hyd/2014) relying on the judgement of Hon'ble Supreme Court in the case of Anantram Veerasinghiah Vs CIT 123 ITR 457 has held as under:- "We have heard both the parties and perused the records. Penalty proceedings are independent proceedings and the matter is to be considered afresh. It is an undisputed position that penalty proceedings are independent proceedings and the matter has to be looked into again as the assessment order is not the final word in the penalty proceedings The decision of the Supreme Court in the case of Anantram Veerasinghiah VS CIT 123 ITR 457 is the main decision on this issue. It is thus possible for the assessee during the course of the penalty proceedings for concealment to file documents as well as to give explanations which were not given in the assessment proceedings. Merely because an addition has not been contested, it cannot be presumed that the addition represents concealed income. It has been held by the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd reported at 168 ITR 705 that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. Hence, in the present case, even though the Hon'ble (TAT has confirmed the appeal on merits (though I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 18 admitted by the Hon'ble High Court) the penalty proceedings stand under a different footing and it is not automatic" (k) It is also submitted that the proceedings under consideration is penal in nature and it is settled legal position that penal section should be construed strictly. The Tribunal in the case of DCIT, CC (2), Kolkata Vs Manish Agarwal (supra) while discussing the penalty provisions u/s 271AAB has held that "the first contention of the Ld AR is that since section 271AA8 of the Act is a penalty section, it should be construed strictly, which we agree being it is trite law that penalty provisions have to be strictly interpreted." (1) The Jaipur Bench of the (TAT in the case of Shri Ravi Mathur VS DCIT CC 4.(Supra) and Shri Suresh Chand Mittal Vs DCIT, CC-2 (Supra) has observed that merely on the basis of surrender and subsequently showing the same in return of income penalty cannot be imposed under sec 271AAB.The AO is duty bound to examine the facts of the case in the light of the provisions of sec 271AAB including the definition of the word "Undisclosed income given in the said section. Penalty u/s 271AAB is attracted on undisclosed income but not on admission made by the assessee u/s 132(4) or disclosing income in return of income. (m) it is submitted before your honour that in the assessee's case penalty has been imposed solely on the basis of admission a/s 132(4) and disclosure in return of income it would be very pertinent here to examine whether income under consideration falls under "undisclosed income as defined in the said section During the search proceedings, the assessee surrendered the following amounts during the search proceedings in the statement recorded o/s 132(4). -On account of Construction of Factory Building Rs 7000000/- -On account of advance given to parties Rs. 31500000/- Total Rs. 38500000/- (n) Surrender on account of Construction of Factory Building I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 19 (a) As regards undisclosed income on account of expenditure on Factory construction of Rs. 7000000/-, the relevant alleged seized document in this respect are the entries in the diary in the months of January and February, 2014 It is pertinent to note that all these notings are done during the month of January and February, 2014 only whereas the construction activities are a continuous process and no further entries were found. The construction of house is not a task to be completed in above two months and must have been carried out further but no details were found a total of alleged expenditure of Rs 700000/- was incurred in respect of various types of construction materials but not a single entry was found for water tankers without which construction activities could not have been carried out it appears from the sailed documents that notings on these 5 pages of a diary were done in one go and appears unrealistic Further the total of these entries comes to Rs 60070l against which the surrender by the assessee was made for Rs 7000000/ for which no basis is appearing Thus from the notings of these papers it is clear that these are not entries representing the real and actual transactions Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded under section 132(4) any efforts were made by the search party to find out the actual existence of these assets towards which the alleged entries are recorded in the seized material/papers Though the admission on the part of the assessee is a relevant evidence, however, when the entries/notings in the loose papers are apparently not representing the real transactions then it was incumbent upon the department to find out and establish by visiting the site the existence of these assets in the possession of the assessee in the absence of such efforts regarding the existence of these assets, these entries alone would not ipso facto constitute undisclosed income of the assessee. Even otherwise, these entries in itself are not having any income element but these are all expenditure entries and, therefore, until and unless a corresponding asset is found in the possession of the assessee, the entries alone cannot be regarded as representing the undisclosed income of the assessee. Therefore, when the duration of the construction period of the factory has not been ascertained by the department then showing the cost of construction with imaginary figures for a period of 2 month is not justified. The possession of the asset was a matter of fact at the time of search and in the absence of such asset either found or otherwise discovered I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 20 during the course of search and secure, these entries in the seized documents would not constitute undisclosed income on account of expenditure in construction of the factory Similar observations were made in the case of Shri Padam Chand Punglia Vs ACIT, CC-1, Jaipur ITA 112/JP/2018 decided on 05.04.2019 (supra) as under:- “8. We have considered the rival submissions as well as the relevant material on record. Out of the four items representing the undisclosed income disclosed by the assessee during the statement under s 132(4) of the IT Act, only two items, namely, expenditure on house construction and undisclosed advances are based on the seized material. The other two items being representing excess stock and undisclosed jewellery are not based on the seized documents but these are based on the valuation of the stock as well as the jewellery found at the time of search and seizure action. First, we take up the undisclosed income on account of expenditure on house construction of Rs. 2,44,63,575, the relevant alleged seized documents in this respect are the entries in the diary on 4th April, 2013, 14th April, 2013, 28th April, 2013, 28th May, 2013 and 1st June, 2013. It is pertinent to note that all these notings are done during the month of April, one in May and one in 1st June, 2013. The construction of house is not a task to be completed from 1st April, 2013 to 1st June, 2013, that too, when the alleged expenditure of Rs. 2,44,63,575 was incurred in respect of various articles and construction materials. It appears from the seized documents that these are the notings on these 5 pages of a diary are done in one-go, whereas the said notings are purported to be on different dates of month of April, May and June. Some of the entries are even unrealistic like Rs. 15 lacs towards purchase of paint. It is pertinent to note that how paint is purchased prior to the completion of construction and as per the entries in these papers there is an entry of some marble fixing of Rs. 5 lacs. From these entries in the alleged seized material, it is manifest that most of them are unrealistic as entry of Rs. 70 lacs is shown towards furniture which is highly impossible. Another entry of Rs. 45 lacs is shown towards steel. Thus, from the notings of these papers it is clear that these are not entries representing the real and actual transactions. Further, neither during the course of search and seizure proceedings nor even in the course of statement recorded under s. 132(4) any efforts were made by the search party to find out the actual existence I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 21 of these assets towards which the alleged entries are recorded in the seized material/papers. Though the admission on the part of the assessee is a relevant evidence, however, when the entries/notings on the loose papers are apparently not representing the real transactions, then it was incumbent upon the Department to find out and establish the existence of these assets in the possession of the assessee. In the absence of such efforts and even any question put to the assessee regarding the existence of these assets, these entries alone would not ipso facto constitute undisclosed income of the assessee. Even otherwise, these entries in itself are not having any income element but these are all expenditure entries and, therefore, until and unless a corresponding asset is found in the possession of the assessee, the entries alone cannot be regarded as representing the undisclosed income of the assessee. Therefore, when the duration of the construction period of the house has not been ascertained by the Department, then showing the entire cost of construction with imaginary figures for a period of 2 months is not justified. Even we find that the construction material entries are on subsequent dates and furniture and TV entries on the earlier dates which do not support the case of the Department that these entries/notings in the seized documents represent the real transactions/assets purchased by the assessee or in the possession of the assessee. The possession of the asset was a matter of fact at the time of search and in the absence of such asset either found or otherwise discovered during the course of search and seizure, these entries in the seized documents would not constitute undisclosed income on account of expenditure on construction of the house. Similarly, the entries in respect of advances of Rs. 5,62,000 also are very vague and ambiguous not giving any details about the purpose or date on which these advances were given. Only a date is mentioned at the bottom of the page but not against each and every entry of the page. Further, we note that the Department has not tried to ascertain the full particulars of the 18/22 alleged persons whose names are noted in the seized documents against certain amounts which are considered as advances given by the assessee. It is pertinent to note that without ascertaining the full particulars of the persons in whose names the entries are made, it is possible that all these names are only imaginary and not the names of any existing persons. Therefore, these vague entries itself do not represent the real transaction and consequently the undisclosed I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 22 income of the assessee. The Co-ordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. Dy. CIT (supra) has considered the issue of outflow of funds from the assessee whether can be an undisclosed income for the purpose of s. 271AAB of the Act in para 21 as under "21 During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totalling to Rs. 82,80,000. Referring to the statement of the assessee in respect of these notings recorded under s. 132(4), learned CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars 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 entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income under 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 transactions found in the course of a search under s. 132. A cash advance per se represents an outflow of funds from the assessee's hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used interchangeably. In the definition of undisclosed income, where it talks about "income by way of any entry in the books of account or other documents or transactions found in the course of a search under s. 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 way of any entry in the books of account or other documents, and which has not been recorded before the date of search in the books of account 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 ss. 69 and 698 wherein such amounts may be deemed as income in absence of satisfactory I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 23 explanation. In our view, the deeming fiction so envisaged under s. 69 and s. 69B cannot be extended and applied automatically in context of s. 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statute book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in s. 69 and s. 698 could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the AO has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of s. 271AAB provide for a specific definition of undisclosed income and where a specific definition of undisclosed income has been provided in s. 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified 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 way of advances can be subject-matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded under s. 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of s. 271AAB read with the Explanation thereto and penalty so levied thereon deserved to be set aside." Accordingly, in view of the facts and circumstances of the case as well as the decision of the Co- ordinate Bench of this Tribunal in the case of Rajendra Kumar Gupta vs. Dy. CIT (supra), we hold that the entries in the seized documents representing the expenditure on account of construction of the house and purchase of other assets as well as advances in the absence of the real transactions do not constitute the undisclosed income of the assessee as defined in the explanation to s. 271AAB of the Act. Accordingly, the penalty levied under s. 271AAB in respect of the said amount is not sustainable and liable to be set aside." (o)Surrender on account of advances to parties I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 24 It has already been submitted that mere surrender of any income would not lead to the conclusion that it was the undisclosed income of the assessee as per the definition thereof contained in sec 271AAB. During the course of the search proceedings, a diary containing certain entries relating to advance payments made for real estate transactions was found marked as Ann 3 containing total 8 pages which was seized and the assessee in the statement recorded under sec 132(4) admitted that out of the above page No 6 to 8 were related to the advances made to various parties in connection with real estate transactions which were not found recorded in the books of accounts and therefore surrendered for being taxed in the AY 2014-15. Looking to the entries on page No 6 to 8 of the Ann 3, it reveals that full particulars of the transactions are not appearing, even the where about of the persons named there and details of the properties transacted were missing. There was found no sort of any agreements or documentary evidence in support of the above transactions and therefore these entries were the dumb and deaf entries. It is only the admission made by the assessee that these are undisclosed investments and are surrendered for taxation to purchase peace of mind. Even during the assessment proceedings, only the surrender so made was accepted as such and no further enquiry what so ever was made to find out the realities of the transactions. The observations on this account in the case of Shri Padam Chand Punglia Vs ACIT, CC- 1, Jaipur ITA 112/IP/2018 decided on 05.04.2019 (supra) have already been narrated above. An identical issue has also been considered by the ITAT, Jaipur Bench in the case of Ravi Mathur vs. DCIT (supra) in para 4 as under: "4. We have considered the rival submissions as well as relevant material on record. A search was conducted under section 132 of the IT Act on 30th October, 2014 at the premises of the assessee. The assessee in his statement recorded under section 132(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 diary which was found and seized during the course of search and seizure action. This is year of search and the financial year would end on 31st March, 2015. However, the assessee disclosed this amount of Rs. 10,02,00,000/- based on the entries in the diary regarding investment in real estate. The due date of filing of return of income under section I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 25 139(1) was 30th September, 2015. It is undisputed fact that the assessee 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 presumption that the assessee would not have offered this income to tax if the search is not conducted on 30th October, 2014. Further, the entries in the diary itself do no not represent the income of the assessee during the year under consideration though the assessee was required to explain the source of investment in question and that source would be the income of the assessee. It is most likely that the investment in question was made from the unaccounted income of preceding years. Hence the investment in the real estate itself would not reveal the nature of income and the source of income of the year under consideration It is a pre-condition for invoking the provisions of section 271AAB that the assessee admitted the undisclosed income in the statement under section 132(4). The definition of undisclosed income 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 271AAB of the Act" In the aforesaid case, as submitted above, it was also decided that the levy of the penalty u/s 271AAB is not mandatory but the AO has to take a decision based on the facts and circumstances of the case otherwise there is no requirement of issuing any notice for initiation of proceedings but the levy of penalty would 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 the 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% or 20% or 30% of the undisclosed income thus the AD is bound to take a destin as to what default committed by the assesses and which particular clause of I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 26 section 271AAB(1) is attracted on such default. Further, mere disclosure of come under section 132(4) would not ipso facto par take the character of undisclosed meme but the facts of each case are required to be analyzed in objective manner so as to attract the provisions of section FLAAR of the Act. Since it is not automatic but the AD has to give a finding that the case of the assesses falls to the ambit of undisclosed income as defined in Explanation to the said section. Therefore, the provisions of section 271AAB stipulate that the AD may come to the conclusion that the assessee shall pay the penalty. The only mandatory aspect in the provision is the quantum of penalty as specified under clauses (a) to (c) of Sec 271AAB(1) of the Act as 10% to 30% or more as against the discretion given to the AD as per the provisions of section 27100 of the Act where the AD has the discretion to levy the penalty from 100% to 100% 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 explanation of the assessee for the defaults. it is submitted that the 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 explanation to section 271AAB(1) of the Act. It is further submitted that when the levy of penalty is not mandatory but to be imposed 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. It can be seen from the disclosure made by the assessee in the statement recorded under section 132(4) that it is a clear case of obtaining the disclosure from the assessee without any incriminating material disclosing any undisclosed income. The alleged seized material of Annexure referred above are nothing but containing some imaginary names and details and some figures which were specifically stated by the assessee in his statement. It is therefore that the said seized documents are nothing but dumb and deaf papers without indicating any undisclosed income of the assessee. The assessee has surrendered the income just to buy peace and avoid I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 27 unnecessary litigation, however, there is no iota of evidence that the surrendered income was undisclosed income of the assessee All the entries in the seized documents are written against some imaginary names and figures and do not represent any actual transaction but only for sake of obtaining the surrender from the assessee, the search party has forced upon these documents on the assessee. A reference to the CBDT Circular No. 286 of 2003 dated 10th March, 2003 is made in which the CBDT expressed its concern about the practice of confession of additional income during the course of search and seizure proceedings which do not serve any useful purpose in the absence of any evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed. Hence it is submitted that the Board has time and again advised the taxing authorities to avoid obtaining admission/confession of undisclosed come under coercive/undue influence to the the Carcular dated 18" December 2016 the CBDT has repeated its earlier instructions. Thus it is submitted that in the absence of any undeclared income indicated or discovered on the boasts of seized material the disclosure made in the statement under section 132(4) is not sufficient to levy the penalty under section 271AAB of the Act in support the reliance is placed to the decision upon the following decisions:- -Rave Mathur ex DEIT ITA No. 969/IP/2017 dated 13 06 2018 (Supra)) -Dinesh Kumar Agarwal vs ACIT ITA Has 855 & 856/IP/2017 dated 24.02 2018 -Shri Padam Chand Pungliya, taipur ITA NO. 112/IP/2018 (supra) -Raja Ram Maheshwar vs DEIT ITA No 992/IP/2017 dated 10.01 2019 -M/s. Rambhajo's vs ACIT ITA No. 991/JP/2017 dated 11.01.2019 relying upon the decision of Central Circle 2 Vs Marvel Associates (ITA No 147/Vizag/2017) (supra) -Rajendra Kumar Gupta vs DCIT ITA No: 359/IP/2017 dated 18.01 2019 placed at Paper Book Page No. 239 to 251 Thus it is submitted that even if the seized material discloses some out flow of funds from the assessee's hands, the same cannot necessarily be an income of the assessee for the relevant asst year. Therefore, in I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 28 the absence of any other material or evidence to show the undisclosed income of the assessee, only the 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. In view of the above humble submissions, it is requested to your honour kindly to allow the appeal of the assessee by quashing the order of the dt 24.05.2023 vide which the penalty of Rs 3850000/ levied by the A.O. u/s. 271AAB has been confirmed and direct the 40 to drop the above said penalty and oblige.” 8. The ld. Departmental Representative relied upon the assessment order and the order of the ld. CIT(A) . 9. Heard both the sides and perused all the relevant material on record. The ld. Authorized Representative at the time of hearing submitted that the CIT(A) has also dismissed the appeal of the assessee on the ground of delay as well as commented on the merit and dismissed the appeal. Since the ld. CIT(A) has already decided on merit ground nos. 1 & 2 in respect of delay before the CIT(A) is allowed. As regards, the merits of the case are concerned, the ld. Authorized Representative submitted that the notice issued for initiation of penalty u/s. 271AAB(1)(a) is not appropriate notice and bad in law appears to be not justifiable as the Assessing Officer has invoked the penalty provisions u/s. 271AAB and therefore when there is undisclosed income which has been surrendered at that juncture, the notice is just and proper. This contention of the ld. Authorized Representative does not survive. As regards the merits once the assessee has admitted the undisclosed income and offer the income for taxes accordingly the penalty u/s. 271AAB immediately gets attracted. The penalty u/s. 271AAB is on the I.T.A No. 493/Ahd/2023 A.Y. 2014-15 Page No. Lalit Johri vs. ACIT 29 basic threshold undisclosed income found and the explanation given by the assessee prior on discovery of the undisclosed income is insufficient then the penalty u/s. 271AAB is very much applicable. The each case laws referred by the ld. Authorized Representative on each of the aspect of the assessee’s case are different in facts and will not be applicable in the present case. Thus, the ground no. 3 of the assessee’s appeal is dismissed. 10. In the result, the appeal of the assessed is partly allowed. Order pronounced in the open court on 15-09-2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad : Dated 15/09/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद