SHRI NAGENDRA CHOUDHARY, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, JAIPUR

ITA 611/JPR/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9488 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 04-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JHA CIT DHK
• Assessee Lawyers: HEMANT BANSAL
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Salary income; Opportunity of being heard; Principle of natural justice; Transactions in derivatives; Source of fund; Initiation of penalty proceedings; Reasonable cause; Non compliance; Block assessment; Condonation of delay; Bonafide mistake; Set aside
• Section: 271(1)(c); 44AD; 143(3); 153A; 27; 132; 12; 139

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 611/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. SHRI NAGENDRA CHOUDHARY 232, HIMMAT NAGAR, TONK ROAD, JAIPUR. CUKE VS. THE DCIT, CENTRAL CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABSPC 5437 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. JAIN (ADVOCATE) & SHRI HEMANT BANSAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA JHA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.04.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 10/06/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 15.12.2017 OF LD. CIT (A)-4, JAIPUR ARISING FROM THE PENALTY ORDE R PASSED UNDER SECTION 271AAB OF THE IT ACT FOR THE ASSESSMENT YEAR 2014-15. THERE IS A DELAY OF 59 DAYS IN FILING THE PRESENT APPEAL. THE ASSESSEE HAS FILED AN APPLICAT ION FOR CONDONATION OF DELAY WHICH IS SUPPORTED BY THE AFFIDAVIT. 2. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R ON THE CONDONATION OF DELAY. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DELAY IN FILING THE APPEAL IS DUE TO INADVERTENT AND BONAFIDE MISTAKE ON HIS PART AS HE COULD NOT PREPARE THE APPEAL IN TIME THOUGH THE ASSESSEE HANDED OVER ALL THE PAPERS AND INSTRUCTED HIM FOR FILING THE APPEAL BEFORE THE TRIBUNAL. ONLY WH EN THE ASSESSEE ENQUIRED ABOUT 2 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. THE STATUS OF THE APPEAL, HE REALIZED THAT THE APPE AL WAS NOT FILED AND ACCORDINGLY HE PREPARED THE APPEAL IN THE LAST WEEK OF APRIL, 2018 AND THEN FILED THE SAME ON 4 TH MAY, 2018. THE LD. COUNSEL HAS THUS SUBMITTED THAT THE DELAY IN FILING THE APPEAL IS DUE TO BONAFIDE AND INADVERTENT MISTAKE ON THE PART OF THE COUNSEL, AND THEREFORE IT IS A REASONABLE CAUSE. HE HAS RELIED UPON THE DECI SION OF HONBLE ANDHRA PRADESH HIGH COURT IN CASE OF VOLTAS LIMITED VS. DCIT, 241 ITR 471 (AP) AS WELL AS DECISION OF HONBLE SUPREME COURT IN CASE OF COLLECTOR LAND ACQUISITION VS. MST. KATIJI, 167 ITR 471 (SC). THE LD. A/R HAS FURTHER CONTENDED TH AT MISTAKE ON THE PARTY OF THE COUNSEL IS A BONAFIDE MISTAKE AND IT WOULD BE A REA SONABLE CAUSE FOR EXPLAINING THE DELAY IN FILING THE APPEAL. HE HAS ALSO RELIED UPO N THE DECISION OF HONBLE SUPREME COURT IN CASE OF RAFIQ C. MUNSHILAL, AIR 1981 (SC) 1401. THUS THE LD. A/R HAS PLEADED THAT THE DELAY IN FILING THE APPEAL MAY BE CONDONED. 3. ON THE OTHER HAND, THE LD. D/R HAS OBJECTED TO T HE CONDONATION OF DELAY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS EXPLAINED THE DELAY DUE T O INADVERTENT AND BONAFIDE MISTAKE ON THE PART OF THE COUNSEL OF THE ASSESSEE WHO COULD NOT PREPARE THE APPEAL IN TIME. WE HAVE GONE THROUGH THE AFFIDAVIT FILED BY THE LD. COUNSEL OF THE ASSESSEE WHEREIN HE HAS EXPLAINED THE CAUSE OF DELA Y AS A MISTAKE ON HIS PART FOR NOT PREPARING THE APPEAL IN TIME. THERE IS NO QUARR EL ON THE POINT THAT THE REASONABLENESS OF CAUSE HAS TO BE LIBERALLY CONSIDE RED SO AS TO PROVIDE AN OPPORTUNITY TO THE PARTIES TO HAVE A DECISION ON ME RITS. IT IS ALSO SETTLED PROPOSITION OF LAW THAT THE PARTIES SHOULD NOT SUFFER FOR THE L APSES ON THE PART OF THE COUNSEL SPECIALLY WHEN THE DELAY WAS NOT INORDINATE. ACCORD INGLY, WE FIND THAT THE EXPLANATION AND REASONS AS GIVEN IN THE APPLICATION FOR CONDONATION OF DELAY AS WELL 3 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. AS AFFIDAVIT ARE BONAFIDE AS THE ASSESSEE WOULD NOT ACHIEVE ANY ULTERIOR PURPOSE IN FILING THE PRESENT APPEAL BELATEDLY. IN VIEW OF TH E FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE AS WELL AS VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE, WE ARE SATISFIED THAT THE ASSESSEE HAS EXPLAINED A REASONA BLE CAUSE FOR DELAY IN FILING THE APPEAL. ACCORDINGLY, THE DELAY OF 59 DAYS IN FILING THE PRESENT APPEAL IS CONDONED. 5. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE PENALTY ORDER PASSED U/S 271AAB OF THE INCOME TAX ACT, 1961 WHICH IS VOID AB-INITIO AND THEREFORE DESERVES TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE PENALTY OF RS. 15,0 0,000/- U/S 271AAB OF THE INCOME TAX ACT, 1961. 3. THAT THE APPELLANT RESERVES HIS RIGHT TO ADD, AM END OR ALTER THE GROUND OF APPEAL ON OR BEFORE THE DATE OF APPEAL HE ARING. THE ASSESSEE HAS ALSO RAISED TWO ADDITIONAL GROUNDS WHICH READ AS UNDER :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT (A)-IV HAS GROSSLY ERRED IN LAW AND FACTS BY CONFIR MING THE ORDER OF THE LD. AO U/S 271AAB OF THE IT ACT ON THE BASIS OF NOTICES DT. 23/03/2016 & 22/09/2016 WHICH ARE VOID AB-INITI O AND ISSUED WITHOUT MENTIONING THE SPECIFIC PROVISION OF SECTION FOR LEVY OF PENALTY AND WITHOUT APPLICATION OF MIND IS BAD IN LAW AND THEREFORE INITIATION OF PENALTY PROCEEDINGS WAS NOT PROPER. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT (A)-IV HAS GROSSLY ERRED IN LAW AND FACTS BY CONFIR MING THE PENALTY U/S 271AAB SPECIALLY WHERE THE ASSESSEE HAS NOT BEEN GIVEN PROPER OPPORTUNITY BEFORE LEVYING THE PENALTY OF BEING HEARD IN RESPECT OF THE CHARGE FOR WHICH THE PENALT Y IS BEING IMPOSED ON THE ASSESSEE (NOTICE DT. 22/09/2016 DATE OF HEARING 26/09/2016 ONLY THREE DAYS). 4 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 6. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R ON THE ADMISSION OF ADDITIONAL GROUNDS. THE ASSESSEE HAS RAISED TWO GR OUNDS. AS REGARDS THE ADDITIONAL GROUND NO. 1, THE ASSESSEE HAS OBJECTED THE VALIDIT Y OF INITIATION OF PENALTY PROCEEDINGS ON THE GROUND THAT THE AO HAS ISSUED SH OW CAUSE NOTICE WITHOUT MENTIONING THE SPECIFIC PROVISION OF SECTION FOR LE VY OF PENALTY AND WITHOUT APPLICATION OF MIND. THEREFORE, THE SHOW CAUSE NOTI CE ISSUED BY THE AO SUFFERS FROM ILLEGALITY AND CONSEQUENTLY THE INITIATION OF PENAL TY PROCEEDINGS AS WELL AS CONSEQUENTIAL ORDER ARE VITIATED AS VOID AB-INITIO. THE LD. A/R HAS FURTHER SUBMITTED THAT FOR ADJUDICATION OF THE GROUND, NO NEW FACTS A RE REQUIRED TO BE INVESTIGATED, THEREFORE, THE ADDITIONAL GROUND RAISED BY THE ASSE SSEE MAY BE ADMITTED FOR ADJUDICATION. AS REGARDS 2 ND ADDITIONAL GROUND, THE LD. A/R HAS NOT PRESSED THE SAME FOR ADMISSION AT THIS STAGE. 7. ON THE OTHER HAND, THE LD. D/R HAS OBJECTED TO T HE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE FIRST TIME AT THIS STAGE AND CONTEN DED THAT WHEN THE ASSESSEE HAS NOT OBJECTED TO THE VALIDITY OF SHOW CAUSE NOTICE E ITHER BEFORE THE AO OR BEFORE THE LD. CIT (A), THEN HE CANNOT BE PERMITTED TO QUESTIO N THE VALIDITY OF SHOW CAUSE NOTICE AT THIS STAGE. EVEN OTHERWISE, THE SHOW CAU SE NOTICE HAS CLEARLY MENTIONED THE DEFAULT ON THE PART OF THE ASSESSEE BEING UNDIS CLOSED INCOME FOUND AND DISCLOSED DURING THE COURSE OF SEARCH AND, THEREFOR E, THE PENALTY WAS INITIATED UNDER SECTION 271AAB OF THE ACT. HE HAS FURTHER CONTENDE D THAT AT THE TIME OF INITIATION OF PROCEEDINGS, THE AO IS NOT REQUIRED TO MENTION THE CLAUSE AND SUB-CLAUSE OF THE PROVISION BUT ONCE THE CONDITIONS AS PROVIDED UNDER SECTION 271AAB ARE SATISFIED WHICH INCLUDE SEARCH AND SEIZURE OPERATION, DISCLOS URE AND SURRENDER OF UNDISCLOSED INCOME ON THE PART OF THE ASSESSEE, THEN THE PROVIS IONS OF SECTION 272AAB ARE 5 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. ATTRACTED FOR LEVY OF PENALTY IN ADDITION TO TAX ON SUCH UNDISCLOSED INCOME. HE HAS FURTHER CONTENDED THAT ONCE THE SHOW CAUSE NOTICE H AS CLEARLY MADE OUT THE INITIATION OF PROCEEDINGS UNDER SECTION 271AAB OF T HE ACT, THEN THERE IS NO DEFECT OR ILLEGALITY IN THE SHOW CAUSE NOTICE ISSUED BY THE A O. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE TIME OF ADMISSION OF THE ADDITIONAL GROUND, WE NEED NOT GO INTO THE MERITS OF THE VALIDITY OF THE SHOW CAUSE NOTICE BUT THE ONLY ASPECT TO BE CONSIDERED AT THE STAGE OF ADMISSION OF ADDITIONAL GROUND IS W HETHER THE ISSUE RAISED IN THE ADDITIONAL GROUND IS LEGAL IN NATURE WHICH DOES NOT REQUIRE INVESTIGATION OF ANY FRESH FACTS OR EVIDENCE, BUT THE SAME CAN BE ADJUDICATED ON THE BASIS OF THE FACTS AND EVIDENCE AVAILABLE ON RECORD. IN THE CASE IN HAND, THERE IS NO DISPUTE THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND IS REGARDING VALIDI TY OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271AAB OF THE ACT AND PAR TICULARLY THE VALIDITY OF SHOW CAUSE NOTICE ISSUED BY THE AO UNDER SECTION 271AAB READ WITH SECTION 274 OF THE ACT DATED 23 RD MARCH, 2016. HENCE FOR ADJUDICATION OF THIS ISSUE , NO INVESTIGATION OF FACTS OR EVIDENCE IS REQUIRED BUT IT CAN BE ADJUDIC ATED BY CONSIDERING THE SHOW CAUSE NOTICE ITSELF IN THE LIGHT OF THE UNDISPUTED FACTS OF THE CASE. THUS IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF NTPC VS. CIT, 229 ITR 383 (SC), THE ADDITIONAL GROUND NO. 1 RAISED BY THE ASSESSEE RAIS ING THE ISSUE OF VALIDITY OF INITIATION OF PROCEEDINGS IS ADMITTED FOR ADJUDICAT ION ON MERITS. AS REGARDS GROUND NO. 2, THE LD. A/R HAS NOT PRESSED THIS GROUND, THE REFORE, THE SAME IS NOT ADMITTED. 6 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. GROUND NO. 1 IS REGARDING VALIDITY OF PENALTY ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT. 9. THIS GROUND ALSO COVERS THE ADDITIONAL GROUND RA ISED BY THE ASSESSEE BY RAISING A PLEA THAT THE INITIATION OF PENALTY PROCE EDINGS IS NOT VALID. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE AO ISSUED TWO S HOW CAUSE NOTICES DATED 23 RD MARCH, 2016 AND 22 ND SEPTEMBER, 2016 BOTH THESE SHOW CAUSE NOTICES WERE VERY VAGUE AND ISSUED IN ROUTINE MANNER. THE AO HAS NOT MENTIONED UNDER WHICH CLAUSE ASSESSEE IS LIABLE FOR PENALTY. EVEN THE AMOUNT OF UNDISCLOSED INCOME WHICH WAS LIABLE FOR PENALTY UNDER SECTION 271AAB WAS ALSO NO T MENTIONED IN THE SHOW CAUSE NOTICES ISSUED BY THE AO. THE LD. A/R HAS POINTED OUT THAT THE AO HAS NOT APPLIED HIS MIND BUT A VAGUE NOTICE WAS ISSUED WITHOUT GIVI NG ANY GROUND FOR LEVY OF PENALTY FOR WHICH THE ASSESSEE COULD PUT HIS DEFENCE. ONCE THE ASSESSEE WAS NOT GIVEN A PROPER OPPORTUNITY TO COUNTER THE SHOW CAUSE NOTICE AS THE AO HAS NOT POINTED OUT A SPECIFIC DEFAULT FOR LEVY OF PENALTY, THEN THE IN ITIATION OF PENALTY PROCEEDINGS ARE NOT VALID AND CONSEQUENTIAL PENALTY ORDER PASSED UN DER SECTION 271AAB IS LIABLE TO BE SET ASIDE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF MANJUNATHA COTTON & GINNING FACTORY, 359 ITR 565 (KAR.) AND SUBMITTED THAT THE DECISION OF HONBLE K ARNATAKA HIGH COURT WAS CHALLENGED BY THE REVENUE BEFORE THE HONBLE SUPREM E COURT IN CASE OF CIT VS. M/S. SSAS EMERALD MEADOWS, BUT THE SLP FILED BY THE REV ENUE IS DISMISSED, REPORTED IN 242 TAXMAN 180. THUS THE NOTICE WITHOUT SPECIFYING THE DEFAULT AND GROUND IS INVALID AND CONSEQUENTLY THE ORDER PASSED UNDER SEC TION 271AAB IS NOT SUSTAINABLE AND LIABLE TO BE SET ASIDE. THE LD. A/R HAS ALSO R ELIED UPON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAVI M ATHUR VS. DCIT IN ITA NO. 7 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 969/JP/2017 DATED 13.06.2018 AS WELL AS DECISION DA TED 24 TH JULY, 2018 IN CASE OF DINESH KUMAR AGARWAL VS. ACIT IN ITA NO. 855 & 856/ JP/2017. 10. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED TH AT ONCE THERE WAS A SEARCH AND SEIZURE ACTION IN THE CASE OF THE ASSESSEE AND DURING THE COURSE OF SEARCH AND SEIZURE ACTION THE ASSESSEE HAS DISCLOSED AND SURRE NDERED AN AMOUNT OF RS. 1,50,00,000/- AS UNDISCLOSED INCOME FOR THE YEAR UN DER CONSIDERATION, THEN THE CONDITIONS AS SPECIFIED UNDER SECTION 271AAB OF THE IT ACT ARE SATISFIED. THEREFORE, THE INITIATION OF PROCEEDINGS UNDER SECTION 271AAB BECOMES AUTOMATIC ONCE THE CONDITIONS PROVIDED UNDER SECTION 271AAB ARE FULFIL LED. THE ASSESSEE HAS NOT DISPUTED ALL THESE BASIC FACTS OF SEARCH AND SEIZUR E ACTION AND DISCLOSURE OF UNDISCLOSED AMOUNT, THEREFORE, THE QUESTION OF VALI DITY OF SHOW CAUSE NOTICE DOES NOT ARISE. AT THE TIME OF INITIATION OF PENALTY PR OCEEDINGS WHAT IS REQUIRED TO BE SEEN IS THE SATISFACTION OF THE PRIMARY CONDITION O F SEARCH AND SEIZURE ACTION AND DISCLOSURE OF UNDISCLOSED INCOME. THE ASSESSEE HAS SURRENDERED THE SAID AMOUNT AND ALSO PAID THE TAX THEREON AND DECLARED IN THE R ETURN OF INCOME, THUS THE PROVISIONS OF SECTION 271AAB ARE ATTRACTED IN THE C ASE OF THE ASSESSEE AND THERE IS NO SCOPE OF ANY OTHER PROVISION OF LEVY OF PENALTY CAN BE APPLIED. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE AO HAS ISSUED TWO SHOW CAUSE NOTICES U NDER SECTION 271AAB READ WITH SECTION 274 OF THE IT ACT DATED 23 RD MARCH, 2016 AND 22 ND SEPTEMBER, 2016. FOR READY REFERENCE WE REPRODUCE THE SHOW CAUSE NOTICES AS UNDER :- 8 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 9 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. FROM THE CONTENTS OF THESE SHOW CAUSE NOTICES, IT I S CLEAR THAT THOUGH THE AO HAS MENTIONED THAT HE PROPOSE TO LEVY THE PENALTY UNDER SECTION 271AAB OF THE IT ACT, HOWEVER, THE AO HAS NOT SPECIFIED ON WHICH AMOUNT O F UNDISCLOSED INCOME THE PENALTY WAS PROPOSED TO BE LEVIED AND WHETHER THE A SSESSEE WAS GUILTY OF LEVY OF 10 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. PENALTY @ 10%, 20% OR 30% AS PROVIDED UNDER CLAUSE (A) TO (C) OF SECTION 271AAB(1) OF THE IT ACT. IT IS PERTINENT TO NOTE T HAT IN THE CASE IN HAND THE ASSESSEE HAS DISCLOSED A SUM OF RS. 1,47,00,000/- B ASED ON SEIZURE MATERIAL AS-6 CONTAINING THE ENTRIES OF ADVANCES FOR LAND. APART FROM THE SAID DISCLOSURE, THE ASSESSEE HAS ALSO SURRENDERED A SUM OF RS. 3,00,000 /- ON ACCOUNT OF ANY OTHER ILLEGALITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE FIND THAT THE SAID RS. 3,00,000/- SURRENDERED BY THE ASSESSEE DOES NOT REP RESENT ANY UNDISCLOSED INCOME ON ACCOUNT OF ANY ENTRY OR MONEY, BULLION, JEWELLER Y OR OTHER VALUABLE ARTICLES. THEREFORE, IN THE ABSENCE OF ANY INCRIMINATING MATE RIAL FOUND OR DETECTED DURING THE SEARCH, POST SEARCH OR EVEN DURING THE ASSESSMENT P ROCEEDINGS, THE SAID SURRENDER OF RS. 3,00,000/- WOULD NOT CONSTITUTE UNDISCLOSED INCOME AS DEFINED IN EXPLANATION TO SECTION 271AAB OF THE IT ACT. THEREFORE, IN THE ABSENCE OF SPECIFYING THE DETAILS OF UNDISCLOSED INCOME AGAINST WHICH THE AO PROPOSED TO LEVY THE PENALTY AS WELL AS THE QUANTUM OF PENALTY WHETHER EQUIVALENT TO 10%, 2 0% OR 30% OF THE UNDISCLOSED INCOME, THE SHOW CAUSE NOTICES ISSUED BY THE AO ARE VERY VAGUE. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DINESH KUMAR AGARWAL VS. AC IT (SUPRA) IN PARA 8 AND 9 AS UNDER :- 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L 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 A CT 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 PEN ALTY U/S 271AAB OF THE ACT. THUS THE AO HAS NOT MENTIONED IN THE SHOW CAUSE NOTICE TO 11 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. BUT WHAT WOULD BE THE QUANTUM OF PENALTY TO BE LEVI ED U/S 271AAB OF THE ACT WHETHER IT WOULD BE 10% OR 20% OR 30% OF TH E UNDISCLOSED INCOME IN TERMS OF CLAUSE-(A) TO (C) OF SECTION 271 AAB(1) OF THE ACT. WE FURTHER NOTE THAT AN IDENTICAL ISSUE WAS CONSIDE RED BY THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT VIDE ORDER DAT ED 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 CONDUCTE D UNDER SECTION 132 OF THE IT ACT ON 30 TH OCTOBER, 2014 AT THE PREMISES OF THE ASSESSEE. THE ASSESSEE IN HIS STATEMENT REC ORDED UNDER SECTION 132(4) HAS DISCLOSED AN INCOME OF RS. 10,02 ,00,000/- IN PURSUANT TO THE ENTRIES OF ADVANCES GIVEN FOR PURCH ASE OF LAND RECORDED IN THE POCKET DIARY WHICH WAS FOUND AND SE IZED DURING THE COURSE OF SEARCH AND SEIZURE ACTION. THIS IS YE AR 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 SE CTION 139(1) WAS 30 TH SEPTEMBER, 2015. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS AN INDIVIDUAL AND WAS NOT MAINTAINING R EGULAR BOOKS OF ACCOUNT. THEREFORE, THE TRANSACTIONS RECORDED IN THE POCKET DIARY FOUND DURING THE COURSE OF SEARCH ITSELF WOUL D NOT LEAD TO THE PRESUMPTION THAT THE ASSESSEE WOULD NOT HAVE OF FERED THIS INCOME TO TAX IF THE SEARCH IS NOT CONDUCTED ON 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF DO NO NOT REPRESENT THE INCOME OF THE ASSESSEE DURING THE YEAR UNDER CO NSIDERATION THOUGH THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SOU RCE OF INVESTMENT IN QUESTION AND THAT SOURCE WOULD BE THE INCOME OF THE ASSESSEE. IT IS MOST LIKELY THAT THE INVESTMEN T IN QUESTION WAS MADE FROM THE UNACCOUNTED INCOME OF PRECEDING Y EARS. HENCE THE INVESTMENT IN THE REAL ESTATE ITSELF WOUL D NOT REVEAL THE NATURE OF INCOME AND THE SOURCE OF INCOME OF TH E YEAR UNDER CONSIDERATION. IT IS A PRE-CONDITION FOR INV OKING THE PROVISIONS OF SECTION 271AAB THAT THE ASSESSEE ADMI TTED THE UNDISCLOSED INCOME IN THE STATEMENT UNDER SECTION 1 32(4). THE DEFINITION OF UNDISCLOSED INCOME IS PROVIDED IN SECTION 271AAB ITSELF AND, THEREFORE, THE AO IN THE PROCEEDINGS UN DER SECTION 12 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 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 STIPULA TED IN THE EXPLANATION TO SAID SECTION. THE FIRST QUESTION AR ISES IS WHETHER THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATO RY AND CONSEQUENTIAL TO THE DISCLOSURE OF INCOME BY THE AS SESSEE UNDER SECTION 132(4) OR THE AO HAS TO TAKE A DECISION WHE THER THE GIVEN CASE HAS SATISFIED THE REQUIREMENTS FOR LEVY OF PENALTY UNDER SECTION 271AAB OF THE ACT. IN ORDER TO CONS IDER THIS ISSUE, THE PROVISIONS OF SECTION 271AAB ARE TO BE A NALYZED. FOR READY REFERENCE, WE QUOTE SECTION 271AAB AS UNDER : - 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTAND ING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THA T, 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 U NDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNIS HED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; 13 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. (C) A SUM 51 [COMPUTED AT THE RATE OF SIXTY PER CENT] OF THE UND ISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY TH E PROVISIONS OF CLAUSES (A) AND (B). 52 [(1A) THE ASSESSING OFFICER MAY, NOTWITHSTANDING AN YTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE DATE ON WHICH THE TAXATION LAWS (S ECOND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF THE PRESIDENT, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF THIRTY PER CENT OF TH E UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF THE ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF SIXTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED UNDER THE PROVI SIONS OF CLAUSE ( A).] (2) NO PENALTY UNDER THE PROVISIONS OF 53 [ SECTION 270A OR] CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF T HE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1) 52 [OR SUB-SECTION (1A)]. (3) THE PROVISIONS OF SECTIONS 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNISHING O F RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 OR THE DATE ON WHICH THE PERIOD SPECIFIED IN THE NO TICE ISSUED UNDER SECTION 153A FOR FURNISHING OF RETURN OF INCOME EXPIRES, AS THE CASE MAY BE; (B) 'SPECIFIED PREVIOUS YEAR' MEANS THE PREVIOUS YEAR (I) WHICH HAS ENDED BEFORE THE DATE OF SEARCH, BUT THE DATE OF FURNISHI NG THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 FOR SUCH YEAR HAS NOT EXPIRED BEFORE THE DATE OF SEARCH AND THE ASSESSEE HAS NOT FURNISHED THE RETURN OF INCOME FOR THE PREVIOUS YEAR BEFORE THE D ATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR 14 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER V ALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132 , WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH I N 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 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR 54 [PRINCIPAL COMMISSIONER OR] COMMISSIONER BEFORE THE DATE OF SE ARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE 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 PR ESCRIBED UNDER CLAUSES (A) TO (C) ARE SATISFIED. AS PER SUB-SECTION (3) OF SE CTION 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 IM POSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A SHOW CAUSE NOTIC E AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LE VY OF PENALTY U/S. 271AAB IS NOT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISIO N TO IMPOSE THE PENALTY AFTER GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FO R NOT FULFILLING THE CONDITIONS AS PRESCRIBED U/S 271AAB OF THE ACT IS R EQUIRED TO BE CONSIDERED BY THE AO AND PARTICULARLY WHETHER THE EXPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPLIANCE OF THE SAME IS DUE T O 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 EXPLANA TION 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 AN D CIRCUMSTANCES OF THE CASE OTHERWISE THERE IS NO REQUIREMENT OF ISSUING A NY NOTICE FOR INITIATION OF PROCEEDINGS BUT THE LEVY OF PENALTY WOULD BE CONSEQ UENTIAL 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 QUANTU M 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 FIND ING FOR LEVY OF PENALTY @ 15 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 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) WOUL D NOT IPSO FACTO PAR TAKE THE CHARACTER OF UNDISCLOSED INCOME BUT THE FACTS O F EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS TO ATTRACT TH E PROVISIONS OF SECTION 271AAB OF THE ACT. SINCE IT IS NOT AUTOMATIC BUT T HE 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. THEREF ORE, THE PROVISIONS OF SECTION 271AAB STIPULATE THAT THE AO MAY COME TO TH E 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 AGAIN ST 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 PENALTY UND ER 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 MENTIONIN G WRONG PROVISION OF THE ACT BEING 271(1)(C) OF THE ACT. THE HONBLE HIGH C OURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO TH OUGH 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 F ULLY COMPREHENDED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSES SEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HAS HEL D AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTIO N 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 SECTIO N 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 OBJECTI ON BEFORE THE AO IN THIS REGARD. SECONDLY, LAST LINE OF THE NOTICE CLEA RLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REPLY TO SA ID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED THE IMPL ICATION OF THE NOTICE THAT IT IS FOR SECTION 271AAB. 16 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLE S OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SUBMISSION S 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 O PPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALTY ORDER THAT TH E AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE AS SESSEE. THEREFORE, IN MY OPINION, PRINCIPLE OF NATURAL JUSTICE HAS NOT BEEN VIOLATED. THUS IN VIEW OF ABOVE DISCUSSION PENALTY IMPOSED BY AO U /S 271AAB OF THE ACT IS CONFIRMED. THUS IT WAS FOUND BY THE HONBLE HIGH COURT THAT TH E MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UND ER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF THE SAME. THE SAID DECIS ION 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 FI ND THAT THE SAID DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRE SH ORDER DATED 14 TH MARCH, 2018 WAS PASSED BY THE TRIBUNAL IN FAVOUR OF THE AS SESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. D/R IS NO MORE IN E XISTENCE. 6. THE QUESTION WHETHER LEVY OF PENALTY UNDER SECTI ON 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSIDERED B Y THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACIT VS. M/S. MAR VEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE APPEAL HEARING, THE LD. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENA LTY 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 MA NDATORY BUT DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH TH AT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSMENT AND ACCORDINGLY ARGUED THAT THE LE VY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT DISCRETIONARY. WHEN THERE IS REAS ONABLE 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 T HAT 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 A ND SECTION 271AAB OF THE ACT WHICH READS AS UNDER; 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HA S BEEN INITIATED UNDER SECTION 132 ON OR 17 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHAL L PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF SEARCH, IN A STATEMENT UNDER SUB-S ECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AND SPEC IFIES THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED. (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISCLOSED I NCOME WAS DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RE SPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISHES THE RETURN OF INCOME FOR THE SPECIFIED PR EVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT O F THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB-SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNIS HED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, I N RESPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER C ENT BUT WHICH SHALL NOT EXCEED NINETY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PRE VIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) O F SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDISCL OSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APP EALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY DIRECT THAT A P ERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN THE AMOUNT OF TAX LEVI ABLE BUT WHICH SHALL NOT EXCEED THREE TIMES 18 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UND ISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC : PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MA DE 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 BEE N PAID OR, IF THE ASSETS SEIZED CONSIST OF MONEY, THE ASSESSEE OFFERS THE MO NEY SO SEIZED TO BE ADJUSTED AGAINST THE TAX PAYABLE. (III) EVIDENCE OF TAX PAID IS FURNISHED ALONG WITH THE RE TURN; AND (IV) AN APPEAL IS NOT FILED AGAINST THE ASSESSMENT OF TH AT PART OF INCOME WHICH IS SHOWN IN THE RETURN: PROVIDED FURTHER THAT THE PROVISIONS OF THE PRECEDI NG 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 PE NALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS I N EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, TH E WORDS USED ARE AO MAY DIRECT AND THE ASSESSEE SHALL PAY BY WAY OF PENALTY. SIMILAR WORD S 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 S ECTION 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, W HEREIN, 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 R EADING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS T HE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE O PPORTUNITY 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 MANDAT ORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONAB LE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JU STICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHILE DEALIN G WITH THE PENALTY U/S 158BFA HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL B E 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, WH ILE PAYMENT OF INTEREST IS MANDATORY LEVY OF PENALTY IS DISCRETIONARY. IT IS TRITE POSITION O F LAW THAT DISCRETION IS VESTED AND AUTHORITY HAS 19 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SE CTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE AC T 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 FOR TIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL AS SOCIATES. 7. AS REGARDS THE VALIDITY OF NOTICE UNDER SECTION 274 FOR WANT OF SPECIFYING THE GROUND AND DEFAULT, WE FIND THAT WHE N THE BASIC CONDITION OF THE UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNTS DOES NOT EXISTS, THEN THE SAME HAS TO BE 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 CO ME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCO ME IN THE BOOKS OF ACCOUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINT AINED 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. THER E IS NO DISPUTE THAT THE AO HAS NOT SPECIFIED THE DEFAULT AND CHARGE AGA INST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UNDER SECTION 271A AB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVEN AN OPPORTU NITY 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 IMPO SED ONLY AFTER HEARING THE ASSESSEE OR GIVING A ASSESSEE OPPORTUNITY OF HEARIN G. 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 OR FOR FURNISHI NG 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 UNDE R:- 20 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 2. THIS APPEAL HAS BEEN FILED RAISING THE FOLLOWI NG SUBSTANTIAL QUESTIONS OF LAW: (1) WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITL Y MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATED FOR FURNISH ING OF INACCURATE PARTICULARS OR THAT FOR CONCEALMENT OF I NCOME MAKES THE PENALTY ORDER LIABLE FOR CANCELLATION EVEN WHEN IT HAS BEEN PROVED BEYOND REASONABLE DOUBT THAT THE ASSESSEE HA D CONCEALED INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE P ENALTY NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) IS BAD IN LAW AN D INVALID DESPITE THE AMENDMENT OF SECTION 271(1B) WITH RETRO SPECTIVE EFFECT AND BY VIRTUE OF THE AMENDMENT, THE ASSESSIN G OFFICER HAS INITIATED THE PENALTY BY PROPERLY RECORDING THE SAT ISFACTION FOR THE SAME? (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DECIDING THE APPEALS AGAI NST THE REVENUE ON THE BASIS OF NOTICE ISSUED UNDER SECTION 274 WITHOU T TAKING INTO CONSIDERATION THE ASSESSMENT ORDER WHEN THE ASSESSI NG OFFICER HAS SPECIFIED THAT THE ASSESSEE HAS CONCEALED PARTICULA RS OF INCOME? 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTION 274 READ WIT H SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO BE BAD IN LA W AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDIN GS HAD BEEN INITIATED I.E., WHETHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISH ING 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 RENDER ED IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 IT R 565. 4. IN OUR VIEW, SINCE THE MATTER IS COVERED BY JUDG MENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIAL QUESTI ON OF LAW ARISES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE APPEAL IS ACCORDIN GLY DISMISSED. IN THE EARLIER CASE OF MANJUNATHA COTTON AND GINNIN G FACTORY (SUPRA) THEIR LORDSHIP HAD OBSERVED AS UNDER:- NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIF ICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E. SENDING PRINTED FORM 21 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW ; THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OF FENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASS ESSEE ; ) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASS ESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW ; PENALTY PROCEEDINGS ARE DISTIN CT 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 INCORREC T PARTICULARS WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE PROCEEDINGS ON THE MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE A SSESSMENT OR REASSESSMENT CANNOT BE DECLARED INVALID IN THE PENA LTY PROCEEDINGS. VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN T HE ABOVE JUDGMENT WAS INDIRECTLY AFFIRMED BY THE HONBLE APEX COURT, WHEN IT DISMISSED AN SLP FILED BY THE REVENUE AGAINST THE JUDGMENT IN THE CASE OF SSAS E MERALD 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 TH E IMPUGNED ASSESSMENT YEAR, THE APPEAL FILED BY THE REVENUE HAS BECOME INFRUCTUOUS. 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 MANDAT ORY BUT THE AO HAS DISCRETION TO TAKE A DECISION AND THE SAME SHALL BE BASED ON JUDICIOUS DECISION OF THE AO. 9. AS REGARDS THE VALIDITY OF NOTICE U/S 274 FOR WA NT OF SPECIFYING THE GROUND AND DEFAULT OF THE ASSESSEE THE TRIBUNAL HAS HELD THAT THE AO IS 22 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. REQUIRED TO SPECIFICALLY STATE IN THE SHOW CAUSE NO TICE THE GFOUND AND THE DEFAULT COMMITTED BY THE ASSESSEE AS TO ATTRACT THE PENALTY U/S 271AAB OF THE ACT @ 10% 20% OR 30% OF THE UNDISCLOSED INCOME. IN THE ABSENCE OF SPECIFYING THE DEFAULT AND CHARGE AGAINST THE ASSES SEE FOR WHICH THE PENALTY WAS PROPOSED TO BE LEVIED THE SHOW CAUSE NOTICE ISS UED BY THE AO AND INITIATION OF PROCEEDING FOR LEVY OF PENALTY U/S 27 1AAB ARE NOT VALID. HENCE, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE HOL D THAT THE SHOW CAUSE ISSUED BY THE AO IN THE CASE ASSESSEE IS NOT SUSTAINABLE A ND LIABLE TO THE QUASHED. THE SHOW CAUSE NOTICES ISSUED BY THE AO IN THE CASE OF THE ASSESSEE ARE ALSO SILENT ABOUT THE DETAILS OF UNDISCLOSED INCOME AS WELL AS SPECIFYING THE CLAUSES FOR LEVY OF PENALTY WHETHER IT IS 10%, 20% OR 30% OF THE UNDISC LOSED INCOME. FURTHER, IT IS ALSO PERTINENT TO NOTE THAT A PART OF THE SURRENDER ED AMOUNT TO THE EXTENT OF RS. 3,00,000/- IS NOT BASED ON ANY INCRIMINATING MATERI AL OR ANY ILLEGALITY IN THE BOOKS OF ACCOUNT, THEN THE SAME CANNOT BE HELD AS UNDISCLOSE D INCOME FOR THE PURPOSE OF SECTION 271AAB OF THE ACT. THOUGH THE ISSUE OF UND ISCLOSED INCOME REGARDING THE BALANCE AMOUNT SURRENDERED BY THE ASSESSEE BASED ON THE ENTRIES IN THE SEIZED MATERIAL IS A DEBATABLE ISSUE, HOWEVER, THE AMOUNT OF RS. 3,00,000/- NOT BASED ON ANY INCRIMINATING MATERIAL IS IN ANY CASE NOT AN UN DISCLOSED INCOME AS DEFINED IN EXPLANATION TO SECTION 271AAB OF THE ACT. HENCE FO LLOWING THE EARLIER DECISION OF THIS TRIBUNAL AS WELL AS THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN CASE OF SHEVETA CONSTRUCTION CO. PVT. LTD. IN DB IT APPEAL NO. 534/2008 DATED 06.12.2016, THE INITIATION OF PENALTY PROCEEDING IS NOT VALID A ND CONSEQUENTLY THE ORDER PASSED UNDER SECTION 271AAB OF THE IT ACT IS NOT SUSTAINAB LE IN LAW. 23 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. GROUND NO. 2 IS REGARDING THE MERITS OF LEVY OF PEN ALTY OF RS. 15,00,000/- UNDER SECTION 271AAB OF THE IT ACT. 12. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT IN THERE WAS NO UNDISCLOSED INCOME IN THE CASE OF THE ASSESSEE. THE ASSESSEE WA S FORCED TO ADMIT AND SURRENDER INCOME IN STATEMENT RECORDED U/S 132(4). SUCH FORCE FUL ADMISSION DOES NOT COMPLY WITH THE SPIRIT OF THE LAW. THE PROVISIONS OF SECTI ON 271AAB(A)(II) CLEARLY REQUIRES THAT SUCH UNDISCLOSED INCOME ADMITTED U/S 132(4) RE QUIRES TO BE SUBSTANTIATED. THAT MEANS THE ASSESSEE IS REQUIRED TO SPECIFY THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED AND FURTHER SUBSTANTIATE THE SAME BY FURNISHING MATERIAL AVAILABLE WITH HIM. IN THIS CASE NO SUCH SUBSTANTIATION WAS DONE AS IN FACT THERE EXISTED NO UNDISCLOSED INCOME. THE ENTIRE DISCLOSURE WAS ON PA PER AND ASSESSEE ADMITTED SUCH DISCLOSURE TO AVOID UNDUE HARASSMENT AND UNWANTED L ITIGATION. IN THE CIRCUMSTANCES NO PENALTY IS CALLED FOR UNDER SECTION 271AAB OF TH E INCOME TAX ACT, 1961. FURTHER, ASSESSEE SEEKS TO RELY ON THE JUDGMENT OF SURESH CH ANDRA MITTAL REPORTED IN 251 ITR 9 (SC) LARGER BENCH. IN THIS CASE IT HAS BEEN HELD IN CATEGORICAL TERMS THAT SURRENDER MADE BY THE ASSESSEE UPON PERSISTENT QUER IES OF AO IN A SEARCH MATTER SHOULD BE TREATED AS BONA FIDE SURRENDER. IT IS SUB MITTED THAT SO FAR AS THE CASE OF THE PRESENT ASSESSEE IS CONCERNED THE FACTS ARE ON BETTER FOOTAGE. HE HAS FURTHER CONTENDED THAT THE LD. CIT (A) HAS CONFIRMED THE PE NALTY LEVIED UNDER SECTION 271AAB OF THE ACT BY HOLDING THAT THE PENALTY UNDER SECTION 271AAB IS MANDATORY AND THERE IS NO DISCRETION WITH THE AO BUT TO IMPOS E THE PENALTY. HE HAS CONTENDED THAT THE PROVISIONS OF SECTION 271AAB BEGINS WITH T HE WORD MAY AND, THEREFORE, THE AO HAS THE DISCRETION TO LEVY THE PENALTY AFTER CONSIDERING THE FACTS AS WELL AS THE EXPLANATION AND CONTENTION OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LD. 24 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. A/R SUBMITTED THAT IT IS SETTLED POSITION OF LAW TH AT PENALTIES ARE NOT COMPULSORY NOR MANDATORY BUT ARE ALWAYS DISCRETIONARY CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE. IN IMPOSITION OF PENALT Y MENS REA ALSO PLAYS A VITAL ROLE BEFORE IMPOSING THE PENALTY, IT IS ALWAYS COMPULSOR Y TO PROVE THE MENS REA OF THE ASSESSEE AS BONA FIDE FOR CONCEALMENT OF INCOME OR FOR ADVANCEMENT OF ANY PROVISIONS OF LAW IN FORCE INTENTIONALLY. IN THE C ASE OF ASSESSEE THE LEARNED ASSESSING OFFICER HAS NOT MENTIONED ANYTHING IN THE ASSESSMENT ORDER PASSED BY HIM ON 28.12.2016 U/S 143(3)/153B(1)(B) OF THE INCO ME TAX ACT, 1961. HE HAS RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAVI MATHUR VS. DCIT (SUPRA) AS WELL AS IN CASE OF DINES H KUMAR AGARWAL VS. ACIT (SUPRA). THE LD. A/R HAS FURTHER CONTENDED THAT TH E ASSESSEE IS AN INDIVIDUAL AND DERIVES INCOME FROM SALARY, HOUSE PROPERTY AND OTHE R SOURCES AND HE IS NOT REQUIRED TO MAINTAIN REGULAR BOOKS OF ACCOUNT UNDER SECTION 44AB OF THE ACT. THEREFORE, THE ENTRIES RECORDED IN THE DIARY FOUND DURING THE SEAR CH CANNOT BE HELD AS UNDISCLOSED INCOME AS THE SAID DIARY CAN BE CONSIDERED AS OTHER RECORD MAINTAINED IN REGULAR COURSE. HE HAS ALSO RELIED UPON THE DECISION OF TH E COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAVI MATHUR VS. DCIT (SUPRA). 12.1. THE NEXT CONTENTION OF THE LD. A/R IS THAT TH E CONFESSION/SURRENDER MADE UNDER SECTION 132(4) WOULD NOT IPSO FACTO BE HELD A S UNDISCLOSED INCOME FOR THE PURPOSE OF LEVY OF PENALTY UNDER SECTION 271AAB OF THE IT ACT. THE ENTRIES ARE ONLY OUT GO OF MONEY AND EVEN THESE ARE NOT ASCERTAINED TRANSACTIONS BUT ONLY THE AMOUNT IN THE NAME OF ADVANCE IS MENTIONED. THEREFO RE, IN THE ABSENCE OF ANY CORRESPONDING ASSET OR ANY OTHER DOCUMENTARY EVIDEN CE TO SHOW THAT THE ASSESSEE IS HAVING A RIGHT TO THE EXTENT OF SAID AMOUNT EITH ER IN THE PARTICULAR LAND OR TO 25 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. RECOVER THE SAID AMOUNT FROM THE ALLEGED PERSON, TH ESE ENTRIES WOULD NOT QUALIFY AS UNDISCLOSED INCOME UNDER SECTION 271AAB OF THE ACT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION IN CASE OF RAVI MAT HUR VS. DCIT (SUPRA) AND DINESH KUMAR AGARWAL VS. ACIT (SUPRA). 13. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED TH AT ONCE THE ASSESSEE HAS MADE THE SURRENDER OF UNDISCLOSED INCOME BASED ON T HE INCRIMINATING MATERIAL FOUND AND SEIZED DURING THE COURSE OF SEARCH, THEN IT IS AN APPARENT CASE OF UNDISCLOSED INCOME ATTRACTING THE LEVY OF PENALTY UNDER SECTION 271AAB OF THE IT ACT. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT ONLY DI SCLOSED THE SAID INCOME BUT ALSO DECLARED THE SAME IN THE RETURN OF INCOME AND PAID THE TAX AND, THEREFORE, THERE IS NO DISPUTE REGARDING THE NATURE OF SURRENDER MADE B Y THE ASSESSEE. THE ASSESSEE HIMSELF HAS EXPLAINED THE NATURE OF INCOME IN THE S TATEMENT RECORDED UNDER SECTION 132(4) AND, THEREFORE, THE AMOUNT OF RS. 1,50,00,00 0/- FALLS IN THE DEFINITION OF UNDISCLOSED INCOME. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS AN INDIVIDUAL AND IS A DIR ECTOR IN 5 COMPANIES DOING THE BUSINESS. THE ASSESSEE IN HIS INDIVIDUAL CAPACITY IS NOT DOING ANY BUSINESS BUT EARNING THE INCOME FROM SALARY, RENT AND OTHER SOUR CES. THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS REMUNERATION RECEIVED FROM THE V ARIOUS COMPANIES IN WHICH THE ASSESSEE IS A DIRECTOR. A SEARCH AND SEIZURE ACTIO N UNDER SECTION 132 OF THE IT ACT WAS CONDUCTED ON 4 TH SEPTEMBER, 2013. THE STATEMENT OF THE ASSESSEE WA S RECORDED UNDER SECTION 132(4) OF THE IT ACT IN THE CAPACITY OF DIRECTOR OF VARIOUS COMPANIES. DURING THE SAID STATEMENT, THE ASSESSEE HAS SURRENDERED A SUM OF RS. 1,47,00,000/- ON ACCOUNT OF THE ENTRIES IN ANNEXURE A-6 SHOWING THE VARIOUS 26 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. AMOUNTS FOR PURCHASE OF LAND. THOUGH THE SAID SURRE NDER WAS MADE BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY, HOWEVER, AS IT IS APPAR ENT FROM THE RECORD THAT NEITHER IN THE PAST NOR IN THE FUTURE THE ASSESSEE HAS SHOWN A NY BUSINESS INCOME OR ANY BUSINESS ACTIVITY OF PURCHASE AND SALE OF LAND. WE FURTHER NOTE THAT THE VARIOUS COMPANIES IN WHICH THE ASSESSEE IS A DIRECTOR, ARE IN THE BUSINESS OF REAL ESTATE AND PURCHASE AND SALE OF LAND. THEREFORE, IT APPEARS T HAT EVEN IF THE TRANSACTIONS RECORDED IN THE SEIZED MATERIAL AS-6 ARE REGARDING THE ADVANCE FOR PURCHASE OF LAND, SUCH TRANSACTIONS ARE IN ORDINARY AND REGULAR MANNE R ARE CARRIED OUT BY THE COMPANIES IN WHICH THE ASSESSEE IS DIRECTOR AND NOT BY THE ASSESSEE IN HIS PERSONAL CAPACITY. IN ANY CASE, THERE ARE TOTAL 6 (SIX) TRA NSACTIONS OF ADVANCE TOTAL AMOUNTING TO RS. 1,47,00,000/- ON ACCOUNT OF LAND. THESE TRANSACTIONS THEMSELVES DO NOT REPRESENT ANY UNDISCLOSED INCOME AS PER THE DEFINITION IN EXPLANATION TO SECTION 271AAB OF THE ACT. THESE TRANSACTIONS ARE OUT GO AND EXPENDITURE ON THE PART OF THE ASSESSEE AND, THEREFORE, THE SOURCE OF THESE TRANSACTIONS CAN BE INCOME OF THE ASSESSEE WHICH CAN BE HELD AS UNDISCLOSED IN COME BUT NEITHER THERE IS ANY MATERIAL OR ANY ENTRY FOUND DURING THE COURSE OF SE ARCH AND SEIZURE ACTION TO SHOW ANY INCOME OF THE ASSESSEE WHICH IS NOT RECORDED IN THE BOOKS. FURTHER, THESE ARE ONLY THE ENTRIES OF ADVANCES BUT NO DETAILS OF PERS ON OR ANY DETAIL OF ANY LAND IS RECORDED IN THE SEIZED MATERIAL. SUCH VAGUE ENTRIE S ITSELF DO NOT REPRESENT ANY ASSET, MONEY, BULLION OR EVEN THE INCOME OF ANY MAN NER/NATURE BUT THESE ARE SIMPLE OUT GO OF MONEY. EVEN THE CORRESPONDING ASSET IS N OT REFLECTED IN THESE ENTRIES RECORDED IN THE SEIZED MATERIAL. THEREFORE, UNTIL A ND UNLESS A RIGHT IS CREATED AND VESTED WITH THE ASSESSEE TO HAVE AN ASSET EQUIVALEN T TO AMOUNT OR OTHER RIGHT TO RECOVER THE SAID AMOUNT FROM THE PERSONS TO WHOM TH E AMOUNTS WERE PAID, THESE 27 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. ENTRIES CANNOT BE HELD AS INCOME OF THE ASSESSEE MU CH LESS THE UNDISCLOSED INCOME OF THE ASSESSEE. ON CAREFUL PERUSAL OF THE ENTRIES , WE NOTE THAT VERY VAGUE DESCRIPTION IS THERE, ONLY AMOUNT IS MENTIONED AGAI NST LAND BUT THERE IS NO DETAIL OF ANY PERSON OR PARTICULAR DETAILS OF THE LAND IS GIV EN IN THESE ENTRIES. FURTHER, APART FROM THESE ENTRIES, THERE WAS NO DOCUMENT OR OTHER MATERIAL FOUND TO SHOW THAT ANY TRANSACTION OF PURCHASE OF LAND HAS TAKEN PLACE BET WEEN THE ASSESSEE AND OTHER PARTY. EVEN THE RECEIPTS IN RESPECT OF THESE PAYME NTS WERE NOT FOUND OR DETECTED BY THE INVESTIGATION WING. THUS THE MERE ENTRY OF OUT GO IN THE SEIZED MATERIAL WOULD NOT CONSTITUTE UNDISCLOSED INCOME AS DEFINED IN EXPLANATION TO SECTION 271AAB OF THE ACT. THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF RAVI MATHUR VS. DCIT (SUPRA) AS WELL AS IN CASE OF DINESH KUMAR AGARWAL VS. ACIT (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE. IN CASE OF DINESH KUMAR AGARWA L VS. ACIT (SUPRA), THE TRIBUNAL IN PARA 12 HAS CONSIDERED THIS ISSUE AS UNDER :- 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF S EARCH AND SEIZURE PROCEEDING A POCKET DIARY WAS FOUND AND SEI ZED CONTAINING ENTRIES OF VARIOUS AMOUNT AGAINST THE DI FFERENT PERSONS. WHEN THIS SEIZED MATERIAL WAS CONFRONTED W ITH THE ASSESSEE HE SURRENDERED UNDISCLOSED INCOME OF RS. 8,13,41,547/-. THE ASSESSING OFFICER HAS ACCEPTED T HE EXPLANATION OF THE ASSESSEE REGARDING SUBSTANTIATIO N OF THE MANNER FOR EARNING THE UNDISCLOSED INCOME IN QUESTI ON. THE DETAILS OF THE ENTRIES IN THE SEIZED MATERIAL DISCL OSE CERTAIN AMOUNTS ARE RECORDED AS ADVANCE TO THE PERSONS, EXPENDITURE ON CONSTRUCTION OF HOUSE AND EXPENDITUR E ON THE MARRIAGE OF DAUGHTER. THUS, MEASURE AMOUNT OF UNDIS CLOSED 28 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. INCOME CONSISTED THE SUNDERY ADVANCES. ALL THESE TRANSACTIONS DO NOT PERTAIN TO THE BUSINESS ACTIVIT Y OF THE ASSESSEE BUT THESE ARE EITHER ADVANCES GIVEN BY THE ASSESSEE OR EXPENDITURE INCURRED ON CONSTRUCTION OF THE HOUSE OR EXPENDITURE ON THE MARRIAGE OF THE DAUGHTE R. THEREFORE, THE ENTRIES IN THE SEIZED MATERIAL ARE N OT THE TRANSACTIONS GENERATING INCOME EXCEPT SOME INTEREST INCOME. AT THE OUTSET WE NOTE THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT (SUPR A) HAS CONSIDERED THE ISSUE OF LEVY OF PENALTY U/S 271AAB IN PARAS 8 AND 9 AS UNDER:- 8. EVEN OTHERWISE, WITHOUT RESTRICTING OURSELVES T O THE VALIDITY OF SHOW CAUSE NOTICE, WE NOTE THAT SECTION 271AAB OF T HE ACT CONTEMPLATES IMPOSITION OF PENALTY PURSUANT TO THE DISCLOSURE OF UNDISCLOSED INCOME IN THE STATEMENT RECORDED UNDER SECTION 132(4) AND, THEREFORE, THE LEVY OF PENALTY UNDER THIS SECT ION DOES NOT DEPEND ON THE ADDITION MADE DURING THE ASSESSMENT PROCEEDI NGS. HENCE THE PENALTY PROCEEDINGS UNDER SECTION 271AAB ARE COMPLE TELY INDEPENDENT OF THE ENQUIRY AND FINDING OF THE AO IN THE ASSESSM ENT ORDER EXCEPT FOR THE LIMITATION PROVIDED AS PER SECTION 275 OF THE A CT. WE HAVE ALREADY HELD THAT THE PENALTY IS NOT AUTOMATIC BUT THE AO H AS TO TAKE A DECISION TO IMPOSE THE PENALTY AFTER GIVING AN OPPO RTUNITY OF HEARING TO THE ASSESSEE IN TERMS OF SECTION 274 OF THE ACT. TH US THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB OF THE ACT HAS TO FIRST DECIDE THAT THE CONDITIONS PRESCRIBED UNDER THE SAID SECTION AR E SATISFIED FOR LEVY OF PENALTY AND THEN TO FURTHER TAKE A DECISION AFTER C ONSIDERING THE EXPLANATION OF THE ASSESSEE FOR NON COMPLIANCE OF A NY OF THE CONDITIONS UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) REGARDING THE QUANTUM OF PENALTY. THE PRIMARY CONDITION FOR LEVY OF PENALTY IS THE EXISTENCE OF UNDISCLOSED INCOME AS PER THE DISCLOSU RE MADE BY THE ASSESSEE UNDER SECTION 132(4). THE TERM UNDISCLOS ED INCOME HAS BEEN DEFINED IN EXPLANATIONS TO SECTION 271AAB. THE REFORE, AS PER THE DEFINITION PROVIDED IN THE EXPLANATION, THE UNDISCL OSED INCOME MAY HAVE VARIOUS FORMS AND THE SAME IS NOT RECORDED IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN NORMAL CO URSE RELATING TO THE SPECIFIED PREVIOUS YEAR. AS PER SUB-CLAUSE (I) OF CLAUSE (C) OF 29 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. THE EXPLANATION , THE UNDISCLOSED INCOME MEANS ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED BY ANY MONEY, B ULLION, JEWELLERY OR VALUABLE ARTICLE OR THINGS OR ANY ENTRY IN BOOKS OF ACCOUNTS OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF SE ARCH. THIS DEFINITION IS FURTHER SUBJECT TO TWO CONDITIONS THA T THE SAID INCOME HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH I N THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMA L COURSE RELATING TO SUCH PREVIOUS YEAR OR OTHERWISE NOT BEING DISCLO SED TO THE PRINCIPAL CHIEF COMMISSIONER, PRINCIPAL COMMISSIONER OR COMMI SSIONER BEFORE THE DATE OF SEARCH. THE OTHER FORMS OF UNDISCLOSED INCOME AS DEFINED IN SUB CLAUSE (II) IS ANY ENTRY IN RESPECT OF EXPEN SES RECORDED IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE. THEREFORE, THE CLAUSE (II) CONTEMPLATES U NDISCLOSED INCOME IN THE FORM OF FALSE ENTRIES OF EXPENSES RECORDED IN T HE BOOKS OF ACCOUNTS WHICH IS NOT RELEVANT FOR THE CASE IN HAND. SINCE IN THE CASE OF ASSESSEE THE TRANSACTIONS OF I NVESTMENT WERE FOUND IN THE DIARY, THEREFORE, WHETHER THESE ENTRIE S IN THE DIARY CONSTITUTE UNDISCLOSED INCOME AS PER CLAUSE (C)(I) OF EXPLANATION TO SECTION 271AAB OF THE ACT. THE ASSESSEE IS AN INDI VIDUAL AND FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT REPOR TED ANY BUSINESS INCOME NOR IT WAS ASSESSED BY THE AO. THEREFORE, I T IS CLEAR THAT THE ASSESSEE WAS NOT REQUIRED BY ANY MANDATE OF LAW TO MAINTAIN REGULAR BOOKS OF ACCOUNTS. IN THE COMPUTATION OF INCOME, T HE ASSESSEE HAS SHOWN INCOME FROM SALARY, INCOME FROM HOUSE PROPERT Y AND INCOME FROM OTHER SOURCES. THE RETURNED INCOME WAS ACCEPTE D BY THE AO WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) A ND HENCE ASSESSEES CASE DOES NOT FALL IN THE CATEGORY WHERE THE REGULAR BOOKS OF ACCOUNTS ARE MANDATORY. THE ENTRIES OF INVESTME NT IN REAL ESTATE WERE FOUND RECORDED IN THE DIARY AND IN THE ABSENCE OF ANY OTHER DOCUMENT MAINTAINED IN THE NORMAL COURSE RELATING T O THE YEAR UNDER CONSIDERATION, THE ENTRIES IN THE DIARY ARE TO BE C ONSIDERED AS RECORDED IN THE DOCUMENTS MAINTAINED IN THE NORMAL COURSE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS RECORDED THE O THER TRANSACTIONS IN THE OTHER DOCUMENTS MAINTAINED IN THE REGULAR COURS E RELATING TO THE YEAR UNDER CONSIDERATION AND ONLY THESE ENTRIES ARE RECORDED IN THE DIARY. SINCE THE LEVY OF PENALTY UNDER SECTION 271 AAB IS NOT BASED ON THE ADDITION AND ENQUIRY CONDUCTED BY THE AO IN THE ASSESSMENT PROCEEDINGS, THEREFORE, IT IS INCUMBENT ON THE AO T O CONDUCT A PROPER EXAMINATION OF FACTS, CIRCUMSTANCES AND EXPLANATION FURNISHED BY THE ASSESSEE BEFORE ARRIVING TO THE CONCLUSION THAT PEN ALTY UNDER SECTION 30 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. 271AAB IS LEVIABLE AND FURTHER WHETHER IT IS 10% OR 20% OR 30% OF SUCH UNDISCLOSED INCOME. THEREFORE, THE AO IS UNDE R STATUTORY OBLIGATION TO EXAMINE ALL THE ISSUES DURING THE PRO CEEDINGS UNDER SECTION 271AAB AFTER GIVING THE ASSESSEE AN OPPORTU NITY TO EXPLAIN THE CHARGES/GROUNDS ON WHICH THE PENALTY IS PROPOSED TO BE LEVIED. HENCE IT IS A PRE-REQUISITE CONDITION THAT THE AO FIRST S PECIFY THE CHARGES AGAINST THE ASSESSEE AND TO MAKE KNOWN THE ASSESSEE OF HIS DEFAULT SO AS TO AFFORD AN OPPORTUNITY TO EXPLAIN THE DEFAULT/ CHARGES SO BROUGHT AGAINST THE ASSESSEE. WITHOUT CONSIDERING THE EXPL ANATION OF THE ASSESSEE ON THE SPECIFIC DEFAULT, THE ORDER PASSED BY THE AO UNDER SECTION 271AAB SUFFERS FROM SERIOUS ILLEGALITY AND THEREFORE NOT SUSTAINABLE IN LAW. WHEN A STRINGENT ACTION IS PRO VIDED IN THE STATUTE AGAINST THE DEFAULT COMMITTED BY THE ASSESSEE, THEN IT ALSO CAST AN EQUALLY STRINGENT AND STRICT DUTY ON THE AUTHORITY RESPONSIBLE TO TAKE SUCH ACTION. THEREFORE, WHEN THE PROVISIONS FOR LE VY OF PENALTY UNDER SECTION 271AAB IS A SPECIFIC PROVISION TO DEAL WITH THE UNDISCLOSED INCOME AND IT PROVIDES A STRICT PENAL ACTION THEN T HE CORRESPONDING DUTY OF THE TAX AUTHORITY IS ALSO EQUALLY STRINGENT . THE AO CANNOT ESCAPE FROM FOLLOWING THE STRICT MANDATORY REQUIREM ENT OF LAW AND PARTICULARLY THE PRINCIPLE OF NATURAL JUSTICE. THE AO HAS NEITHER SPECIFIED THE GROUNDS AND CLAUSE OF SECTION 271AAB NOR HAS DEALT WITH THE SAME IN THE IMPUGNED ORDER PASSED UNDER SECTION 271AAB. THE AO HAS ALSO NOT GIVEN A FINDING THAT THE CASE OF TH E ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME PROVIDED UNDER CLAUSE (C)(I) OF EXPLANATION TO SECTION 271AAB. WHEN THE TRANSACTIO NS OF INVESTMENT IN REAL ESTATE ARE RECORDED IN THE DIARY BEING OTHE R DOCUMENTS MAINTAINED BY THE ASSESSEE FOR THE SAID PURPOSE, TH EN IN THE ABSENCE OF ANY REQUIREMENT OF MAINTAINING REGULAR BOOKS OF ACCOUNTS BY THE ASSESSEE, THE CASE OF THE ASSESSEE WOULD NOT FALL I N THE DEFINITION OF UNDISCLOSED INCOME AS PER CLAUSE (C) OF EXPLANATION TO SECTION 271AAB OF THE ACT. 9. THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. MADAN LAL BESWAL (SUPRA) HAS CONSIDERED THIS ISSUE OF THE ALLEGED INCOME FOUND RECORDED IN THE OTHER DOCUMENTS WOULD FALL IN THE DEFINITION OF UNDISCLOSED INCOME IN PARA 3 AND 4 AS UNDER :- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT T HE ISSUE INVOLVED HEREIN IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E IN THE CASE OF DCIT VS MANISH AGARWALA (ANOTHER MEMBER IN THE SAME NEZONE 31 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. GROUP) IN ITA NO. 1479/KOL/2015 FOR AY 2013-14 DATE D 9.2.2018 BY THE ORDER OF THIS TRIBUNAL , WHEREIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO HAS LEVIED THE PENALTY U/S. 271AAB ON THE GROUND THAT THE INCOME F ROM COMMODITY PROFIT HAS BEEN FOUND DURING SEARCH U/S.132 OF THE ACT WHICH IS NOT REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO H AS ACCEPTED THAT DURING SEARCH THE ASSESSEE HAS ADMITTED U/S. 132(4) OF THE ACT THE INCOME FROM SPECULATIVE TRADING. THE UNDISPUTED FAC TS THE AO HAS GIVEN FINDING PERTAINING TO THIS CASE IS AS FOLLOWS : I) THE ASSESSEE HAS SUBSTANTIATED THE MANNER IN WHI CH THE INCOME WAS DERIVED. II) FURNISHED THE RETURN OF INCOME THEREIN AND III) PAID THE TAX ALONG WITH INTEREST. BASED ON THE SAID FINDING, ACCORDING TO AO, THE ASS ESSEE SATISFIES THE CONDITIONS ENUMERATED IN SEC. 271AAB(I)(A) OF THE A CT AND THEREAFTER LEVIED TEN PERCENT OF RS.3 CR., WHICH HAVE BEEN DEL ETED BY THE IMPUGNED ORDER OF LD. CIT(A). 4. THE LD. DR BROUGHT TO OUR NOTICE THAT IN THE VER Y SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIR MED THE LEVY OF PENALTY AND CONTENDED BEFORE US THAT PENALTY U/S. 2 71AAB OF THE ACT IS MANDATORY AND THEREFORE, ACCORDING TO LD. DR, THE L D. CIT(A) ERRED IN DELETING THE PENALTY BY STATING THAT THE ASSESSEE D ID NOT HAD ANY MENS REA NOT TO DISCLOSE THE AMOUNT IN QUESTION. ACCORD ING TO HIM, PENALTY HAS TO BE MANDATORILY LEVIED U/S. 271AAB OF THE ACT ON THE UNDISCLOSED INCOME FOUND DURING SEARCH. ON THE OTHER HAND, LD. AR SHRI MIRAZ D. SHAH, SUPPORTING THE DECISION OF LD. CIT(A) MADE CO NTENTIONS THOUGH TAKEN UP BEFORE THE LD. CIT(A) BUT HAS NOT BEEN ADJ UDICATED ON THOSE AVERMENTS, WHICH THE LD. AR URGES BEFORE US TO CONS IDER WHILE ADJUDICATING THE APPEAL OF THE REVENUE. THE LD. AR ALSO POINTED OUT THAT THE CONTENTIONS WHICH HE IS GOING TO RAISE HAS BEEN TAKEN UP BEFORE THE AO ALSO, HOWEVER, ACCORDING TO LD. COUNS EL, THOSE LEGAL ARGUMENTS WERE NOT CONSIDERED BY THE AO IN THE RIGH T PERSPECTIVE. THE FIRST CONTENTION OF THE LD. AR IS THAT SINCE SEC. 2 71AAB OF THE ACT IS A PENALTY SECTION IT SHOULD BE CONSTRUED STRICTLY, WH ICH WE AGREE BEING IT IS A TRITE LAW THAT PENALTY PROVISIONS HAVE TO BE S TRICTLY INTERPRETED. 32 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. NEXT CONTENTION OF LD. AR IS THAT SEC. 271AAB OF TH E ACT IS NOT MANDATORY BECAUSE PARLIAMENT IN ITS WISDOM HAS USED THE WORD MAY AND NOT SHALL. SO, ACCORDING TO HIM, IT IS THE DI SCRETION BESTOWED UPON THE AO WHETHER TO INITIATE AND IMPOSE PENALTY U/S. 271AAB OF THE ACT. WE AGREE WITH THE SAID CONTENTION OF LD. AR BECAUSE WHEN A SIMILAR ISSUE WAS ADJUDICATED BY ITAT LUCKNOW (THE AUTHOR O F THIS ORDER WAS A MEMBER OF THE BENCH) IN SANDEEP CHANDAK & ORS. VS. CIT (2017) 55 ITR (TRIB) 209 AND 2017 (5) TMI 675- ITAT-LUCKNOW I N ITA NO. 416, 417 AND 418/LKW/2016 DATED 30.01.2017 WHILE ADJUDIC ATING A CASE WHERE PENALTY WAS LEVIED UNDER SECTION 271AAB OF TH E ACT IT WAS HELD THAT THE PROVISIONS OF SEC. 271AAB OF THE ACT ARE N OT MANDATORY, WHICH MEANS THAT PENALTY NEED NOT BE LEVIED IN EACH AND E VERY CASE WHEREVER THE ASSESSEE HAS MADE DEFAULT AS STATED IN CLAUSES (A), (B) AND (C) OF THE ACT. SUB-SECTION (1) OF SEC. 271AAB OF THE ACT USES THE WORD MAY NOT SHALL. MAY CANNOT BE EQUATED WIT H SHALL ESPECIALLY IN PENALTY PROCEEDING. USING THE WORD M AY IN OUR OPINION, GIVES A DISCRETION TO THE AO TO LEVY THE PENALTY OR NOT TO LEVY, EVEN IF THE ASSESSEE HAS MADE THE DEFAULT UNDER THE SAID PR OVISION. THEREFORE, THE 2ND GROUND OF REVENUE FAILS AND WE H OLD THAT PENALTY U/S. 271AAB OF THE ACT IS NOT MANDATORY AND IS DISC RETIONARY. BEFORE PROCEEDING FURTHER, WE NOTE THAT THE EX PARTE ORDER PASSED BY THE COORDINATE BENCH RELIED UPON BY LD. DR, MANOJ BESWA L, SUPRA, HAVE BEEN RECALLED IN MA NOS. 218 TO 220/KOL/2017 DATED 12.01.2018 BY OBSERVING AS UNDER: BY VIRTUE OF THESE MISCELLANEOUS APPLICATIONS, THE ASSESSEE SEEKS TO RECALL THE ORDER PASSED BY THIS TRIBUNAL I N I.T.A. NOS. 1471, 1475&1476/KOL/2015 IN THE HANDS OF AMIT AGARW AL, MADAN LAL BESWAL AND MANOJ BESWAL RESPECTIVELY FOR THE ASSESSMENT YEAR 2013-14 ON THE GROUND THAT NOTICE W AS NOT SERVED ON THE ASSESSEE FOR THE HEARING AND ON CERTA IN FACTUAL ERROR THAT HAD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECTION RAISED BY THE LD. AR WAS THAT THE NOTICE OF HEARING WAS NOT SERVED ON THE ASSESSEE FOR THE HEAR ING SCHEDULED ON 06.11.2017 AND HENCE, THE ASSESSEE COU LD NOT BE PRESENT ON THE SAID DATE BY WAY OF PERSONAL APPEARA NCE. THE SECOND OBJECTION RAISED BY THE LD. AR WAS THAT THE TRIBUNAL HAD STATED IN PARA 9 OF ITS ORDER THAT THE ASSESSEE HIM SELF HAD ACCEPTED THAT HE IS ENGAGED IN COMMODITIES TRADING BUSINESS AND THEREFORE MANDATED TO MAINTAIN BOOKS OF ACCOUNT S IN TERMS OF SECTION 44AA OF THE ACT AND THEREBY INFERRING TH AT THE 33 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES T RADING BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR PR OFESSION. BASED ON THIS CRUCIAL FINDING, THE TRIBUNAL HAD CON CLUDED THAT SINCE THE TRANSACTION OF COMMODITIES TRADING HAD NO T BEEN ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH ON 01.08.2012 AND THEREBY IT TAKES THE CH ARACTER OF UNDISCLOSED INCOME FOR WHICH PENALTY U/S 271AAB OF THE ACT IS EXIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR D REW OUR ATTENTION TO THE COMPUTATION OF THE TOTAL INCOME WH EREIN THE ASSESSEE HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES. WE ALSO F IND THAT THE LD. AO HAD ALSO SPECIFICALLY STATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESS EE IS HAVING ONLY SALARY INCOME AND INCOME FROM OTHER SOU RCES. WE FIND THAT DUE TO THE ABSENCE OF THE ASSESSEE AT THE TIME OF HEARING THIS PARTICULAR FACT HAD ESCAPED THE ATTENT ION OF THE TRIBUNAL. ON PERUSAL OF THE FACT AVAILABLE ON RECOR D, WE FIND THAT THE FINDING RECORDED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 THAT THE ASSESSEE IS MANDATED TO MAINTAI N BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS FACTUALLY INCORRECT AND DESERVES TO BE RECTIFIED. THIS MISTAKE OF PRIMARY FACT HAD L EAD TO A CONCLUSION OF UPHOLDING THE LEVY OF PENALTY U/S 271 AAB OF THE ACT. HENCE, IN THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE AFORESAID MISTAKE OF PRIMARY FACT RIGHTLY POINTED O UT BY THE LD. AR , WE DEEM IT FIT TO RECALL THE ORDERS OF THIS TR IBUNAL DATED 10.11.2017 IN THE CASE OF AFORESAID ASSESSEES. IN THE AFORESAID SCENARIO, THE LEGAL POSITION IS TH AT AN ORDER WHICH HAS BEEN RECALLED FOR DE NOVO ADJUDICATION, IS NO ORDER IN THE EYES OF LAW AND SO IT CANNOT BE TREATED AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD. DR IN RESPECT OF ASSESSEES IN THE SAME GROUP CONCERN CASES AS DECIDED BY THE TRIBUNAL NO LONGER SURVIVES AND C ANNOT BE TREATED AS COVERED AGAINST THE ASSESSEE. 5. THE THIRD CONTENTION OF THE LD. AR IS THAT THE A SSESSEE IS AN INDIVIDUAL, WHO WAS DRAWING SALARY INCOME. SO, ACCO RDING TO HIM, HE NEED NOT MAINTAIN ANY BOOKS OF ACCOUNT AS PER THE A CT. ACCORDING TO LD. AR, UNDISPUTEDLY THE ASSESSEE WAS ENGAGED FOR T HE FIRST TIME THIS AY ONLY IN TRADING OF COMMODITIES, THAT TOO WHICH W AS CONDUCTED IN A NON-SYSTEMATIC MANNER AND THE INCOME FROM IT WAS DULY OFFERED TO TAX BY THE ASSESSEE IN HIS RETURN OF INCOME UNDER T HE HEAD INCOME 34 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. FROM OTHER SOURCES, WHICH, ACCORDING TO LD. AR WAS ACCEPTED AS SUCH BY THE AO AND DREW OUR ATTENTION TO PAGE ONE OF ASS ESSMENT ORDER, (NOT THE PENALTY ORDER) WHEREIN WE NOTE THAT THE AO HAS ACKNOWLEDGED THAT THE ASSESSEE OWNED UP RS. 3 CR. A S HIS INCOME FROM COMMODITY PROFIT AND IT HAS BEEN DISCLOSED IN HIS I NCOME AND EXPENDITURE FOR AY 2013-14 UNDER THE HEAD INCOME O UT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES, AND THEREAFTER THE AO CONFIRMED THE ASSESSEES CLAIM AND THEREAFTER TOTAL INCOME WA S ASSESSED BY THE AO AS PER THE RETURN SUBMITTED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID FACTS DISCERNED FROM ASSESSMENT ORDER, TH E ASSESSEES CASE IS THAT FOR THE FIRST TIME IN THIS AY HE WAS DOING UNS YSTEMATIC SPECULATIVE ACTIVITY WHICH EARNED INCOME AND, IT WAS BROUGHT UN DER THE HEAD INCOME FROM OTHER SOURCES, AND SO, ACCORDINGLY, H E IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT AS STIPULATED IN SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT BECAUSE, THESE PROVISIONS AR E ONLY FOR ASSESSES WHO ARE EARNING INCOME UNDER THE HEAD BUSINESS OR PROFESSION. WE NOTE THAT SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT CASTS A DUTY UPON THE ASSESSEE WHO ARE INTO BUSINESS OR PROFESSION AND SUCH ASSESSEES ARE BOUND TO MAINTAIN BOOKS OF ACCOUNT AS STIPULATE D THEREIN. FOR APPRECIATING THIS SUBMISSION LET US GO THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICA L, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROF ESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR ANY OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFICIAL GAZETTE SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOU NT AND OTHER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFIC ER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PRO VISIONS OF THIS ACT. (2) EVERY PERSON CARRYING ON BUSINESS OR PROFESSION [NOT BEING A PROFESSION REFERRED TO IN SUBSECTION ( 1)] SHALL, (I) IF HIS INCOME FROM BUSINESS OR PROFESSION EXCEEDS [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVE R OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFES SION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THRE E YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR; OR (II) WHERE THE BUSINESS OR PROFESSION IS NEWLY SET UP I N ANY PREVIOUS YEAR, IF HIS INCOME FROM BUSINESS OR PROFE SSION IS LIKELY TO EXCEED [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR 35 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. PROFESSION ARE OR IS LIKELY TO EXCEED [TEN LAKH] RU PEES, [DURING SUCH PREVIOUS YEAR; OR (III) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE D EEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER [SECTIO N 44AE] [OR SECTION 44BB OR SECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CLAIMED HIS INCOME TO BE LOWER THAN TH E PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS, AS THE CASE MAY BE, DURING SUCH [PREVIOUS YEAR; OR]] (IV) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE D EEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER SECTION 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFIT S AND GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINE SS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHAR GEABLE TO INCOME-TAX DURING SUCH PREVIOUS YEAR,] KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER D OCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. (3) THE BOARD MAY, HAVING REGARD TO THE NATURE OF THE BUSINESS OR PROFESSION CARRIED ON BY ANY CLASS OF PERSONS, PRES CRIBE, BY RULES, THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INV ENTORIES, WHEREVER NECESSARY) TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2), THE PARTICULARS TO BE CONTAINED THEREIN AND THE FORM AND THE MANNER IN WHICH AND THE PLACE AT WHICH THEY SHALL BE KEPT AND MAINTAINED. (4) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (3), THE BOARD MAY PRESCRIBE, BY RULES, THE PERIOD FOR WHICH THE B OOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SUB -SECTION (1) OR SUB-SECTION (2) SHALL BE RETAINED.] SO FROM A READING OF THE ABOVE PROVISIONS WHICH CLE ARLY STIPULATES THAT ASSESSEE WHO ARE CARRYING ON BUSINESS OR PROFESSION SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS WHICH MAY ENABLE THE AO TO COMPUTE THE TOTAL INCOME. WE NOTE THAT ASSESSEE IN THE STATEMENT OF TOTAL INCOME FILED BEFORE THE AO HAS SHOWN INCOME ONLY UN DER TWO HEADS (I) SALARY INCOME (II) INCOME FROM OTHER SOURCES. WE WOULD LIK E TO REPRODUCE THE SUMMARY OF TOTAL INCOME OF THE ASSESSEE FILED ALONG WITH THE RETURN: 36 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. INCOME FROM SALARY RS. 45,57,600 INCOME FROM OTHER SOURCES RS.3,00,24,047 RS.3,45,81,647 6. WE NOTE THAT THE AO HAS ACCEPTED THE AFORESAID STATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING TH E CLAIM OF THE ASSESSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCO ME OTHER THAN FROM SALARY SHOULD BE FROM INCOME FROM BUSINESS. THE C ONFUSION THAT HAS ARISEN IN THIS CASE, WE NOTE IS ON THE MISDIRECTION OF AO IN THE ASSESSMENT PROCEEDINGS WHEREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE AO HAS OBSERVED DURING SEARCH AND SE IZURE OPERATION, SHRI MANOJ BESWAL HAD MADE A CONSOLIDATED DISCLOSUR E OF RS.32 CRORE VIDE HIS DISCLOSURE PETITION. OUT OF THIS CONSOLIDA TED DISCLOSURE, THE ASSESSEE OWNED UP RS. 3 CR. IN THE DISCLOSURE PETIT ION SHRI MANOJ BESWAL IT WAS STATED THAT THE SOURCE OF SUCH UNDISC LOSED INCOME WAS OUT OF COMMODITY PROFIT. IT HAS BEEN SUBMITTED THAT THE AMOUNT HAS ALREADY BEEN DISCLOSED IN HIS INCOME & EXPENDITURE ACCOUNT FOR THE AY 2013-14 UNDER THE HEAD INCOME OUT OF SPECULATIVE B USINESS FROM SALE OF COMMODITIES. VERIFICATION OF ACCOUNTS CONFIRMS HIS CLAIM. THIS OBSERVATION IS FLAWED BECAUSE, WE NOTE THAT AO GOT CARRIED AWAY BY PERUSAL OF THE INCOME & EXPENDITURE ACCOUNT FOR AY 2013-14 SUBMITTED BY THE ASSESSEE BEFORE HIM, WHEREIN IT WA S SHOWN IN THE INCOME SIDE THAT IS RIGHT HAND COLUMN AS INCOME FR OM SPECULATIVE BUSINESS FROM SALE OF COMMODITIES AND LEFT HAND SI DE COLUMN REFLECTS THE EXPENDITURE; AND AO CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCLOSED UNDER THE HEADING INCOME OUT OF SPECULATI VE BUSINESS FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HEAD UNDER WHICH IT HAS TO BE TAXED IS NOT BASED ON THE NOMENC LATURE OF RECEIPT OF INCOME SHOWN IN INCOME & EXPENDITURE ACCOUNT. ALL T HE INCOMES OF REVENUE NATURE WILL BE POSTED IN THE RIGHT HAND SID E COLUMN OF INCOME IN THE INCOME & EXPENDITURE ACCOUNT AND THE DESCRIP TION GIVEN THEREIN CANNOT DETERMINE THE HEAD OF INCOME PRESCRIBED UNDE R CHAPTER IV OF THE ACT. THEREFORE, THE OBSERVATION OF THE AO IN AS SESSMENT ORDER IN THE LIGHT OF HIS ACTION OF ACCEPTING THE STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE ALONG WITH RETURN WHICH WITHOUT BEI NG CONTESTED, IS ERRONEOUS, UNLESS THE AO WAS ABLE TO NEGATE THE CLA IM OF THE ASSESSEE BY BRINGING THE INCOME FROM COMMODITY TRANSACTIONS AS PART OF BUSINESS INCOME. IT SHOULD BE REMEMBERED THAT UNDER THE INCOME TAX ACT 1961, THE TOTAL INCOME OF AN ASSESSEE INDIVIDUA L /COMPANY IS 37 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. CHARGEABLE TO TAX U/S. 4 OF THE ACT. THE TOTAL INCO ME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. SECTION 14 OF THE ACT LAYS DOWN THAT FOR THE PURPOSE OF COMPUTATI ON, INCOME OF AN ASSESSEE HAS TO BE CLASSIFIED UNDER FIVE HEADS. IT IS POSSIBLE FOR AN ASSESSEE/INDIVIDUAL/COMPANY TO HAVE FIVE DIFFERENT SOURCES OF INCOME, EACH ONE OF IT WILL BE CHARGEABLE TO INCOME TAX ACT . PROFITS AND GAINS OF BUSINESS OR PROFESSION IS ONLY ONE OF THE HEADS UNDER WHICH AN ASSESSEES INCOME IS LIABLE TO BE ASSESSED TO TAX. IF AN ASSESSEE HAS NOT COMMENCED BUSINESS THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE ASSESSEE COMMENCES ITS BUSINESS, ITS INC OME FROM ANY OTHER SOURCE WILL NOT BE TAXED AS HELD BY THE HONBLE SUP REME COURT IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. VS. CIT ( 1997) 227 ITR 172 (SC). IT HAS BEEN FURTHER HELD THAT WHEN THE QUESTI ON IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTA IN DEDUCTION FROM THAT RECEIPT IS PRINCIPLES OF LAW AND NOT IN ACCORD ANCE WITH ACCOUNTANCY PRACTICE. FURTHER, THE HONBLE APEX COURT HELD THAT THE QUESTION AS TO WHETHER A PRINCIPAL RECEIPT IS OF THE NATURE OF INC OME AND FALLS WITHIN THE CHARGE OF SEC. 4 OF THE ACT IS A QUESTION OF LA W WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND INTERPRETATION OF THE TERM INCOME GIVEN IN A LARG E NUMBER OF DECISIONS OF THE HONBLE SUPREME COURT, HIGH COURT AND PRIVY COUNCIL. AFTER TAKING NOTE OF THE APEX COURT ORDER AS ABOVE, WE NO TE THAT THE AO IN THE ASSESSMENT ORDER AFTER HAVING ACCEPTED THE STAT EMENT OF TOTAL INCOME (SUPRA) AND THE RETURN WHEREIN THE ASSESSEE HAS SHOWN THE INCOME FROM COMMODITIES UNDER THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER PERUSAL OF INCOME & EXPE NDITURE ACCOUNT DETERMINE THE CHARACTER OF TRANSACTION IN THE PENAL TY PROCEEDINGS AS INCOME FROM BUSINESS OR PROFESSION WHICH APPROACH /ACTION IS ERRONEOUS. WE NOTE THAT THE ASSESSEE IN HIS STATEME NT OF TOTAL INCOME ALONG WITH RETURN HAS CLASSIFIED HIS INCOME UNDER T WO HEADS (I) SALARY AND (II) FROM OTHER SOURCES AND THE INCOME OF RS. 3 CR. AS INCOME FROM OTHER SOURCES, WHICH WE FIND THE AO HAS NOT CONTEST ED IN THE ASSESSMENT ORDER, HAS THUS CRYSTALLIZED AND THE NEC ESSARY INFERENCE DRAWN IS THAT ASSESSEE AN INDIVIDUAL WHO WAS ADMITT EDLY A SALARIED PERSON ENGAGED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION (THAT TOO FOR THE FIRST TIME) I N AN ACTIVITY FROM WHICH HE DERIVED INCOME FROM OTHER SOURCES ARE NO T REQUIRED TO MAINTAIN BOOKS OF ACCOUNT WHICH ARE APPLICABLE ONLY IF THE ASSESSEE WAS ENGAGED IN BUSINESS OR PROFESSION. HOWEVER, WE FURTHER NOTE THAT THE TRANSACTIONS WHICH YIELDED INCOME, THE ASSESSEE HAD IN FACT 38 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. MAINTAINED RECORDS FROM WHICH THE AO WAS ABLE TO DE DUCE THE TRUE INCOME AND EXPENDITURE OF THE ASSESSEE. WE NOTE THE AO IN THE ASSESSMENT ORDER HAS ACCEPTED THE RETURNED INCOME C OMPRISING OF INCOME FROM SALARY AND INCOME FROM OTHER SOURCES BY OBSERVING AS UNDER : TOTAL INCOME ASSESSED AS PER RETURN RS.3,44,65,120 /-. AND FURTHER WE NOTE THAT THE AO HAD SPECIFICALLY ST ATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESS EE IS HAVING ONLY SALARY INCOME AND INCOME FROM OTHER SOURCES. THUS FROM A P ERUSAL OF THE ASSESSMENT ORDER, IT IS NOT IN DISPUTE THAT ASSESSE E IS NOT ENGAGED IN ANY BUSINESS. AND THE AO CANNOT CHANGE THE CHARACTER OF INCOME IN A DERIVATIVE PROCEEDING WHICH IS AN OFF-SHOOT OF ASSESSMENT PROC EEDINGS I.E. THE PENALTY PROCEEDINGS WITHOUT CONTESTING AND MAKING A FINDING AGAINST THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER AS DISCUSSED ABOVE . 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE S EARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TRANSACTIONS IN SPECULATIVE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE AO COULD COMPUTE THE INCOME OF THE ASSESSEE FROM THE SAID TRANSACTIO N WHICH AMOUNT ASSESSEE DECLARED DURING SEARCH AND WHICH WAS DULY RETURNED AND WHICH FIGURE WAS ACCEPTED BY THE AO. ACCORDING TO LD. AR, THE FACT T HAT SEARCH HAPPENED ON 01.08.2012 NEED TO BE TAKEN NOTE OF SINCE UNDISPUTE DLY THERE WAS ENOUGH AND MORE TIME FOR THE ASSESSEE TO SUBMIT THE ACCOUN TS DURING ASSESSMENT PROCEEDINGS WHICH FACT HAS BEEN TAKEN NOTE OF AND C ONCURRED BY THE LD. CIT(A). THEREAFTER, THE LD. AR DREW OUR ATTENTION T O THE DEFINITION OF UNDISCLOSED INCOME GIVEN UNDER SECTION 271AAB WHICH READS AS UNDER: PENALTY WHERE SEARCH HAS BEEN INITIATED. '271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTAN DING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, I N A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1S T DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION T O TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ******** 39 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. EXPLANATION FOR THE PURPOSES OF THIS SECTION, - (A) . (B) . (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHE R VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OT HER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL CHIE F COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER O R] COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CO NDUCTED. ACCORDING TO THE LD. AR, FROM THE FACTS AND CIRCUMS TANCES DESCRIBED ABOVE, SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINES S OR PROFESSION, HE DOES NOT REQUIRE TO MAINTAIN THE BOOKS OF ACCOUNT A S PER SEC. 44AA OR SEC. 44AA(2) OF THE ACT, THEREFORE, THE ASSESSEES CASE FALLS IN THE SECOND LIMB I.E. OR OTHER DOCUMENTS AS STIPULATED U/S. 271AAB EXPLANATION (C) (SUPRA) WHICH DESCRIBES UNDISCLOSED INCOME FOR THE PURPOSES OF THIS SECTION WHICH IS VERY IMPORTANT TO ADJUDICATE THIS ISSUE. THEREFORE, THE QUESTION IS WHEN THE SEARCH T OOK PLACE, THE ASSESSEES TRANSACTIONS (IN THIS CASE, THE SPECULAT IVE TRANSACTION) HAS BEEN FOUND TO BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEVED FROM THE ASSESSEES ACCOUNTANTS DRAWER) AND BASED ON THAT THE ASSESSEE DECLARED RS. 3 CR. DURING SEARCH AND L ATER RETURNED INCOME OF RS. 3 CR. AS INCOME UNDER THE HEAD INCOM E FROM OTHER 40 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. SOURCES WHICH WAS ACCEPTED BY THE AO IN TOTO. WE N OTE THAT SINCE THE INCOME UNDER QUESTION (RS. 3 CR.) WAS IN FACT ENTER ED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE AY 2013- 14, WHICH DOCUMENT WAS RETRIEVED DURING SEARCH, HEN CE, THE AMOUNT OF RS. 3 CR. OFFERED BY THE ASSESSEE DOES NOT FALL IN THE KEN OF UNDISCLOSED INCOME DEFINED IN SEC. 271AAB OF THE ACT. SO, RS. 3 CR. WHICH WAS COMMODITY PROFIT RECORDED IN THE OTHER DO CUMENT MAINTAINED BY THE ASSESSEE WHICH WAS RETRIEVED DURI NG SEARCH CANNOT BE TERMED AS UNDISCLOSED INCOME IN THE DEFINITION GIVEN U/S. 271AAB OF THE ACT. SINCE RS. 3 CR. CANNOT BE TERMED AS UN DISCLOSED INCOME AS PER SEC. 271AAB OF THE ACT, NO PENALTY CAN BE LE VIED AGAINST THE ASSESSEE. THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE AFORESAID REASONING RENDERED BY US. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 4. WE FIND THAT THE FACTS IN THE AFORESAID CASE AN D THE DECISION RENDERED THEREON ARE SQUARELY APPLICABLE TO THE FAC TS OF THE INSTANT CASES BEFORE US AND RESPECTFULLY FOLLOWING THE SAME , WE DISMISS THE APPEALS OF THE REVENUE. THEREFORE, WHEN THE ASSESSEE IS NOT REQUIRED TO MAI NTAIN THE BOOKS OF ACCOUNT AS PER SECTION 44AA, THEN THE MATTER IS REQ UIRED TO BE EXAMINED WHETHER THE ALLEGED UNDISCLOSED INCOME IS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE AS PER CLAUSE (C) TO EXPLANATION TO SECTION 271AAB. UNDISPUTEDLY THE A LLEGED INCOME WAS FOUND RECORDED IN THE DIARY WHICH IS NOTHING BUT THE OTHER RECORD MAINTAINED IN THE NORMAL COURSE, THUS THE SAME WOUL D NOT FALL IN THE DEFINITION OF UNDISCLOSED INCOME. ONCE THE SAID IN COME IS FOUND AS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE N ORMAL COURSE, THEN IT CANNOT BE PRESUMED THAT THE ASSESSEE WOULD NOT HAVE DISCLOSED THE SAME IN THE RETURN OF INCOME TO BE FILED AFTER ABOUT ONE YEAR FROM THE DATE OF SEARCH. HENCE, IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE VARIOUS DE CISIONS ON THIS POINT, WE HOLD THAT THE PENALTY LEVIED UNDER SECTIO N 271AAB IS NOT SUSTAINABLE AND THE SAME IS DELETED. WE FIND THAT THE SAID DECISION OF THIS TRIBUNAL IS APPLICABLE IN THE FACTS OF THE PRESENT CASE AND ACCORDINGLY, IN V IEW OF THE 41 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. DECISION IN CASE OF SHRI RAVI MATHUR VS. DCIT (SUPR A) WE DELETE THE PENALTY LEVY U/S 271AAB OF THE ACT. IN VIEW OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE AND FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE HOLD THAT THE MERE D ISCLOSURE AND SURRENDER OF THE AMOUNT BY THE ASSESSEE ON ACCOUNT OF SOME PAYMENTS FOR LAND WOULD NOT CONSTITUTE UNDISCLOSED INCOME IN THE ABSENCE OF CORRESPONDING ASSET AND OTHER MATERIAL TO CREATE ANY RIGHT IN FAVOUR OF THE ASSESSEE. AS WE H AVE ALREADY DISCUSSED IN THE PRECEDING PARAS THAT THE SURRENDER OF RS. 3,00,000/ - BY THE ASSESSEE ON ACCOUNT OF ANY OTHER IRREGULARITY IS NOT EVEN THE INCOME OF TH E ASSESSEE MUCH LESS THE UNDISCLOSED INCOME OF THE ASSESSEE WHEN THERE WAS N O DEFICIENCY FOUND EITHER DURING THE SEARCH AND SEIZURE PROCEEDINGS OR POST S EARCH INVESTIGATION OR DURING THE ASSESSMENT PROCEEDINGS IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE, THEREFORE, THE PENALTY AGAINST THE SAID SURRENDER IS HIGHLY ARBITR ARY AND ILLEGAL. ACCORDINGLY, THE PENALTY LEVIED BY THE AO UNDER SECTION 271AAB IS DE LETED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10/06/ 2019. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 10/06/2019. DAS/ 42 ITA NO. 611/JP/2018 SHRI NAGENDRA CHOUDHARY, JAIPUR. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI NAGENDRA CHOUDHARY, JAIPUR. 2. THE RESPONDENT THE DCIT, CENTRAL CIRCLWE-2, JA IPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 611/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR