SHRI ARUN KALA, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CENTARAL CIRCLE-2, JAIPUR

ITA 542/JPR/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7209 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 23-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUNI PAL JCIT DHK
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Opportunity of being heard; Principle of natural justice; Retrospective amendment; Question of law; Initiation of penalty proceedings; Reasonable cause; Block assessment; Set aside
• Section: 271(1)(c); 143(3); 142(1); 153A; 292BB; 274; 143(2); 139(1); 132; 139

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER VK;DJ VIHY LA -@ ITA NO. 542/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2013-14 SHRI ARUN KALA, 250, VASUNDHARA COLONY, TONK ROAD, JAIPUR. C UKE VS. D.C.I.T., CENTRAL CIRCLE-2, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AFCPK 6177 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKS J LS @ ASSESSEE BY: SHRI VIJAY GOYAL (FCA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19/09/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 24/10/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 06/02/2018 OF LD. CIT(A)-IV, JAIPUR ARISING FROM THE PENALTY ORDER PASSED U/S 271AAB OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT) FOR THE A.Y. 2013-14. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE PENALTY ORDER PASSED U/S 271AAB OF INCOME TAX ACT. 1961 IS WRONG, BAD IN LAW, INVALID AND VOID-AB-INITIO AS THE ID. AO INITIATED THE PENALTY U/S 271AAB OF INCOME TAX ACT, 1961 IN THE ASSESSMENT ORDER WITHOUT SPECIFYING THE LIMBS OF SECTION ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 2 271AAB OF THE ACT WHETHER IT IS FOR CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SECTION 271AAB(1). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE PENALTY ORDER PASSED U/S 271AAB OF INCOME TAX ACT, 1961 IS WRONG, BAD IN LAW, INVALID AND VOID-AB-INITIO AS THE ID. AO ISSUED NOTICE UNDER SECTION 274 R.W.S. 271 OF I.TAX ACT WITHOUT SPECIFYING THE DEFAULT OF THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT (A) ERRED IN CONFIRMING THE IMPOSITION OF PENALTY OF RS. 1,20,710/- UNDER SECTION 271AAB OF INCOME-TAX ACT, 1961. 4. THE ASSESSEE PRAYS FOR LEAVE TO ADD, TO AMEND, TO DELETE, OR MODIFY THE OR ANY GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL. 2. THE ASSESSEE IS AN INDIVIDUAL AND WAS COVERED UNDER THE SEARCH AND SEIZURE OPERATIONS CARRIED OUT ON 31/10/2012. DURING THE COURSE OF SEARCH, A CASH OF RS. 1,76,800/- WAS FOUND AT THE RESIDENCE OF THE ASSESSEE AND RS. 8,53,500/- FROM THE LOCKER OF THE WIFE OF THE ASSESSEE. DURING THE STATEMENT RECORDED U/S 132(4) OF THE ACT, THE ASSESSEE SURRENDERED THE CASH FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE OF RS. 8,53,500/-. THE ASSESSEE FILED HIS RETURN OF INCOME U/S 139(1) OF THE ACT ON 19/02/2014 DECLARING TOTAL INCOME AT RS. 13,93,390/- WHICH INCLUDES THE ADDITIONAL INCOME OF RS. 8,53,500/- ON ACCOUNT OF CASH FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE AS WELL AS CASH OF RS. 1,76,800/- FOUND FROM THE RESIDENCE OF THE ASSESSEE. THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 153B(1)(B) OF THE ACT ON 27/02/2015 ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 3 ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, THE A.O. INITIATED THE PROCEEDINGS U/S 271AAB OF THE ACT AND LEVIED THE PENALTY @ 10% OF THE UNDISCLOSED INCOME OF RS. 8,53,500/- U/S 271AAB OF THE ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE THE TRIBUNAL, THE LD AR OF THE ASSESSEE HAS CONTENDED THAT A SHOW CAUSE NOTICE ISSUED BY THE A.O. IS DEFECTIVE AS THE A.O. HAS NOT SPECIFIED THE PROVISIONS UNDER WHICH HE PROPOSED TO LEVY THE PENALTY. THE NOTICE WAS ISSUED U/S 274 R.W.S. 271 OF THE ACT AND THEREFORE, EVEN THE PROVISIONS OF SECTION 271AAB OF THE ACT WERE NOT MENTIONED IN THE SHOW CAUSE NOTICE. THUS, THE LD AR HAS SUBMITTED THAT THE INITIATION OF PROCEEDINGS FOR LEVY OF PENALTY U/S 271AAB OF THE ACT ARE BAD IN LAW AND CONSEQUENTLY THE ORDER PASSED BY THE A.O. U/S 271AAB OF THE ACT IS LIABLE TO BE QUASHED. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: (I) MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (II) ITAT JAIPUR BENCH IN THE CASE OF SHRI DINESH KUMAR AGARWAL VS ACIT, CENTRAL CIRCLE-1, JAIPUR IN ITA NO. 855 & 856/JP/2017 ORDER DATED 24/07/2018. FURTHER THE LD. AR HAS SUBMITTED THAT THE ADDITIONAL BUSINESS INCOME DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME U/S 139(1) OF THE ACT ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 4 CANNOT BE TREATED AS UNDISCLOSED INCOME WITHIN THE MEANING OF UNDISCLOSED INCOME SPECIFIED U/S 271AAB OF THE ACT. THE SURRENDER WAS MADE ON ACCOUNT OF CASH FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE WHICH REPRESENTS THE SMALL SAVINGS OF THE WIFE OVER THE YEARS AND THEREFORE, THE SAME CANNOT BE HELD AS UNDISCLOSED INCOME OF THE ASSESSEE, MERE SURRENDER OF INCOME TO BUY PEACE AND AVOID PROLONGED LITIGATION WOULD NOT AMOUNT DISCLOSURE OF UNDISCLOSED INCOME. THUS, THE LD AR HAS SUBMITTED THAT THE SURRENDER WAS MADE BECAUSE OF THE CIRCUMSTANCES UNDER WHICH UNDUE PRESSURE WAS EXHORTED BY THE AUTHORITIES TO OBTAIN SURRENDER OF INCOME FROM THE ASSESSEE. THUS, THE SAID SURRENDER WAS OBTAINED IN VIOLATION OF THE CBDT CIRCULAR DATED 10/03/2003 AS WELL AS 18/12/2014. HENCE, THE LD AR HAS SUBMITTED THAT THE PENALTY LEVIED BY THE A.O. MAY BE DELETED. 4. ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT RETRACTED ITS STATEMENT MADE U/S 132(4) OF THE ACT WHEREBY THE ASSESSEE HAS DISCLOSED THE UNDISCLOSED INCOME ON ACCOUNT OF CASH FOUND FROM THE BANKS LOCKER IN THE NAME OF WIFE OF THE ASSESSEE. THE SURRENDER IS BASED ON THE PHYSICAL CASH FOUND DURING THE SEARCH AND HENCE, IT SATISFIED ALL THE CONDITIONS OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATION TO SECTION 281AAB OF THE ACT. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 5 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE VALIDITY OF INITIATION OF PROCEEDINGS FOR LEVY OF PENALTY, THE A.O. HAS STATED IN THE IMPUGNED ORDER PASSED U/S 271AAB OF THE ACT THAT THE PENALTY PROCEEDINGS U/S 271AAB ARE INITIATED AGAINST THE ASSESSEE FOR HIS UNDISCLOSED INCOME VIDE SHOW CAUSE NOTICE DATED 27/02/2015. A COPY OF THE SHOW CAUSE NOTICE WAS PLACED AT PAGE NO. 15 OF THE PAPER BOOK AS UNDER: ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 6 THUS, IT IS CLEAR THAT THE SAID SHOW CAUSE NOTICE SUFFERS FROM SERIOUS DEFECTS AS THE CAPTION OF THE NOTICE DOES NOT MENTION THE CORRECT SECTION FOR LEVY OF PENALTY. EVEN IN THE BODY OF THE SAID NOTICE, THE A.O. HAS NOT SPECIFIED THE DEFAULT FOR WHICH THE SHOW CAUSE NOTICE WAS ISSUED. IT CONTAINS VARIOUS DEFAULTS IN THE PRETYPED PROFORMA WHICH INCLUDES THE VIOLATION OF NON-FURNISHING OF THE RETURN OF INCOME, NON-COMPLIANCE OF THE NOTICES ISSUED U/S 142(1) AND 143(2) AS WELL AS CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME AND FINALLY THE PENALTY U/S 271AAB OF THE ACT FOR UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. THUS, EVEN IF IT IS TAKEN THAT THE LAST PART OF THE DEFAULTS WAS INTENDED BY THE A.O., THOUGH, IT IS NOT SPECIFIED IN THE SAID NOTICE. IT BEGINS WITH THE PHRASE THAT YOU HAVE CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, EVEN THE INITIATION OF PENALTY PROCEEDINGS U/S 271AAB OF THE ACT AS PROPOSED IN THE SAID SHOW CAUSE NOTICE IS NOT BASED ON THE CORRECT DEFAULT ON THE PART OF THE ASSESSEE. THOUGH, THE A.O. THEN AGAIN ISSUED NOTICE DATED 07/07/2015 WHICH AS PER THE PENALTY ORDER FOR GRANTING AN OPPORTUNITY OF HEARING TO THE ASSESSEE AND NOT INITIATION OF THE PROCEEDINGS. ACCORDINGLY, THE INITIATION OF THE PENALTY PROCEEDINGS SUFFERS FROM SERIOUS DEFECTS WHICH ARE NOT CURABLE. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 7 THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI DINESH KUMAR AGARWAL VS ACIT (SUPRA) HAS HELD IN PARA AS UNDER: 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD WE NOTE THAT THERE IS NO QUARREL ON THE FACT THAT IN THE SHOW CAUSE ISSUE U/S 271AAB R.W.S. 274 OF THE ACT THE AO HAS NOT SPECIFIED THE PARTICULAR CLAUSE WHICH IS APPLICABLE OR PROPOSE TO BE APPLIED IN THE CASE OF THE ASSESSEE FOR LEVY OF PENALTY U/S 271AAB OF THE ACT. THUS THE AO HAS NOT MENTIONED IN THE SHOW CAUSE NOTICE TO BUT WHAT WOULD BE THE QUANTUM OF PENALTY TO BE LEVIED U/S 271AAB OF THE ACT WHETHER IT WOULD BE 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME IN TERMS OF CLAUSE-(A) TO (C) OF SECTION 271AAB(1) OF THE ACT. WE FURTHER NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT VIDE ORDER DATED 13.06.2018 IN ITA NO. 969/JP/2017 IN PARAS 4 TO 7 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 30 TH 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 31 ST 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 139(1) WAS 30 TH 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 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 8 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 ORDER TO CONSIDER THIS ISSUE, THE PROVISIONS OF SECTION 271AAB ARE TO BE ANALYZED. FOR READY REFERENCE, WE QUOTE SECTION 271AAB AS UNDER :- 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 49 [BUT BEFORE THE DATE ON WHICH THE TAXATION LAWS (SECOND 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 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 , A DMITS 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 TAX, TOGETHER WITH INT EREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 9 DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER SUB- SECTION (4) OF SECTION 132 , DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; (C) A SUM 51 [COMPUTED AT THE RATE OF SIXTY PER CENT] OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A ) AND (B). 52 [(1A) 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 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, (A) A SUM COMPUTED AT THE RATE OF THIRTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF THE ASSESSEE (I) IN THE COURSE OF THE 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 TAX, TOGETHER WI TH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF SIXTY PER CENT OF THE UNDISCLOSED INCOME O F THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED UNDER THE PROVISIONS 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 THE 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. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 10 EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNISHING OF RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 OR THE DATE ON WHICH THE PERIOD SPEC IFIED IN THE NOTICE 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 I NCOME FOR THE PREVIOUS YEAR BEFORE THE DATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 , WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE 54 [PR INCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR 54 [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUN D 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 CONDITIONS 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 BEFORE IMPOSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 11 SHOW CAUSE NOTICE AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LEVY OF PENALTY U/S. 271AAB IS NOT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISION TO IMPOSE THE PENALTY AFTER GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FOR NOT FULFILLING THE CONDITIONS AS PRESCRIBED U/S 271AAB OF THE ACT IS REQUIRED TO BE CONSIDERED BY THE AO AND PARTICULARLY WHETHER THE EXPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPLIANCE OF THE SAME IS DUE TO THE REASON BEYOND THE CONTROL OF THE ASSESSEE. THEREFORE, THE PENALTY U/S 271AAB IS NOT A CONSEQUENTIAL ACT BUT THE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANATION AND REPLY OF THE ASSESSEE HAS TO TAKE A DECISION. THIS REQUIREMENT OF GIVING AN OPPORTUNITY OF HEARING ITSELF MAKES IT CLEAR THAT 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 AO IS BOUND TO TAKE 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 FACTS OF EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS TO 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 ASSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATION TO THE SAID SECTION. THEREFORE, THE PROVISIONS OF SECTION 271AAB STIPULATE THAT THE AO 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 AO AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT 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 ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 12 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. 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 HONBLE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AAB ON ACCOUNT OF MENTIONING WRONG PROVISION OF THE ACT BEING 271(1)(C) OF THE ACT. THE HONBLE HIGH COURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO THOUGH MENTIONS SECTION 271(1) IN THE CAPTION OF THE SAID NOTICE, HOWEVER, THE BODY OF THE SHOW CAUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS FULLY COMPREHENDED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSESSEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HAS HELD AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTION OF THE NOTICE MENTIONED ONLY SECTION 271 AND NOT 271AAB. IN THIS RESPECT, THE COPY OF NOTICE HAS BEEN PRODUCED BY THE LD. A.R. BEFORE ME. IT IS SEEN THAT THE LD. A.R IS CORRECT IN OBSERVING THAT THE SECTION OF PENALTY HAS NOT BEEN CORRECTLY MENTIONED BY THE AO IN THE CAPTION. HOWEVER, THE AO WILL GET THE BENEFIT OF SECTION 292BB OF THE INCOME TAX ACT, 1961 BECAUSE FIRSTLY, THE ASSESSEE HAS RAISED NO OBJECTION BEFORE THE AO IN THIS REGARD. SECONDLY, LAST LINE OF THE NOTICE CLEARLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REPLY TO SAID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED THE IMPLICATION OF THE NOTICE THAT IT IS FOR SECTION 271AAB. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLES OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SUBMISSIONS OF A.R IN THIS REGARD HAS ALREADY BEEN REPRODUCED ABOVE. THE A.R DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT HE WAS NOT GIVEN PROPER OPPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALTY ORDER THAT THE AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE ASSESSEE. THEREFORE, IN MY OPINION, PRINCIPLE OF NATURAL JUSTICE HAS NOT BEEN VIOLATED. THUS IN VIEW OF ABOVE DISCUSSION PENALTY IMPOSED BY AO U/S 271AAB OF THE ACT IS CONFIRMED. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 13 THUS IT WAS FOUND BY THE HONBLE HIGH COURT THAT THE MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UNDER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF THE SAME. THE SAID DECISION WILL NOT HELP THE CASE OF THE REVENUE SO FAR AS THE ISSUE INVOLVES THE MERITS OF LEVY OF PENALTY UNDER SECTION 271AAB. AS REGARDS THE DECISION OF KOLKATA BENCHES OF THE TRIBUNAL IN THE CASE OF DCIT VS. AMIT AGARWAL (SUPRA), WE FIND THAT THE SAID DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRESH ORDER 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 SECTION 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSIDERED BY THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACIT VS. M/S. MARVEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE APPEAL HEARING, THE LD. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENALTY UNDER THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION OF INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FURTHER STATED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSMENT AND ACCORDINGLY ARGUED THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT DISCRETIONARY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGIBLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTION 158BFA(2) OF THE ACT AND ARGUED THAT THE WORDS USED IN SECTION 271AAB OF THE ACT AND THE WORDS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENALTY SECTION 271AAB OF THE ACT PENALTY IS NOT AUTOMATIC AND IT IS ON THE MERITS OF EACH CASE. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SECTION 158BFA (2) OF THE ACT AND SECTION 271AAB OF THE ACT WHICH READS AS UNDER; 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 14 (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 TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER SUB-SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER CENT BUT WHICH SHALL NOT EXCEED NINETY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDISCLOSED INCOME REFERRED TO IN SUB- SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC: ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 15 PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MADE IN RESPECT OF A PERSON IF (I) SUCH PERSON HAS FURNISHED A RETURN UNDER CLAUSE (A) OF SECTION 158BC; (II) THE TAX PAYABLE ON THE BASIS OF SUCH RETURN HAS BEEN PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OFFERS THE MONEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYABLE. (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RETURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF THAT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDING PROVISO SHALL NOT APPLY WHERE THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, THE WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENALTY. SIMILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE ACT, FORTIFIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. 7. THE LEGISLATURE HAS INCLUDED THE PROVISIONS OF SECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CLEAR INTENTION TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROCEDURE FOR LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. THEREFORE, FROM PLAIN READING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSEE, THE PENALTY CANNOT BE MANDATORY AND IT IS ON THE BASIS OF THE FACTS AND MERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT TO HEAR THE ASSESSEE AND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JUSTICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHILE DEALING WITH THE PENALTY U/S 158BFA HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECTION 158BFA OF THE ACT THAT ARE ENTITLED TO BE MANDATORY, THE WORDS MAY DIRECT IN SUB SECTION 2 THERE OF INTENDED TO DIRECTORY. IN OTHER WORDS, WHILE PAYMENT OF INTEREST IS ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 16 MANDATORY LEVY OF PENALTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHORITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH CASE. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETION TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION OF THE AO. HENCE WE FORTIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL ASSOCIATES. 7. AS REGARDS THE VALIDITY OF NOTICE UNDER SECTION 274 FOR WANT OF SPECIFYING THE GROUND AND DEFAULT, WE FIND THAT WHEN THE BASIC CONDITION OF THE UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNTS DOES NOT EXISTS, THEN THE SAME HAS TO BE SPECIFIED BY THE AO IN THE SHOW CAUSE NOTICE AND FURTHER THE AO IS REQUIRED TO GIVE A FINDING WHILE IMPOSING THE PENALTY UNDER SECTION 271AAB. EVEN IF THE AO IS SATISFIED AND COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCOME IN THE BOOKS OF ACCOUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINTAINED IN NORMAL COURSE RELATING TO SPECIFIED PREVIOUS YEAR, THE SHOW CAUSE NOTICE SHALL ALSO SPECIFY THE DEFAULT COMMITTED BY THE ASSESSEE TO ATTRACT THE PENALTY @ 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME. THERE IS NO DISPUTE THAT THE AO HAS NOT SPECIFIED THE DEFAULT AND CHARGE AGAINST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UNDER SECTION 271AAB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY TO EXPLAIN HIS CASE FOR SPECIFIC DEFAULT ATTRACTING THE 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 VS. SHRI R. ELANGOVAN (SUPRA) AT PAGES 7 TO 10 HAS HELD AS UNDER :- 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 ASSESSEE SHOULD BE A MEANINGFUL ONE AND NOT A FARCE. NOTICE ISSUED TO THE ASSESSEE REPRODUCED (SUPRA), DOES NOT SHOW WHETHER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 17 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 KARNATAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA) RELYING IN ITS OWN JUDGMENT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAD HELD AS UNDER:- 2. THIS APPEAL HAS BEEN FILED RAISING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW: (1) WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITLY MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OR THAT FOR CONCEALMENT OF INCOME MAKES THE PENALTY ORDER LIABLE FOR CANCELLATION EVEN WHEN IT HAS BEEN PROVED BEYOND REASONABLE DOUBT THAT THE ASSESSEE HAD 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 PENALTY NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) IS BAD IN LAW AND INVALID DESPITE THE AMENDMENT OF SECTION 271(1B) WITH RETROSPECTIVE EFFECT AND BY VIRTUE OF THE AMENDMENT, THE ASSESSING OFFICER HAS INITIATED THE PENALTY BY PROPERLY RECORDING THE SATISFACTION FOR THE SAME? (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DECIDING THE APPEALS AGAINST THE REVENUE ON THE BASIS OF NOTICE ISSUED UNDER SECTION 274 WITHOUT TAKING INTO CONSIDERATION THE ASSESSMENT ORDER WHEN THE ASSESSING OFFICER HAS SPECIFIED THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME? 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE 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 CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THIS COURT RENDERED IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 18 4. IN OUR VIEW, SINCE THE MATTER IS COVERED BY JUDGMENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE APPEAL IS ACCORDINGLY DISMISSED. IN THE EARLIER CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) THEIR LORDSHIP HAD OBSERVED AS UNDER:- NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFICALLY 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 INCOME. 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 TO MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE ; ) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW ; PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS : THOUGH PROCEEDINGS FOR IMPOSITION OF PENALTY EMANATE FROM PROCEEDINGS OF ASSESSMENT, THEY ARE INDEPENDENT AND A SEPARATE ASPECT OF THE PROCEEDINGS ; THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCORRECT 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 PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED INVALID IN THE PENALTY PROCEEDINGS. VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN THE 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 MERITS IN THE PETITION FILED BY THE REVENUE. CONSIDERING THE ABOVE CITED JUDGMENTS, WE HOLD THAT THE NOTICE ISSUED U/S.274 R.W.S. 271AAB OF THE ACT, REPRODUCED BY US AT PARA 5 ABOVE WAS NOT VALID. EX-CONSEQUENTI, THE PENALTY ORDER IS SET ASIDE. 6. SINCE WE HAVE SET ASIDE THE PENALTY ORDER FOR THE IMPUGNED ASSESSMENT YEAR, THE APPEAL FILED BY THE REVENUE HAS BECOME INFRUCTUOUS. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 19 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. THUS, THE TRIBUNAL IN THE SAID DECISION HAS ARRIVED TO THE CONCLUSION THAT THE LEVY OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT THE AO HAS DISCRETION TO TAKE A DECISION AND THE SAME SHALL BE BASED ON JUDICIOUS DECISION OF THE AO. ACCORDINGLY, WHEN THE A.O. HAS ISSUED SHOW CAUSE NOTICE WITHOUT APPLICATION OF MIND AND WITHOUT SPECIFYING THE DEFAULT AS WELL AS THE LEVY OF PENALTY IN WHICH CLAUSE OF SECTION 271AAB(I) OF THE ACT. THE SAID INITIATION IS ILLEGAL AND LIABLE TO BE QUASHED. 6. AS REGARDS THE MERITS OF PENALTY LEVIED U/S 271AAB OF THE ACT, THERE IS NO DISPUTE THAT THE CASH OF RS. 8,53,500/- WAS FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE AND THIS FACT IS ALSO MANIFEST FROM THE STATEMENT OF THE ASSESSEE RECORDED U/S 132(4) OF THE ACT. IN REPLY TO QUESTION NO. 6, THE ASSESSEE HAS STATED THAT THE CASH FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE IS ADMITTED HIS UNDISCLOSED INCOME AND SURRENDERED FOR TAX. THE ASSESSEE HAS EXPLAINED DURING THE PENALTY PROCEEDINGS THAT THIS CASH OF RS. 8,53,500/- IS ACCUMULATED SAVINGS FOR PAST YEARS AND THEREFORE, THE SAME IS NOT AN UNDISCLOSED INCOME OF THE ASSESSEE. THE VERY FACT OF SOURCE OF CASH FROM THE LOCKER OF THE WIFE DEMONSTRATE THAT THE SAME BELONGS TO THE WIFE OF THE ASSESSEE AND EVEN ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 20 AS PER THE PROVISIONS OF SECTION 132(4A) OF THE ACT, THE PRESUMPTION CAN BE RAISED REGARDING ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLES OR THINGS IS FOUND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF SEARCH, THE SAME BELONGS TO SUCH PERSON. THE CASH WAS FOUND FROM THE LOCKER OF THE WIFE OF THE ASSESSEE WHICH MEANS IT WAS FOUND FROM THE POSSESSION AND CONTROL OF THE WIFE AND THEREFORE, CANNOT BE PRESUMED TO BE BELONGING TO THE ASSESSEE. ACCORDINGLY, WITHOUT CONSIDERING THE CASH BEING AN UNDISCLOSED INCOME OF THE ASSESSEE AS PER DEFINITION PROVIDED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT, THE LEVY OF PENALTY IN RESPECT OF SUCH SURRENDER MADE BY THE ASSESSEE IS NOT SUSTAINABLE. HENCE, THE SAME IS DELETED. 6.1 FURTHER THE PENALTY IS NOT AUTOMATIC AS A RESULT OF SURRENDER MADE BY THE ASSESSEE BUT THE A.O. HAS TO FIRST DECIDE WHETHER THE SURRENDER MADE BY THE ASSESSEE IS FALLING IN THE DEFINITION OF UNDISCLOSED INCOME AS PROVIDED IN THE EXPLANATION TO SECTION 271AAB(1) OF THE ACT. WHEN THE ASSESSEE HAS FURNISHED EXPLANATION THAT THE CASH FOUND FROM THE LOCKER OF WIFE OF THE ASSESSEE IS REPRESENTING THE PAST SAVINGS OF THE WIFE THEN IN ABSENCE OF GIVING A FINDING ON THE PART OF THE A.O. THAT THE CASH ACTUALLY BELONGS TO THE ASSESSEE AND NOT TO THE WIFE, THE LEVY OF PENALTY U/S 271AAB OF THE ACT IS NOT SUSTAINABLE AND THE SAME IS DELETED. ITA 542/JP/2018 SHRI ARUN KALA VS DCIT 21 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2019. SD/- FOT; IKY JKO (VIJAY PAL RAO) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24 TH OCTOBER, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI ARUN KALA, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE D.C.I.T., CENTRAL CIRCLE-2, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 542/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR