M/s. Sumati Gems, Jaipur V. Deputy Commissioner Of Income Tax, Central Circle-2, Jaipur

ITA 851/JPR/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9123 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 28-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROONIPAL
• Keywords: Business income; Search and seizure; Principle of natural justice; Initiation of penalty proceedings; Fair market value; Valuation report
• Section: 271(1)(c); 143(3); 153A; 274; 246A; 13; 132; 27

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 851/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2015-16 M/S SUMATI GEMS 1839, BARAH GANGORE KA RASTA, JOHARI BAZAR, JAIPUR CUKE VS. DY. COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE-02, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAQFS8547N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. S. R. SHARMA (CA) SH. R AJNIKANT BHATRA JKTLO DH VKSJ LS @ REVENUE BY : SMT. ROONI PAL (DCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 06/08/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 07/08/2020 PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-4, JAIPUR DATED 02.04.2018 WHEREIN THE ASSES SEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) IS WRONG, UNJUST AND HAS ER RED IN LAW IN CONFIRMING PENALTY OF RS.5,78,750/-IMPOSED BY TH E ASSESSING OFFICER U/S 271AAB OF THE ACT. 2. THAT THE CIT(A) IS WRONG AND HAS ERRED IN LAW IN CONFIRMING THE SAID PENALTY OF RS.5,78,750/- U/S 27 1AAB OF THE ACT HOLDING THAT IT IS MANDATORY IN NATURE AND NOT ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 2 DISCRETIONARY AND SO ASSESSING OFFICER IS CORRECT I N LAW WHILE IMPOSING PENALTY ON APPELLANT. 3. THAT THE CIT(A) IS WRONG AND HAS ERRED IN LAW IN CONFIRMING THE SAID PENALTY OF RS.5,78,750/- U/S 27 1AAB IMPOSED BY ASSESSING OFFICER ALTHOUGH THE NOTICE IS SUED BY ASSESSING OFFICER FOR INITIATING THE PENALTY U/S 27 1AAB OF THE I.T.ACT, 1961 IS NOT IN ACCORDANCE WITH LAW NOT BEI NG SPECIFICALLY POINTING OUT THE DEFAULT FOR WHICH THE LD. A.O. SOUGHT TO IMPOSE PENALTY U/S 271AAB. 4. THAT THE LD. CIT(A) IS WRONG IN CONFIRMING PENA LTY OF RS.5,78,750/- U/S 271AAB OF THE ACT IN AS MUCH THE PENALTY WAS LEVIED BY ASSESSING OFFICER SIMPLY ON THE BASIS THAT THE ASSESSEE ADMITTED THE INCOME OF RS.57,87,509/- AND DISCLOSED IN THE RETURN WITHOUT PROVING THAT THE SA ID INCOME WAS UNDISCLOSED INCOME' OF ASSESSEE WITHIN THE MEA NING OF SECTION 271AAB OF 1.T.ACT, 1961. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CARRIED OUT ON SURANA GROUP ON 15.10.2014 AND ASSESSEE IS ONE OF THE MEMBERS OF TH E SAID GROUP. DURING THE COURSE OF SEARCH, THE STATEMENT OF THE P ARTNER OF THE ASSESSEE FIRM WAS RECORDED U/S 132(4) WHEREIN HE SU RRENDERED ADDITIONAL BUSINESS INCOME ON ACCOUNT OF STOCK AMOU NTING TO RS. 57,87,509/-. THEREAFTER, THE ASSESSEE FIRM FILED IT S RETURN OF INCOME ON 23.09.2015 DECLARING TOTAL INCOME OF RS. 1,04,57,14 0/- INCLUDING THE ADDITIONAL INCOME SURRENDERED DURING THE COURSE OF SEARCH. THE ASSESSMENT U/S 143(3) READ WITH SECTION 153B(1)(B) WAS COMPLETED ON ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 3 18.11.2016 ACCEPTING THE RETURNED INCOME EXCEPT FOR A TRADING ADDITION OF RS. 1,00,000/-. SEPARATELY, THE PENALTY PROCEEDI NGS U/S 271AAB WERE INITIATED BY WAY OF ISSUANCE OF NOTICE U/S 274 READ WITH SECTION 271AAB OF THE ACT AND THEREAFTER, THE AO LEVIED THE PENALT Y U/S 271AAB VIDE HIS ORDER DATED 26.05.2017 @ 10% OF RS. 5,78,75,091/-, BEING THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. 3. IN THE AFORESAID PENALTY ORDER, THE ASSESSING OF FICER REFERRED TO THE ASSESSMENT ORDER AND STATED THAT THE ASSESSEE H AS NOT FILED ANY FURTHER APPEAL AGAINST THE SAID ORDER. FURTHER, THE ASSESSING OFFICER HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 271AAB, I T IS CLEAR THAT THERE IS NO SCOPE OF ESCAPEMENT FOR LEVY OF PENALTY RATHER T HE PROVISIONS PROVIDES FOR THE QUANTUM FOR LEVY OF PENALTY DEPEND ING UPON FACTS AND CIRCUMSTANCES OF THE EACH CASE AND THE ASSESSEE CON TENTIONS THAT HE HAD MADE BONAFIDE DISCLOSURE WERE NOT FOUND ACCEPTA BLE. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHO NOTED THAT THE ASSESSEE H AS MADE DISCLOSURE OF ADDITIONAL INCOME AND SAME WAS ALSO OFFERED IN T HE RETURN FILED U/S 153A OF THE ACT. IT WAS FURTHER STATED THAT INTENTI ON OF LEGISLATURE WAS VERY CLEAR THAT SECTION 271AAB PROVIDES FOR MANDATO RY LEVY OF PENALTY ON SURRENDER OF UNDISCLOSED INCOME THOUGH QUANTUM T HEREOF MAY VARY SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS AND TH US, UNLIKE SECTION 271AAA, WHEREIN IMMUNITY FROM IMPOSITION OF PENALTY IS POSSIBLE SUBJECT TO FULFILLMENT OF CONDITIONS, THERE IS NO I MMUNITY CLAUSE PROVIDED FROM PENALTY U/S 271AAB. IT WAS ACCORDINGLY HELD TH AT THE PENALTY U/S 271AAB IS MANDATORY IN NATURE AND THERE IS NO DISCR ETION WITH THE AO ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 4 AND THE PENALTY SO LEVIED BY THE ASSESSING OFFICER WAS CONFIRMED. AGAINST THE SAID FINDINGS, THE ASSESSEE IS NOW IN A PPEAL BEFORE US. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE PENALTY NOTICE DATED 18.11.2016 DOES NOT SPECIFY TH E SPECIFIC LIMB OF SECTION 271AAB UNDER WHICH THE PENALTY WAS SOUGHT T O BE LEVIED. SIMILARLY, THE SECOND SHOW CAUSE NOTICE DATED 15.05 .2017 ALSO DOES NOT SPECIFY THE LIMB UNDER WHICH THE ASSESSING OFFICER SEEK TO LEVY PENALTY U/S 271AAB OF THE ACT. IT WAS SUBMITTED THAT BOTH T HE NOTICES WERE ISSUED IN A ROUTINE MANNER WITHOUT MENTIONING UNDER WHICH CLAUSE OF SECTION 271AAB OF THE ACT, THE ASSESSEE IS LIABLE F OR PENALTY. THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO ME ET SPECIFICALLY, OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE VI OLATED AND ON THE BASIS OF SUCH PROCEEDING, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. THUS, THERE IS NO APPLICATION OF MIND AT THE TIME O F ISSUING THE SHOW CAUSE NOTICE BY THE AO. IT WAS SUBMITTED THAT THE A SSESSING OFFICER HAS FINALLY LEVIED PENALTY AS PER CLAUSE (A) OF SECTION 271AAB OF THE ACT, HOWEVER, NO SUCH GROUND WAS SPECIFIED IN THE SHOW C AUSE NOTICE ISSUED U/S 271AAB READ WITH SECTION 274 OF THE ACT. 6. IT WAS FURTHER SUBMITTED THAT THE AO AND THE LD CIT(A) ARE NOT CORRECT IN STATING THAT THE LEVY OF PENALTY U/S 271 AAB IS MANDATORY IN NATURE AS THE PROVISIONS OF SECTION 271AAB STATES T HAT THE ASSESSING OFFICER MAY LEVY PENALTY WHICH THUS PERMITS THE ASS ESSING OFFICER TO USE HIS DISCRETION TO LEVY OR NOT TO LEVY A PENALTY DEP ENDING UPON FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS FURTHER SUBMITTE D THAT THE LEGISLATURE HAS INCLUDED THE PROVISIONS OF SECTION 274 AND 275 OF THE ACT IN CONTEXT OF SECTION 271AAB OF THE ACT WITH CLEAR INTENTION T O CONSIDER THE ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 5 IMPOSITION OF PENALTY JUDICIALLY. THEREFORE, THE PE NALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE O PPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GI VEN TO THE ASSESSEE, THE PENALTY CANNOT BE MANDATORY AND IT IS ON THE BA SIS OF FACTS AND MERITS PLACED BEFORE THE AO. ONCE THE AO IS BOUND B Y THE ACT TO HEAR THE ASSESSEE AND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENAL TY. IT WAS FURTHER SUBMITTED THAT THE PENALTY ORDER U/S 271AAB IS AN A PPEALABLE ORDER U/S 246A BEFORE CIT(A) AND THEREFORE, IT IS NOT CORRECT TO HOLD THAT THE PENALTY U/S 271AAB IS MANDATORY IN NATURE AND HAD T HAT BEING THE INTENTION OF LEGISLATURE, THERE WOULD NOT HAVE BEEN ANY PROVISION OF APPEAL AGAINST THE SAID LEVY OF PENALTY. 7. IT WAS FURTHER SUBMITTED THAT DURING THE COURSE OF SEARCH, IN THE STATEMENT RECORDED U/S 132(4) OF THE I.T. ACT, 1961 , THE PARTNER OF ASSESSEE FIRM SURRENDERED A SUM OF RS.57,87,509/- O N ACCOUNT OF ALLEGED EXCESS STOCK WHICH WAS NOTHING BUT THE DIFF ERENCE IN VALUATION OF STOCK. NO EXCESS STOCK WAS FOUND DURING THE COUR SE OF SEARCH SURVEY. IT IS ONLY DIFFERENCE IN VALUATION OF STOCK VALUED BY REGISTERED VALUER. IT WAS SUBMITTED THAT IT IS AN ADMITTED FACT THAT THER E IS NO IDENTIFIABLE/SEPARABLE STOCK FOUND WHICH CAN BE SAI D AS UNDISCLOSED. MORE PARTICULARLY, ASSESSEE FIRM HAS NO UNEXPLAINED PURCHASES OR SALES. THERE IS NO REAL INCOME AND NO REAL EXCESS STOCK. W ITHOUT ESTABLISHING REAL INCOME, NO PENALTY CAN BE IMPOSED PRESUMING TH E HYPOTHETICAL INCOME. IN THE INSTANT CASE, THE SURRENDER HAS BEEN MADE ON ACCOUNT OF EXCESS VALUE OF STOCK, IT IS NOT A CASE WHERE DURIN G SEARCH, UNACCOUNTED SALES OR UNEXPLAINED PURCHASES HAVE BEEN FOUND. THE REFORE, WHENEVER THE ASSESSEE WILL SELL THESE STOCKS, THE RESULTED P ROFIT WILL AUTOMATICALLY ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 6 GET INCORPORATED IN ITS TAXABLE PROFITS. UNDER THE FACTS AND CIRCUMSTANCES, IN NO CASE THERE WOULD BE ANY UNDISC LOSED INCOME OF THE ASSESSEE, THEREFORE, PROVISION OF SECTION 271AAB IS NOT ATTRACTED IN THE INSTANT CASE. ACCORDINGLY IT WAS SUBMITTED THAT IT IS NOT A CASE WHERE DEPARTMENT EITHER FOUND ANY INCOME OR ANY ASSETS OR ANY EXPENSES NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS OR DOCUME NTS, HENCE, THE AMOUNT SURRENDERED BY WAY OF EXCESS VALUE OF STOCK DOES NOT MEET THE DEFINITION OF UNDISCLOSED INCOME GIVEN IN SECTION 271AAB AND MERELY BASIS THE SURRENDER MADE IN THE STATEMENT RECORDED U/S 132(4), NO PENALTY CAN BE LEVIED. IN SUPPORT, THE RELIANCE WA S PLACED ON THE CO- ORDINATE BENCH DECISION IN CASE OF SISTER CONCERN, M/S SUMANGAL GEMS, JAIPUR VS. DCIT (ITA NO. 113/JP/2018 DATED 24.02.2020) WHEREIN UNDER IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY WAS DELETED BY THE TRIBUNAL. 8. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED O N THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT ONCE THE ASSES SEE HAS SURRENDERED THE AMOUNT DURING THE COURSE OF SEARCH IN THE STATE MENT RECORDED U/S 132(4) OF THE ACT OF THE ONE OF THE PARTNERS OF THE ASSESSEE FIRM, THEREFORE, THERE IS NO BASIS TO STATE THAT THERE IS NO UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARCH. THE STATEMENT OF THE PARTNER OF THE FIRM IS BINDING ON THE FIRM AND THE ASSESSEE CANNOT TAKE THE PLEA THAT SUCH STATEMENT IS NOT BINDING ON IT. IT WAS FURTHE R SUBMITTED THAT THE PROVISIONS OF SECTION 271AAB ARE CLEAR IN CONTRAST TO SECTION 271AAA WHEREIN THERE IS NO MECHANISM FOR IMMUNITY FROM LEV Y OF PENALTY AND THE ONLY DISCRETION WHICH LIES WITH THE ASSESSING O FFICER IS IN TERMS OF QUANTUM OF LEVY OF PENALTY AND THAT TO, DEPENDS UPO N THE SATISFACTION ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 7 OF THE SPECIFIC TERMS AND CONDITIONS AS PROVIDED IN THE SAID PROVISIONS. THE LD DR ACCORDINGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE COORDINATE BENCH IN THE CASE OF ASSESSEES SISTER CONCERN, M/S SUMANGAL GEMS (SUPRA) UNDER IDENTICAL SET OF FACTS AND CIRCUMSTANCES OF THE CAS E HAS DELETED THE PENALTY SO LEVIED U/S 271AAB OF THE ACT AND THE REL EVANT FINDINGS READ AS UNDER: 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, THE QUESTION THAT ARISES FOR CONSIDERATION IS THE NATURE OF CHARGE(S) SPECIFIED UNDER SECTION 271AAB OF THE ACT. WHETHER IT PROVIDES FOR A SINGU LAR CHARGE OF UNDISCLOSED INCOME FOR THE SPECIFIED PREVIOUS YEAR FOUND DURING THE COURSE OF SEARCH INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 OR IT PROVIDES FOR MULTIPLES CHARGES AS SO CONTENDED BY THE LD AR IN TERMS OF CLAUSE (A), CLAU SE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECTION 271AAB OF THE ACT. ON CLOSE READING OF PROVISIONS OF SECTION 271AAB, WE F IND THAT THE PRIMARY CONDITION OR CHARGE FOR LEVY OF PENALTY IS THE EXISTENCE OF UNDISCLOSED INCOME FOR THE SPECIFIED PREVIOUS YEAR FOUND DURING THE COURSE OF SEARCH IN THE CASE OF ASSESSEE. ONCE THE SAID PRIMARY CONDITION OR CHARGE IS SATISFIED, FOR THE P URPOSES OF QUANTIFYING THE PENALTY, THE ASSESSING OFFICER HAS TO EXAMINE THE SATISFACTION OF ANCILLARY CONDITIONS AS SPECIFIED U NDER CLAUSE (A), CLAUSE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECT ION 271AAB. MERELY BECAUSE THE QUANTUM OF PENALTY VARIES FROM 1 0% TO 30% ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 8 SUBJECT TO COMPLIANCES WITH THE ANCILLIARY CONDITIO NS, IT CANNOT BE SAID THAT WHERE THE AO HAS INITIATED THE PENALTY UN DER SECTION 271AAB, THERE IS ANY AMBIGUITY IN THE CHARGE OR THE RE IS ANY LACK OF APPLICATION OF MIND ON PART OF THE ASSESSING OFF ICER. FURTHER, THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT BAS ED ON ADDITION MADE AND INVESTIGATION/ENQUIRY CONDUCTED D URING THE COURSE OF ASSESSMENT PROCEEDINGS, RATHER IT IS BASE D ON SEARCH CONDUCTED ON THE ASSESSEE ON OR AFTER THE 1ST DAY O F JULY, 2012, IN SUCH A SITUATION, WHERE THE PENALTY SHOW-CAUSE N OTICE IS ISSUED U/S 271AAB, THE ASSESSING OFFICER IS MAKING THE ASS ESSEE AWARE OF THE CHARGE AGAINST HIM IN TERMS OF UNDISCLOSED I NCOME FOUND DURING THE COURSE OF SEARCH AND THUS, THE ASSESSEE IS GRANTED AN OPPORTUNITY TO REFUTE SUCH CHARGE AND FILE ITS EXPLANATIONS/SUBMISSIONS. UNLIKE PROVISIONS OF SECT ION 271(1)(C) WHICH PROVIDES FOR SEPARATE CHARGE OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, THERE IS A SINGULAR CHARGE UNDER SECTION 271AAB IN TERMS OF THE EXISTENCE OF UNDISCLOSED INCOME FOR THE SPECIFIED P REVIOUS YEAR FOUND DURING THE COURSE OF SEARCH. THEREFORE, IN T HE INSTANT CASE, WHERE THE NOTICE DATED 14.12.2016 IS ISSUED TO THE ASSESSEE FIRM TO SHOW-CAUSE WHY PENALTY SHOULD NOT BE LEVIED U/S 271AAB OF THE ACT, THE ASSESSEE IS MADE AWARE OF THE SPECIFIC CHARGE AGAINST IT AND AN OPPORTUNITY HAS THUS BEEN GIVEN T O REBUT SUCH CHARGE AND THEREFORE, WE DONOT SEE ANY INFIRMITY IN THE INITIATION OF THE PENALTY PROCEEDINGS AND CONSEQUENT PENALTY O RDER SO PASSED BY THE AO ON THIS ACCOUNT. FURTHER, EVEN FO R SAKE OF ARGUMENT, IF IT IS ASSUMED THAT PRIMARY CHARGE OF U NDISCLOSED INCOME HAS TO BE READ ALONG WITH ANCILLARY CONDITIO NS AND THUS ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 9 MULTIPLES CHARGES HAVE BEEN PRESCRIBED IN TERMS OF CLAUSE (A), CLAUSE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECT ION 271AAB AND WHERE THE ASSESSING OFFICER HAS NOT STATED THE SPEC IFIED CHARGE AT THE TIME OF INITIATION OF PENALTY PROCEEDINGS, IN O UR CONSIDERED VIEW, SUCH UNCERTAIN CHARGE AT THE STAGE OF INITIAT ION OF PENALTY PROCEEDINGS CAN BE MADE GOOD WITH A CLEAR-CUT CHARG E IN THE PENALTY ORDER. IN ANY CASE, EXISTENCE OF A CLEAR-CU T CHARGE IN PENALTY ORDER IS A MUST SO AS TO VALIDATE ANY PENAL TY ORDER AND SO LONG AS THERE IS A CLEAR FINDING IN THE PENALTY ORD ER, NO INFIRMITY CAN BE SAID TO ARISE IN THE PENALTY ORDER. IN THE I NSTANT CASE, THE AO HAS RECORDED HIS SATISFACTION WHILE PASSING THE ASSESSMENT ORDER THAT THERE IS UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARCH AND OTHER CONDITIONS BEING SATISFIED AND THE REFORE, THE ASSESSEE IS LIABLE FOR PENALTY U/S 271AAB, THEREAFT ER THE NOTICE INITIATING THE PENALTY PROCEEDINGS U/S 271AAB WAS I SSUED TO THE ASSESSEE. THEREAFTER, THE ASSESSING OFFICER HAS GIV EN A SPECIFIC FINDING AS REFLECTED IN THE PENALTY ORDER THAT THE ASSESSEE IS LIABLE FOR PENALTY U/S 271AAB(1)(A) WHICH PROVIDES FOR LEV Y OF PENALTY @ 10% ON THE UNDISCLOSED INCOME FOUND DURING THE CO URSE OF SEARCH AND ADMITTED IN STATEMENT RECORDED U/S 132(4 ) OF THE ACT. THEREFORE, WE DONOT SEE ANY INFIRMITY IN THE INITIA TION OF PENALTY PROCEEDINGS AND CONSEQUENT PENALTY ORDER SO PASSED BY THE ASSESSING OFFICER ON THIS ACCOUNT AND THE CONTENTIO NS SO RAISED BY THE LD AR IN THIS REGARD CANNOT BE ACCEPTED. 10. NOW COMING TO ANOTHER CONTENTION OF THE LD AR W HERE HE HAS CHALLENGED THE FINDINGS OF THE LOWER AUTHORITIE S THAT PENALTY U/S 271AAB IS MANDATORY IN NATURE AND THERE IS NO D ISCRETION ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 10 WITH THE INCOME TAX AUTHORITIES. IN THIS REGARD, WE AGAIN REFER TO THE PROVISIONS OF SECTION 271AAB WHICH BEGINS WITH THE STIPULATION THAT THE ASSESSING OFFICER MAY DIRECT T HE ASSESSEE AND THE ASSESSEE SHALL PAY THE PENALTY AS PER CLAUSE (A ) TO (C) SO SATISFIED IN SUB-SECTION (1) TO SECTION 271AAB. FU RTHER, AS PER SUB-SECTION (3) OF SECTION 271AAB, THE PROVISIONS O F SECTION 274 AND SECTION 275 AS FAR AS MAY BE APPLIED IN RELATIO N TO PENALTY UNDER THIS SECTION WHICH MEANS THAT BEFORE LEVYING THE PENALTY, THE ASSESSING OFFICER HAS TO ISSUE A SHOW-CAUSE GRA NTING AN OPPORTUNITY TO THE ASSESSEE. FURTHER, THE ORDER LE VYING THE PENALTY IS AN APPELLABLE ORDER AND THEREFORE, THE F ACT THAT THE STATUE HAS PROVIDED FOR AN APPELLATE REMEDY AGAINST THE LEVY OF PENALTY, THE LEVY OF PENALTY CANNOT BE HELD AS MAND ATORY BUT THE SAME WILL DEPEND UPON FACTS AND CIRCUMSTANCES OF EA CH CASE. THUS, WE AGREE WITH THE CONTENTIONS OF THE LD AR TH AT THE LEVY OF PENALTY IS NOT MANDATORY IN ALL CASES BUT THE ASSES SING OFFICER HAS TO DECIDE BASED ON FACTS AND CIRCUMSTANCES OF THE C ASE. IN FACT, IT IS A CONSISTENT VIEW OF THIS TRIBUNAL ACROSS VARIOU S BENCHES THAT LEVY OF PENALTY U/S 271AAB IS NOT AUTOMATIC IN NATU RE BUT THE AO HAS THE DISCRETION AND HAS TO TAKE A DECISION AFTER ARRIVING AT THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSE E IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT IS AN UND ISCLOSED INCOME IN TERMS OF SECTION 271AAB(1) R/W. EXPLANAT ION DEFINING THE UNDISCLOSED INCOME. FURTHER, WHERE THE DISCRETI ON SO APPLIED BY THE ASSESSING OFFICER HAS BEEN RIGHTLY EXERCISED OR NOT IN A PARTICULAR CASE CAN BE REVIEWED AND SUBJECT TO APPE LLATE REMEDY AS SO PROVIDED IN THE ACT. ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 11 11. THIS NOW TAKES US TO NEXT CONTENTION OF THE LD AR REGARDING AMOUNT SURRENDERED DURING THE COURSE OF SEARCH NOT QUALIFYING AS AN UNDISCLOSED INCOME U/S 271AAB R/W EXPLANATION THERETO AND MERELY SURRENDER MADE IN THE STATEMENT RECORDED U/S 132(4) IS NOT SUFFICIENT FOR LEVY OF PENALTY. IT IS A SETTLED LEGAL PROPOSITION THAT THE PENALTY PROVISIONS NEEDS TO BE CONSTRUED S TRICTLY. THEREFORE, WHERE THE STATUE HAS PROVIDED FOR A CHAR GE FOR LEVY OF PENALTY WHICH IS UNDISCLOSED INCOME FOR THE SPECIF IED PREVIOUS YEAR FOUND DURING THE COURSE OF SEARCH IN THE CASE OF ASSESSEE AND HAS ALSO DEFINED THE MEANING OF UNDISCLOSED INC OME, FOR THE PURPOSES OF LEVY OF PENALTY, WHAT HAS TO BE SEEN IS WHETHER THE SURRENDER SO MADE, IN TERMS OF STATEMENT OF THE PAR TNER OF THE ASSESSEE FIRM RECORDED U/S 132(4) DURING THE COURSE OF SEARCH, FALLS IN THE DEFINITION OF UNDISCLOSED INCOME WHI CH HAS BEEN SPECIFICALLY DEFINED AND LAID DOWN IN TERMS OF CLAU SE (C) OF EXPLANATION TO SECTION 271AAB WHICH READS AS UNDER: (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEW ELLERY 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 SEAR CH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE PRINCIPAL CHIEF ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 12 COMMISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL COMMISSIONER OR COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, 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 SPECIF IED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH N OT BEEN CONDUCTED. 12. IN THE INSTANT CASE, THEREFORE, WHAT HAS TO BE DETERMINED IS THE INCOME OF SUCH PREVIOUS YEAR WHICH IS REPRESENT ED BY SUCH STOCK OF GOODS WHICH IS NOT FOUND RECORDED IN THE B OOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE IN THE NORMAL C OURSE RELATING TO SUCH PREVIOUS YEAR. WHERE THE STOCK WH ICH IS RECORDED IN THE BOOKS OF ACCOUNTS AND THE STOCK PHY SICALLY FOUND DURING THE COURSE OF SEARCH HAVE NO DISCREPANCY IN TERMS OF QUANTITY, THEN ANY DIFFERENCE IN VALUATION DONE BY THE DEPARTMENT VALUER WOULD NOT AMOUNT TO UNDISCLOSED I NCOME AS SO DEFINED IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. FURTHER, THE VALUATION OF SUCH UNDISCLOSED STOCK IS REQUIRED TO DETERMINE THE INVESTMENT WHICH HAS BEEN MADE IN SUC H STOCK AND WHICH HAS REMAINED UNDISCLOSED TO THE REVENUE A UTHORITIES. THE INVESTMENT IN STOCK IS THE FUNCTION OF PRICE OR COST AT WHICH STOCK HAS BEEN PURCHASED BY THE ASSESSEE AND THEREF ORE, WHAT IS TO BE DETERMINED IS THE PURCHASE PRICE/COST OF SUCH STOCK AND NOT THE MARKET PRICE. WHERE SUCH STOCK IS ULTIMATELY SO LD, ANY PROFIT ARISING THEREFROM WOULD BE BROUGHT TO TAX IN REGULA R COURSE AND ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 13 THE DETERMINATION OF MARKET PRICE WOULD BE RELEVANT AT THAT POINT IN TIME. 13. IN THE INSTANT CASE, STOCK OF EMERALD ROUGH, SE MI-PRECIOUS AND EMERALD FINISHED GEMSTONES WAS FOUND DURING THE COURSE OF SEARCH AND THESE ARE STOCK-IN-TRADE OF THE ASSESSEE FIRM IN WHICH IT REGULARS DEALS AS PART OF ITS BUSINESS. WHAT IS THEREFORE RELEVANT FOR THE PRESENT PURPOSES IS FIRSTLY, WHETH ER THERE IS ANY EXCESS STOCK PHYSICALLY FOUND WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNTS AND SECONDLY, THE COST AT WHICH SUCH EX CESS UNDISCLOSED STOCK HAS BEEN ACQUIRED ALONGWITH THE C OST OF CUTTING AND POLISHING SUCH ROUGH GEMSTONES INTO FINISHED GE MSTONES AND NOT THE VALUE AT WHICH SUCH STOCK CAN FETCH IN THE MARKET OR THE FAIR MARKET VALUE OF SUCH STOCK. WE NOTE THAT IN THE ENTIRE VALUATION REPORT AND IN THE PROCEEDINGS OF SEARCH A ND SEIZURE, THE DEPARTMENT HAS NOT MADE ANY ALLEGATION THAT THERE W AS ANY DISCREPANCY IN THE QUANTITY OF STOCK FOUND DURING T HE COURSE OF SEARCH AND STOCK RECORDED IN THE BOOKS OF ACCOUNT. FURTHER, THE VALUATION OF THE STOCK HAS BEEN MADE BY THE DEPARTM ENT VALUER BASIS THE MARKET VALUE AS ON THE DATE OF SEARCH AND THE ASSESSING OFFICER HAS MERELY GONE BY THE SURRENDER MADE DURING THE COURSE OF SEARCH AND THERE IS THUS NO EXERCISE WHICH HAS BEEN UNDERTAKEN BY THE ASSESSING OFFICER TO DETERMINE TH E COST OF THE GOODS SO FOUND DURING THE COURSE OF SEARCH. IN OUR VIEW, GIVEN THAT THE ASSESSEE HAS DISCLOSED THE WHOLE OF THE AM OUNT SURRENDERED DURING THE COURSE OF SEARCH IN ITS RETU RN OF INCOME, THE AMOUNT SO SURRENDERED AND DISCLOSED IN THE RETU RN OF INCOME IS SUBJECT MATTER OF ASSESSMENT AND HAS RIGHTLY BEE N BROUGHT TO ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 14 TAX IN THE QUANTUM PROCEEDINGS WHICH HAS SINCE ATTA INED FINALITY. HOWEVER, AS FAR AS PRESENT PENALTY PROCEEDINGS U/S 271AAB ARE CONCERNED WHICH IS SOLELY BASED ON THE SEARCH PROCE EDINGS AND ANYWAYS INDEPENDENT OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER IS REQUIRED TO GIVE A SPECIFIC FI NDING THAT THERE IS AN UNDISCLOSED INCOME FOUND DURING THE COURSE OF SE ARCH IN TERMS OF UNDISCLOSED STOCK AND WHICH HAS NOT BEEN RECORDE D IN THE BOOKS OF ACCOUNT. THE UNDISCLOSED STOCK COULD BE IN TERMS OF PHYSICALLY IDENTIFIABLE STOCK NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS OR THE STOCK NOT FOUND RECORDED AT THE APP ROPRIATE VALUE SO DETERMINED BY THE ASSESSING OFFICER. IN THE INST ANT CASE, WE FIND THAT THE ASSESSING OFFICER HAS MERELY GONE BY THE SURRENDER STATEMENT WHERE THE STOCK HAS BEEN VALUED AT MARKET PRICE PREVAILING AS ON THE DATE OF SEARCH AND HAS NOT EXA MINED THE MATTER FROM THE PERSPECTIVE OF DETERMINING ANY EXCE SS STOCK AND THE COST OF SUCH STOCK WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNTS. THERE IS NO FINDING THAT THERE IS ANY EX CESS STOCK WHICH HAS BEEN PHYSICALLY FOUND AND WHICH HAS NOT B EEN RECORDED IN THE BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH. IN LIGHT OF ABOVE DISCUSSIONS, IT IS THUS CLEAR THAT D IFFERENCE IN STOCK OF GOODS AS PER BOOKS AND AS FOUND AT THE TIME OF S EARCH IS ON ACCOUNT OF VALUATION OF SUCH STOCK AT THE MARKET VA LUE INSTEAD OF COST AND THE SAME CANNOT BE A BASIS TO HOLD THAT IT REPRESENT UNDISCLOSED INCOME SO DEFINED IN EXPLANATION TO SEC TION 271AAB OF THE ACT. THE CO-ORDINATE BENCH IN CASE OF SHRI P ADAM CHAND PUNGLIYA, JAIPUR VS. ACIT, JAIPUR (SUPRA) HAS DEALT WITH AN IDENTICAL ISSUE AND RELEVANT FINDINGS ARE CONTAINED AT PARA 9 OF ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 15 THE SAID DECISION WHEREIN THE CO-ORDINATE BENCH HAS HELD AS UNDER:- 9. AS REGARDS THE UNDISCLOSED INCOME ON ACCOUNT OF EXCESS STOCK, WE NOTE THAT DURING THE COURSE OF SEARCH AND SEIZURE ACTION THE DEPARTMENT HAS GOT VALUED THE STOCK OF T HE ASSESSEE FROM THE DEPARTMENTAL VALUER. WE FIND THAT IN THE VALUATION REPORT THE VALUER HAS NOT MADE ANY ATTEMP T TO FIND OUT THE NET WEIGHT BUT ALL THE ARTICLES ARE TA KEN AT GROSS WEIGHT ON WHICH THE PREVAILING MARKET PRICES AS ON THE DATE OF SEARCH WERE APPLIED. THUS IT IS CLEAR T HAT THE DIFFERENCE IN THE CLOSING STOCK WAS DUE TO THE VALU ATION DETERMINED BY THE DEPARTMENTAL VALUER BASED ON THE GROSS WEIGHT AND PREVAILING MARKET PRICES IN COMPARISON T O THE VALUE RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCO UNT. WE FURTHER NOTE THAT IN THE ENTIRE VALUATION REPORT AND IN THE PROCEEDINGS OF THE SEARCH AND SEIZURE, THE DEPA RTMENT HAS NOT MADE ANY ALLEGATION THAT THERE WAS ANY DISCREPANCY IN THE QUANTITY OF THE STOCK FOUND DURI NG THE COURSE OF SEARCH AND SEIZURE AND THE STOCK RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. ONCE THE STOCK WH ICH IS RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AN D THE STOCK PHYSICALLY FOUND AT THE TIME OF SEARCH HAS NO DISCREPANCY IN TERMS OF QUANTITY, THEN ONLY BECAUSE OF DIFFERENCE IN VALUATION DONE BY THE DEPARTMENTAL VA LUER WOULD NOT AMOUNT TO UNDISCLOSED INCOME BASED ON THE DEFINITION AS PER EXPLANATION TO SECTION 271AAB OF THE ACT. THEREFORE, ONCE THE STOCK IS FOUND RECORDED IN THE BOOKS OF ACCOUNT, IT DOES NOT FALL IN THE CATEGORY OF VALUAB LE ARTICLE ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 16 OR THINGS WHICH HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOC UMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PR EVIOUS YEAR. FOR READY REFERENCE, WE QUOTE THE DEFINITION AS PROVIDED IN CLAUSE (C) OF EXPLANATION TO SECTION 27 1AAB OF THE ACT AS UNDER :- (A) XXXX XXXXX XXXXX (B) XXXXX XXXXX XXXXXX (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 THI NG 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[PRINCIPAL 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 YE AR ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 17 WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED. THEREFORE, THE STOCK WHICH WAS FOUND AT THE TIME OF SEARCH AND SEIZURE WAS NOT DISPUTED BY THE DEPARTMENT THAT THE SAME HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ONCE THE STOCK IS RECORDED IN THE BOOKS O F ACCOUNT AND NO DISCREPANCY IS FOUND AS FAR AS QUANT ITY OF STOCK, THEN THE DIFFERENCE OF VALUATION WOULD NOT A MOUNT TO UNDISCLOSED INCOME IN TERMS OF DEFINITION PRESCRIBE D IN THE EXPLANATION TO SECTION 271AAB OF THE ACT. THE COORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. RAMBHAJO S VS. ACIT (SUPRA) HAS CONSIDERED THE IDENTICAL ISSUE IN PARA 38 AS UNDER:- 38. FIRSTLY, REGARDING STOCK OF KUNDAN MEENA, AND DIAMOND AND OTHER GEMSTONES STUDDED JEWELLERY WHICH HAS BEEN SURRENDERED DURING THE COURSE OF SEARCH, WHAT HAS TO BE DETERMINED IS THE INCOME WHICH IS REPRESENTED BY SUCH STOCK OF JEWELLERY WHICH IS NOT FOUND RECORDED IN T HE BOOKS OF ACCOUNTS MAINTAINED IN THE NORMAL COURSE RELATIN G TO SUCH PREVIOUS YEAR. IN OTHER WORDS, THE VALUE AT WH ICH SUCH STOCK HAS BEEN ACQUIRED BY THE ASSESSEE AND NOT THE VALUE WHICH SUCH STOCK CAN FETCH IN THE MARKET OR THE FAI R MARKET VALUE OF SUCH STOCK. IN THE INSTANT CASE, IT HAS BE EN CONTENDED THAT THE VALUATION OF THE STOCK HAS BEEN DONE AT MARKET RATE AS ON THE DATE OF SEARCH WITHOUT CONSID ERING THE COST DISCLOSED IN THE BOOKS OF ACCOUNTS AND WIT HOUT CONSIDERING THE WELL-ACCEPTED ACCOUNTING POLICY WHI CH HAS ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 18 BEEN FOLLOWED BY THE ASSESSEE FIRM WHERE IT VALUES ITS STOCK AT LOWER OF COST AND NET REALIZABLE VALUE. THE COST CAN BE DETERMINED ON THE BASIS OF HISTORICAL AND/OR CURREN T COST SO RECORDED IN THE BOOKS OF ACCOUNTS. ALTERNATIVELY, P AST GROSS PROFIT PERCENTAGE CAN ALSO GIVE A REASONABLE BASIS FOR DETERMINING SUCH COST. IN THE INSTANT CASE, THE LD AR HAS CONTENDED THAT WHERE GROSS PROFIT OF THE PAST YEAR DETERMINED AT THE RATE OF 13.92% IS USED AND APPLIE D TO THE STOCK VALUED BY THE REVENUE AT THE CURRENT MARK ET VALUE, IT WILL RESULT IN A SCENARIO WHERE THE STOCK AS PER BOOKS OF ACCOUNT IS HIGHER THAN THE STOCK VALUED AT THE TIME OF SEARCH. AS PER COMPUTATION PREPARED WHICH W E HAVE NOTED ABOVE, WE FIND THAT STOCK (INCLUDING STO CK OF SILVER JEWELLERY) AS PER BOOKS OF ACCOUNTS COMES TO RS 35,11,24,031 AS AGAINST RS 34,27,22,924 VALUED BY T HE DEPARTMENT AT THE TIME OF SEARCH AND THEREFORE, CON TENTION SO ADVANCED BY THE LD AR IS FOUND REASONABLE. ANOTH ER ASPECT WHICH HAS BEEN SUBMITTED BY THE ASSESSEE REL ATES TO NON-DEDUCTION ON ACCOUNT OF CHAPADI, WAX ETC FOR TH E KUNDAN MEENA JEWELLERY WHILE PHYSICALLY WEIGHING TH E JEWELLERY. IT WAS SUBMITTED BY THE LD AR THAT THE S AID FACT WAS DULY BROUGHT TO THE NOTICE OF ASSESSING OFFICER VIDE WRITTEN SUBMISSION DATED 15.12.2015, HOWEVER, THE S AME HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. I N OUR VIEW, GIVEN THAT THE ASSESSEE HAS DISCLOSED THE WHO LE OF THE AMOUNT SURRENDERED DURING THE COURSE OF SEARCH IN ITS RETURN OF INCOME, THE AMOUNT SO SURRENDERED AND DIS CLOSED IN THE RETURN OF INCOME HAS RIGHTLY BEEN BROUGHT TO TAX IN ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 19 THE QUANTUM PROCEEDINGS. HOWEVER, AS FAR AS PENALTY PROCEEDINGS ARE CONCERNED, THE ASSESSING OFFICER IS REQUIRED TO GIVE A SPECIFIC FINDING THAT THERE IS A N UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARC H AND WHICH HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNT . IN THE INSTANT CASE, WE FIND THAT THE ASSESSING OFFICE R HAS MERELY GONE BY THE SURRENDER STATEMENT AND HAS NOT EXAMINED THE MATTER FROM THE PERSPECTIVE OF DETERMI NING THE COST OF SUCH STOCK AND THE QUANTIFICATION THERE OF AFTER ALLOWING DEDUCTION FOR CHAPADI, WAX, ETC. WHICH IS A WELL ESTABLISHED STEP AS PART OF VALUATION METHODOLOGY O F SUCH KIND OF JEWELLERY AND WHICH HAS BEEN FOLLOWED AT OT HER LOCATIONS EXCEPT AT JAIPUR. THERE IS NO FINDING THA T THERE IS ANY EXCESS STOCK WHICH HAS BEEN PHYSICALLY FOUND AN D WHICH HAS NOT BEEN FOUND RECORDED IN THE BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH. IN LIGHT OF ABOV E DISCUSSIONS, IT IS THUS CLEAR THAT DIFFERENCE IN ST OCK OF JEWELLERY AND SILVER ITEMS AS PER BOOKS AND AS FOUN D AT THE TIME OF SEARCH IS ON ACCOUNT OF VALUATION OF SUCH S TOCK AT THE MARKET VALUE INSTEAD OF COST AND SUCH VALUATION DIFFERENCE AND ON ACCOUNT OF NON-DEDUCTION OF CHAPA DI, WAX, ETC WHILE WEIGHING THE KUNDAN MEENA JEWELLERY AND THE SAME CANNOT BE A BASIS TO HOLD THAT IT REPRESEN T UNDISCLOSED INCOME SO DEFINED IN EXPLANATION TO SEC TION 271AAB OF THE ACT AND THE PENALTY LEVIED THEREON IS LIABLE TO BE SET-ASIDE. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE AND FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 20 WE HOLD THAT THE AMOUNT REPRESENTING THE EXCESS STO CK BASED ON THE VALUATION OF THE DEPARTMENTAL VALUER C ANNOT BE REGARDED AS UNDISCLOSED INCOME IN TERMS OF DEFIN ITION PROVIDED IN THE EXPLANATION TO SECTION 271AAB OF TH E ACT. HENCE, THE PENALTY LEVIED AGAINST SUCH AMOUNT IS NO T SUSTAINABLE. IN LIGHT OF AFORESAID DISCUSSIONS AND IN THE ENTIRE TY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY LEVIED U/S 2 71AAB IS NOT SUSTAINABLE AND THE ORDERS OF THE LOWER AUTHORITIES ARE SET-ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 10. IN THE INSTANT CASE AS WELL, WE FIND THAT THE A SSESSING OFFICER HAS MERELY GONE BY THE SURRENDER STATEMENT OF PARTNER O F THE ASSESSEE FIRM WHERE THE STOCK HAS BEEN VALUED AT MARKET PRICE AS ON THE DATE OF SEARCH AND HAS NOT EXAMINED THE MATTER FROM THE PER SPECTIVE OF DETERMINING ANY EXCESS STOCK AND THE COST OF SUCH S TOCK WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNTS. THERE IS NO FIN DING THAT THERE IS ANY EXCESS STOCK WHICH HAS BEEN PHYSICALLY FOUND AND WH ICH HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH. THEREFORE, BASIS THE FACTS EMERGING FROM THE RECORDS, IT IS CL EAR THAT DIFFERENCE IN STOCK OF GOODS AS PER BOOKS AND AS FOUND AT THE TIM E OF SEARCH IS ON ACCOUNT OF VALUATION OF SUCH STOCK AT THE MARKET VA LUE INSTEAD OF COST AND THE SAME CANNOT BE A BASIS TO HOLD THAT IT REPR ESENT UNDISCLOSED INCOME SO DEFINED IN EXPLANATION TO SECTION 271AAB OF THE ACT. IN LIGHT OF THE SAME, IN THE ENTIRETY OF FACTS AND CIRCUMSTA NCES OF THE CASE AND FOLLOWING THE DECISION REFERRED SUPRA, THE PENALTY LEVIED U/S 271AAB IS NOT SUSTAINABLE AS IT DOESNT SATISFY THE REQUIREME NTS AS SO PRESCRIBED ITA NO. 851/JP/2018 M/S SUMATI GEMS, JAIPUR VS. DCIT, JAIPUR 21 UNDER SECTION 271AAB AND THE ORDERS OF THE LOWER AU THORITIES ARE SET- ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/08/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 07/08/2020 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S SUMATI GEMS, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CENTRAL CIRCLE-02, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 851/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR