SHRI DINESH KUMAR AGARAWAL, JAIPUR V. ASSISTNAT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 856/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6279 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 20-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S NEHRA
• Assessee Lawyers: S L PODDAR; ISHA KANUNGO
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Salary income; Document seized; Opportunity of being heard; Principle of natural justice; Bonafide belief; Source of fund; Retrospective amendment; Question of law; Initiation of penalty proceedings; Reasonable cause; Valuation report; Non compliance; Documents seized; Bonafide mistake
• Section: 44AD; 143(3); 153A; 27; 132; 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 FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK L NL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 855 & 856/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2013-14 & 2014-15 SHRI DINESH KUMAR AGARWAL 867, GANGA MATA KI GALI, GOPAL JI KA RASTA, JOHARI BAZAR, JAIPUR. CUKE VS. THE ACIT, CENTRAL CIRCLE-1, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABSPA 0183 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S.L. PODDAR (ADV.) & MS ISHA KANUNGO (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SRI A.S. NEHRA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 09/07/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 24/07/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THESE TWO APPEAL BY THE ASSESSEE ARE DIRECTED AGAI NST SEPARATE ORDERS OF CIT (A), JAIPUR BOTH DATED 01.11.2017 ARI SING FROM PENALTY ORDER PASSED U/S 271AAB OF THE IT ACT FOR THE ASSES SMENT YEARS 2013- 14 & 2014-15 RESPECTIVELY. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 2 FIRST, WE TAKEN UP ASSESSEES APPEAL IN ITA NO. 85 5/JP/2017 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN PASSED THE ORDER U/S 271AAB OF THE INCOME TAX ACT, 1961 WHICH IS VOID AB-INITO DESERVES TO BE QUA SHED. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LE ARNED ASSESSING OFFICER IN IMPOSING THE PENALTY OF RS. 81 ,34,155/- U/S 271AAB OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF H EARING. THE ASSESSEE HAS ALSO RAISED THE ADDITIONAL GROUND WHICH READS AS UNDER:- UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LEA RNED ASSESSING OFFICER U/S 271AAB OF THE INCOME TAX ACT ON THE BAS IS OF NOTICES DATED 28.07.2016 & 04.02.2016 WHICH ARE VOID-AB-INI TIO 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. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT TH E ADDITIONAL GROUND COULD NOT BE TAKEN IN FORM NO. 36 DUE TO INA DVERTENCE AND BONAFIDE MISTAKE. FURTHER, THE ADDITIONAL GROUND GO ES TO THE ROOT OF THE MATTER AND DOES NOT REQUIRE ANY FRESH INVESTIGATION OF FACT BUT THE ISSUE RAISED IN THE ADDITIONAL GROUND IS PURELY LEGAL IN NATURE AND CAN BE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 3 ADJUDICATED ON THE BASIS OF THE FACTS AVAILABLE ON RECORD. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF T HE HONBLE SUPREME COURT IN CASE OF NATIONAL THERMAL POWER CO. LTD VS. CIT 229 ITR 383 AND SUBMITTED THAT THE HONBLE SUPREME COURT HAS H ELD THAT THE TRIBUNAL HAS THE DISCRETION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED AND WHERE THE TRIBUNAL IS ONLY REQUIRED TO C ONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN T HE ASSESSMENT PROCEEDINGS SUCH A QUESTION SHOULD BE ALLOWED TO BE RAISED. IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO COR RECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. HE HAS ALSO RELIED UPON T HE DECISION OF SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN CASE OF MAHINDRA & MAHINDRA LTD. VS DY. CIT 122 TTJ 577 AND SUBMITTED THAT THE SPECIAL BENCHE HAS HELD THAT THERE CAN BE NO EMBARGO ON ANY PARTY TO R AISE A LEGAL GROUND FOR THE FIRST TIME BEFORE THE TRIBUNAL PROVIDED THE RELEVANT MATERIAL FOR DECIDING THAT QUESTION ALREADY EXISTS ON RECORD AND NO FURTHER INVESTIGATION OF FACT IS REQUIRED. HENCE, THE LD. A R HAS PLEADED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE MAY BE ADM ITTED FOR ADJUDICATION ON MERITS. 3. ON THE OTHER HAND, LD. DR HAS VEHEMENTLY OPPOSED TO THE ADMISSION OF ADDITIONAL GROUND AND SUBMITTED THAT W HEN THE ASSESSEE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 4 HAS NOT RAISED THIS SPECIFIC ISSUE BEFORE THE AUTHO RITIES BELOW THEN, IN THE ABSENCE OF THE REASONS WHICH HAVE PREVENTED FRO M RAISING SUCH GROUND BEFORE THE AUTHORITIES BELOW THE ADDITIONAL GROUND RAISED AT THIS STAGE CANNOT BE ADMITTED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND WAS VERY MUCH BEFORE THE LD. CIT( A). THE LD. CIT(A) HAS NOTED AT PAGE 8 AND 9 OF THE IMPUGNED ORDER AS UNDER:- THE APPELLANT HAS RAISED AN OBJECTION THAT SPECIF IC SUB-SECTION OR SUBMISSIONS-CLAUSE OF 271AAB WAS NOT SPECIFIED W HILE INITIATING THE PENALTY HAS NO BASIS AS DIFFERENT SUB-CLAUSE PE RTAIN TO RATE OF IMPOSITION OF PENALTY AND IT DOES NOT CHANGE THE QU ALITATIVE ASPECT OF IMPOSITION OF PENALTY U/S 271AAB. THE REL IANCE ON MANJUNATH COTTON & GINNING [259 ITR 565] HAS NO BEA RING ON THE CASE AS JUDGMENT WAS DELIVERED IN CONTEXT OF U/S 27 1(I)(C). IT IS CLEAR FROM THE DISCUSSION ABOVE THAT PENALTY U/S 271AAB IS MANDATORY PENALTY AND THERE IS NO DISCRETION WITH T HE INCOME TAX AUTHORITIES. IN VIEW OF THE ABOVE THE PENALTY IMPOS ED OF RS. 81,34,155/- BY THE AO IS CORRECT AND IS UPHELD. THUS, THE ISSUE RAISED IN THE ADDITIONAL GROUND IS NOT A FRESH PLEA RAISED BEFORE THIS TRIBUNAL BUT IT WAS VERY MUCH RAISED BE FORE THE LD. CIT(A). FURTHER, THE SAID ISSUE IS PURELY LEGAL IN NATURE A ND CAN BE DECIDED ON THE BASIS OF THE FACTS AVAILABLE ON RECORD. SINCE, NO FURTHER INVESTIGATION OF FACT IS REQUIRED FOR ADJUDICATION OF THE ISSUE R AISED IN THE ADDITIONAL ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 5 GROUND, THEREFORE, IN THE FACTS AND CIRCUMSTANCES O F THE CASE AND IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CA SE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT(SUPRA) AS WELL AS TH E DECISION OF SPECIAL BENCH MUMBAI TRIBUNAL IN CASE OF MAHINDRA & MAHINDR A LTD. VS. DCIT (SUPRA) WE ADMIT THE ADDITIONAL GROUND FOR ADJUDICA TION ON MERITS. 5. ADDITIONAL GROUND ON MERITS :- THE ASSESSEE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF GOLD ORNAMENTS AND JEWELRIES. A SEARCH U/S 132 OF THE ACT WAS CONDUCTE D ON 03.04.2013. DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDING THE ASSESSEE DISCLOSED AND SURRENDERED INCOME OF RS. 11 CRORES O UT OF WHICH THE INCOME OF RS. 8,13,41,547/- WAS SURRENDERED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2013-14. THE ASSESSEE FILE D HIS RETURN OF INCOME IN RESPONSE TO NOTICE U/S 153(A) AND OFFERED THE SURRENDER INCOME OF RS. 8,13,41,547/- TO TAX. THE AO COMPLETE D THE ASSESSMENT ON THE RETURN OF INCOME. SUBSEQUENTLY, THE AO INITI ATED THE PENALTY PROCEEDING U/S 271AAB OF THE ACT BY ISSUING A SHOW CAUSE NOTICE DATED 04.02.2016 AND THEREAFTER 28.07.2016. THE ASSESSEE IN THE ADDITIONAL GROUND HAS RAISED THE ISSUE OF VALIDITY OF INITIATI ON OF PROCEEDINGS ON THE GROUND THAT THE ASSESSING OFFICER HAS NOT SPECIFIED THE GROUNDS FOR LEVY OF PENALTY AND EVEN HAS NOT SPECIFIED THE CLAUSE OF SECTION 271AAB OF ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 6 THE ACT FOR LEVY OF PENALTY EQUIVALENT 10% OR 20% O R 30% OF THE UNDISCLOSED INCOME. THE ASSESSING OFFICER WAS NOT H AVING CLARITY REGARDING THE DEFAULT OF THE ASSESSEE WHICH LED HIM TO INITIATE PENALTY PROCEEDING VAGUELY WITHOUT SPECIFICALLY MENTIONING THE CLAUSES UNDER WHICH DEFAULT OF THE ASSESSEE WERE COVERED. THE ASS ESSING OFFICER COULD NOT HAVE ASKED THE ASSESSEE TO SHOW CAUSE FOR ALL T HE THREE DIFFERENT CLAUSES OF SECTION 271AAB OF THE I.T. ACT. IT IS SE TTLED PRINCIPLE OF LAW THAT THE ASSESSEE SHOULD HAVE BEEN SPECIFICALLY ASK ED TO REPLY ON DEFAULT WITH REFERENCE TO THE SPECIFIC PROVISION OF THE INCOME TAX ACT, 1961. THIS IS SO AS PER THE DECISION IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 WHICH HAS BEEN FOLLOWED BY THE HONBLE TRIBUNAL JAIPUR BENCH IN THE CASE OF MRADULA AGARWA L VS. INCOME TAX OFFICER IN ITA NO. 176/JP/2016 DATED 16.09.2016. TH E ASSESSING OFFICER HAS IMPOSED PENALTY U/S 271AAB(1)(A) BUT ASSESSEE W AS NOT ISSUED ANY SHOW CAUSE NOTICE MENTIONING THIS SPECIFIC SECTION NOR THE PENALTY PROCEEDINGS WERE INITIATED IN THE ASSESSMENT ORDER MENTIONING SECTION 271AAB(1)(A). IN VIEW OF THESE ILLEGALITIES THE LEV Y OF PENALTY DESERVES TO BE DELETED. THE ASSESSING OFFICER ISSUED THE FOL LOWING TWO SHOW CAUSE NOTICES SCANNED BELOW WHICH DO NOT DISCLOSE T HAT ASSESSEE WAS REQUIRED TO SHOW CAUSE SPECIFICALLY FOR DEFAULT U/S 271AAB(1)(A) OF THE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 7 ACT. IN VIEW OF THE ABOVE FACTS THE PENALTY PROCEED ING WAS NOT INITIATED, VALIDITY AND BEFORE IMPOSITION OF PENALTY SHOW CAUS E NOTICES WERE NOT ISSUED VALIDITY AS THERE WAS NO SPECIFIC MENTION OF SECTION 271AAB(1)(A) FOR WHICH THE ASSESSING OFFICER SUBSEQUENTLY IMPOSE D THE PENALTY. THE ASSESSEE WAS NOT AWARE TO PUT HIS DEFENSE FOR DIS-L EVY OF PENALTY. IT IS THE SUBMISSION OF THE ASSESSEE THAT A DUTY WAS CAST UPON THE ASSESSING OFFICER TO INITIATE PENALTY PROCEEDINGS SPECIFICALL Y AND SEEK REPLY OF THE ASSESSEE ACCORDINGLY. BUT NOTHING WAS DONE OF THIS SORT. THUS, THE INITIATION OF THE PENALTY PROCEEDING ITSELF WAS UNL AWFUL, ILLEGAL AND UNJUST. IN THE CIRCUMSTANCES THE LEVY OF PENALTY WA S NOT JUSTIFIED AND LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY. THE SAME DESERVED TO BE DELETED. 6. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ONCE THE ASSES SEE HAS DISCLOSED THE INCOME DURING THE SEARCH AND SEIZURE PROCEEDING AND IN THE STATEMENT MADE U/S 132(4) OF THE ACT BASED ON THE S EIZED MATERIAL THEN, THE DISCLOSURE MADE BY THE ASSESSEE ON THE BA SIS OF INCRIMINATING MATERIAL ITSELF IS THE ADMISSION ON THE PART OF THE ASSESSEE REGARDING A DISCLOSURE INCOME AS WELL AS CONSEQUENTIAL LIABILIT Y TO PAY TAX AS WELL AS PENALTY U/S 271AAB OF THE ACT. THE ASSESSEE HIMSELF SURRENDERED THE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 8 INCOME AND FULFILLED THE CONDITION AS REQUIRED FOR LEVY OF PENALTY UNDER THE PROVISION OF SECTION 271AAB OF THE ACT THEN, TH ERE IS NO REQUIREMENT OF MAKING THE ASSESSEE KNOWN ABOUT THE CONSEQUENCE OF THE SURRENDER OF UNDISCLOSED INCOME. THE SURRENDER IN QUESTION WAS MADE BECAUSE THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOUR CE OF THE INVESTMENT IN QUESTION. IT IS CLEAR CASE OF UNDISCLOSED INCOME DE TECTED DURING THE COURSE OF SEARCH AND SEIZURE ACTION AND, THEREFORE, THE SURRE NDER MADE BY THE ASSESSEE ITSELF IS SELF-EXPLANATORY TO THE NATURE OF INCOME SURRENDERED BY THE ASSESSEE. THE LD. D/R HAS CONTENDED THAT THE ASSESSEE HAS PAR TICIPATED IN THE PENALTY PROCEEDINGS AND HAS NOT RAISED ANY OBJECTION OR HAS DEMANDED BEFORE THE AO ABOUT HIS UNAWARENESS OF THE NATURE OF DEFAULT ATTR ACTING THE LEVY OF PENALTY UNDER SECTION 271AAB. IT IS NOT THE CASE OF THE ASS ESSEE THAT THE DISCLOSURE WAS TAKEN UNDER COERCION AND FURTHER THE ASSESSEE H AS OFFERED THE SAID AMOUNT TO TAX IN THE RETURN OF INCOME WHICH RULES O UT THE SCOPE OF ANY PRESSURE OR COERCION BY THE SEARCH TEAM FOR TAKING DISCLOSURE FROM THE ASSESSEE. THUS THE OBJECTION RAISED BY THE ASSESSE E THAT THE AO HAS NOT SPECIFIED THE CLAUSE UNDER SECTION 271AAB(1) OF THE ACT HAS NO MERIT WHEN THE ASSESSEE HIMSELF HAS EXPLAINED THE NATURE OF IN COME DISCLOSED AND SURRENDERED AND ALSO PAID THE TAX ON THE SAME. THE LD. D/R HAS SUBMITTED THAT AS PER THE EXPLANATORY NOTE OF FINANCE BILL, 2 012, THE PROVISIONS OF SECTION 271AAB ARE MANDATORY IN NATURE AND AO HAS N O DISCRETION BUT THE ASSESSEE SHALL PAY THE PENALTY IN ADDITION TO THE T AX ON THE UNDISCLOSED ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 9 INCOME SURRENDERED UNDER SECTION 132(4) OF THE ACT. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. THE LD. AR HAS ALSO RAISED THE ISSUE OF LEVY OF PENALTY IS NOT AUTOMATIC BUT THE ASSESSING OFFICER HAS TO EXAMINE ALL THE FACTS AND RECORD AND THEN TO TAKE A DECISION WHETHER IT IS A FIT FACT FOR LEVY OF PENALTY U/S 271AAB. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD WE NOTE THAT THERE IS NO QUARREL ON THE FACT THAT IN THE SHOW CAUSE ISSUE U/S 271AAB R.W.S. 274 OF THE 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 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 CONSIDERED BY THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT VIDE ORDER DATED 13.06.2018 IN ITA NO. 969/JP/2017 IN PARAS 4 TO 7 AS UNDER:- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. A SEARCH WAS CONDUCTED UNDER S ECTION 132 OF THE IT ACT ON 30 TH OCTOBER, 2014 AT THE PREMISES OF THE ASSESSEE. TH E ASSESSEE IN HIS STATEMENT RECORDED UNDER SECTION 13 2(4) HAS DISCLOSED ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 10 AN INCOME OF RS. 10,02,00,000/- IN PURSUANT TO THE ENTRIES OF ADVANCES GIVEN FOR PURCHASE OF LAND RECORDED IN THE POCKET D IARY WHICH WAS FOUND AND SEIZED DURING THE COURSE OF SEARCH AND SE IZURE ACTION. THIS IS YEAR OF SEARCH AND THE FINANCIAL YEAR WOULD END ON 31 ST MARCH, 2015. HOWEVER, THE ASSESSEE DISCLOSED THIS AMOUNT OF RS. 10,02,00,000/- BASED ON THE ENTRIES IN THE DIARY REGARDING INVESTM ENT IN REAL ESTATE. THE DUE DATE OF FILING OF RETURN OF INCOME UNDER SE CTION 139(1) WAS 30 TH SEPTEMBER, 2015. IT IS UNDISPUTED FACT THAT THE A SSESSEE IS AN INDIVIDUAL AND WAS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT. THEREFORE, THE TRANSACTIONS RECORDED IN THE POCKET DIARY FOUND DURING THE COURSE OF SEARCH ITSELF WOULD NOT LEAD TO THE P RESUMPTION THAT THE ASSESSEE WOULD NOT HAVE OFFERED THIS INCOME TO TAX IF THE SEARCH IS NOT CONDUCTED ON 30 TH OCTOBER, 2014. FURTHER, THE ENTRIES IN THE DIARY ITSELF DO NO NOT REPRESENT THE INCOME OF THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION THOUGH THE ASSESSEE WAS REQUIRE D TO EXPLAIN THE SOURCE OF INVESTMENT IN QUESTION AND THAT SOURCE WO ULD BE THE INCOME OF THE ASSESSEE. IT IS MOST LIKELY THAT THE INVEST MENT IN QUESTION WAS MADE FROM THE UNACCOUNTED INCOME OF PRECEDING YEARS . HENCE THE INVESTMENT IN THE REAL ESTATE ITSELF WOULD NOT REVE AL THE NATURE OF INCOME AND THE SOURCE OF INCOME OF THE YEAR UNDER C ONSIDERATION. IT IS A PRE-CONDITION FOR INVOKING THE PROVISIONS OF SECT ION 271AAB THAT THE ASSESSEE ADMITTED THE UNDISCLOSED INCOME IN THE STA TEMENT UNDER SECTION 132(4). THE DEFINITION OF UNDISCLOSED IN COME IS PROVIDED IN SECTION 271AAB ITSELF AND, THEREFORE, THE AO IN THE PROCEEDINGS UNDER SECTION 271AAB HAS TO EXAMINE ALL THE FACTS OF THE CASE AND THEN ARRIVE TO THE CONCLUSION THAT THE INCOME DISCLOSED BY THE ASSESSEE FALLS IN THE DEFINITION OF UNDISCLOSED INCOME AS STIPULATED IN THE EXPLANATION TO SAID SECTION. THE FIRST QUESTION ARISES IS WHETHER THE LEVY OF PENALTY UNDER SECTION 271AAB IS MANDATORY AND CONSEQUENTIAL TO THE DISCLOSURE OF INCOME BY THE ASSESSEE UNDER SECTION 132(4) OR T HE AO HAS TO TAKE A DECISION WHETHER THE GIVEN CASE HAS SATISFIED TH E REQUIREMENTS FOR LEVY OF PENALTY UNDER SECTION 271AAB OF THE ACT. IN ORDER TO CONSIDER THIS ISSUE, THE PROVISIONS OF SECTION 271AAB ARE TO BE ANALYZED. FOR READY REFERENCE, WE QUOTE SECTION 271AAB AS UNDER : - 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTAND ING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 49 [BUT BEFORE THE DATE ON WHICH THE TAXATION LAWS (SECOND AMENDMENT) BILL, 2016 RECEIVES THE ASSENT OF ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 11 THE PRESIDENT 50 ], THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADD ITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN 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 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES 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 IN TEREST, IF ANY, IN RESPECT 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 TH E 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; (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 B Y THE 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 PR ESIDENT, 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 CEN T OF THE 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 ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 12 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 W ITH INTEREST, IF ANY, IN RESPECT 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 SIXTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED UNDER THE PROVISIONS OF CLAUSE (A).] (2) NO PENALTY UNDER THE PROVISIONS OF 53 [ SECTION 270A OR] CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF 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 NOTICE ISSUED UNDER SECTION 153A FOR FURNISHING OF RETURN OF INCOME EXPIRES, AS THE CASE MAY BE; (B) 'SPECIFIED PREVIOUS YEAR' MEANS THE PREVIOUS YEAR (I) WHICH HAS ENDED BEFORE THE DATE OF SEARCH, BUT THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 FOR SUCH YEAR HAS NOT EXPIRED BEFORE THE DATE OF SEARCH AND THE ASSESSEE HAS NOT FURNISHED THE RETURN OF INCOME FOR THE PREVIOUS YEAR BEFORE THE DATE OF SEARCH; OR (II) IN WHICH SEARCH WAS CONDUCTED; (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENT ED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY O R OTHER 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 , WHIC H HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH I N THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN T HE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 13 NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE 54 [P RINCIPAL 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 RECORDED IN THE BOOK S OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NOR MAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FO UND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH N OT BEEN CONDUCTED.] THE SECTION BEGINS WITH THE STIPULATION THAT THE AO MAY DIRECT THE ASSESSEE SHALL PAY BY WAY OF PENALTY IF THE CONDITI ONS AS PRESCRIBED UNDER CLAUSES (A) TO (C) ARE SATISFIED. AS PER SUB -SECTION (3) OF SECTION 271AAB THE PROVISIONS OF SECTION 274 AND 275 AS FAR AS MAY BE APPLIED IN RELATION TO THE PENALTY REFERRED IN THIS SECTION WHICH MEANS THAT BEFORE IMPOSING THE PENALTY UNDER SEC. 271AAB, THE AO HAS TO ISSUE A SHOW CAUSE NOTICE AND GIVE A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THE LEVY OF PENALTY U/S. 271AAB IS N OT AUTOMATIC BUT THE A.O. HAS TO TAKE A DECISION TO IMPOSE THE PENAL TY AFTER GIVING A PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS STATUTORY REQUIREMENT THAT THE EXPLANATION OF THE ASSESSEE FO R NOT FULFILLING THE CONDITIONS AS PRESCRIBED U/S 271AAB OF THE ACT IS R EQUIRED TO BE CONSIDERED BY THE AO AND PARTICULARLY WHETHER THE E XPLANATION FURNISHED BY THE ASSESSEE IS BONAFIDE AND NON-COMPL IANCE OF THE SAME IS DUE TO THE REASON BEYOND THE CONTROL OF THE ASSE SSEE. THEREFORE, THE PENALTY U/S 271AAB IS NOT A CONSEQUENTIAL ACT BUT T HE AO HAS TO FIRST INITIATE PROCEEDINGS BY ISSUING A SHOW CAUSE NOTICE AND AFTER CONSIDERING THE EXPLANATION AND REPLY OF THE ASSESS EE HAS TO TAKE A DECISION. THIS REQUIREMENT OF GIVING AN OPPORTUNIT Y OF HEARING ITSELF MAKES IT CLEAR THAT THE PENALTY U/S 271AAB IS NOT M ANDATORY BUT THE AO HAS TO TAKE A DECISION BASED ON THE FACTS AND CI RCUMSTANCES OF THE CASE OTHERWISE THERE IS NO REQUIREMENT OF ISSUING A NY NOTICE FOR INITIATION OF PROCEEDINGS BUT THE LEVY OF PENALTY W OULD BE CONSEQUENTIAL AND ONLY COMPUTATION OF THE QUANTUM WAS TO BE DONE BY THE AO AS IN THE CASE OF LEVY OF INTEREST AND FEE U/S 234A TO E. EVEN THE QUANTUM ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 14 OF PENALTY LEVIABLE U/S 271AAB IS ALSO SUBJECT TO T HE CONDITION PRESCRIBED UNDER CLAUSES (A) TO (C) OF SUB-SECTION (1) AND THE AO HAS TO AGAIN GIVE A FINDING FOR LEVY OF PENALTY @ 10% O R 20% OR 30% OF THE UNDISCLOSED INCOME. THUS THE AO IS BOUND TO TA KE A DECISION AS TO WHAT DEFAULT IS COMMITTED BY THE ASSESSEE AND WHICH PARTICULAR CLAUSE OF SECTION 271AAB(1) IS ATTRACTED ON SUCH DEFAULT. FURTHER, MERE DISCLOSURE OF INCOME UNDER SECTION 132(4) WOULD NOT IPSO FACTO PAR TAKE THE CHARACTER OF UNDISCLOSED INCOME BUT THE FA CTS OF EACH CASE ARE REQUIRED TO BE ANALYZED IN OBJECTIVE MANNER SO AS T O ATTRACT THE PROVISIONS OF SECTION 271AAB OF THE ACT. SINCE IT IS NOT AUTOMATIC BUT THE AO HAS TO GIVE A FINDING THAT THE CASE OF THE A SSESSEE FALLS IN THE AMBIT OF UNDISCLOSED INCOME AS DEFINED IN EXPLANATI ON TO THE SAID SECTION. THEREFORE, THE PROVISIONS OF SECTION 271A AB STIPULATE THAT THE AO MAY COME TO THE CONCLUSION THAT THE ASSESSEE SHA LL PAY THE PENALTY. THE ONLY MANDATORY ASPECT IN THE PROVISIO N IS THE QUANTUM OF PENALTY AS SPECIFIED UNDER CLAUSES (A) TO (C) OF SE C. 271AAB(1) OF THE ACT AS 10% TO 30% OR MORE AS AGAINST THE DISCRETION GIVEN TO THE AO AS PER THE PROVISIONS OF SECTION 271(1)(C) OF THE A CT WHERE THE AO HAS THE DISCRETION TO LEVY THE PENALTY FROM 100% TO 300 % OF THE TAX SOUGHT TO BE EVADED. THUS THE AO IS DUTY BOUND TO COME TO THE CONCLUSION THAT THE CASE OF THE ASSESSEE IS FIT FOR LEVY OF PENALTY UNDER SECTION 271AAB AND THEN ONLY THE QUANTUM OF PENALTY BEING 10% OR 20% OR 30% HAS TO BE DETERMINED SUBJECT TO THE EXPLA NATION OF THE ASSESSEE FOR THE DEFAULTS. 5. BEFORE WE PROCEED FURTHER, THE DECISIONS RELIED UPON BY THE LD. D/R ARE TO BE CONSIDERED. IN THE CASE OF PRINCIPAL CIT VS. SANDEEP CHANDAK & OTHERS (SUPRA) THE ISSUE BEFORE THE HONB LE HIGH COURT WAS THE DEFECT IN THE NOTICE ISSUED UNDER SECTION 271AA B ON ACCOUNT OF MENTIONING WRONG PROVISION OF THE ACT BEING 271(1)( C) OF THE ACT. THE HONBLE HIGH COURT AFTER CONSIDERING THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY THE AO THOUGH MENTIONS SECTION 271 (1) IN THE CAPTION OF THE SAID NOTICE, HOWEVER, THE BODY OF THE SHOW C AUSE NOTICE CLEARLY MENTIONS SECTION 271AAB, WHICH WAS FULLY COMPREHEND ED BY THE ASSESSEE AS REVEALS IN THE REPLY FILED BY THE ASSES SEE AGAINST THE SAID SHOW CAUSE NOTICE. HENCE THE HONBLE HIGH COURT HA S HELD AS UNDER :- THE LD. A.RS HAVE ALSO CHALLENGED THAT THE CAPTIO N OF THE NOTICE MENTIONED ONLY SECTION 271 AND NOT 271AAB. I N THIS ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 15 RESPECT, THE COPY OF NOTICE HAS BEEN PRODUCED BY TH E LD. A.R. BEFORE ME. IT IS SEEN THAT THE LD. A.R IS CORRECT I N OBSERVING THAT THE SECTION OF PENALTY HAS NOT BEEN CORRECTLY MENTI ONED BY THE AO IN THE CAPTION. HOWEVER, THE AO WILL GET THE BE NEFIT OF SECTION 292BB OF THE INCOME TAX ACT, 1961 BECAUSE F IRSTLY, THE ASSESSEE HAS RAISED NO OBJECTION BEFORE THE AO IN T HIS REGARD. SECONDLY, LAST LINE OF THE NOTICE CLEARLY MENTIONS SECTION 271AAB. THIRDLY, THE ASSESSEE HAS GIVEN REPLY TO SA ID NOTICE WHICH SHOWS THAT THE ASSESSEE FULLY COMPREHENDED TH E IMPLICATION OF THE NOTICE THAT IT IS FOR SECTION 27 1AAB. THE ASSESSEE HAS ALSO CHALLENGED THAT THE PRINCIPLE S OF NATURAL JUSTICE HAS NOT FOLLOWED BY THE AO. THE DETAILED SU BMISSIONS OF A.R IN THIS REGARD HAS ALREADY BEEN REPRODUCED ABOV E. THE A.R DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT HE WAS NO T GIVEN PROPER OPPORTUNITY OF HEARING. IT IS CLEAR FROM THE PENALTY ORDER THAT THE AO HAS GIVEN PENALTY NOTICE AND WHICH WAS ALSO REPLIED BY THE ASSESSEE. THEREFORE, IN MY OPINION, PRINCIPL E OF NATURAL JUSTICE HAS NOT BEEN VIOLATED. THUS IN VIEW OF ABOV E DISCUSSION PENALTY IMPOSED BY AO U/S 271AAB OF THE ACT IS CONF IRMED. THUS IT WAS FOUND BY THE HONBLE HIGH COURT THAT TH E MISTAKE IN MENTIONING THE SECTION IN THE SHOW CAUSE NOTICE IS COVERED UNDER SECTION 292BB AND THE AO WILL GET THE BENEFIT OF TH E SAME. THE SAID DECISION WILL NOT HELP THE CASE OF THE REVENUE SO F AR AS THE ISSUE INVOLVES THE MERITS OF LEVY OF PENALTY UNDER SECTIO N 271AAB. AS REGARDS THE DECISION OF KOLKATA BENCHES OF THE TRIB UNAL IN THE CASE OF DCIT VS. AMIT AGARWAL (SUPRA), WE FIND THAT THE SAI D DECISION WAS SUBSEQUENTLY RECALLED BY THE TRIBUNAL AND A FRESH O RDER DATED 14 TH MARCH, 2018 WAS PASSED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THEREFORE, THE DECISION RELIED UPON BY THE LD. D/R IS NO MORE IN EXISTENCE. 6. THE QUESTION WHETHER LEVY OF PENALTY UNDER SECTI ON 271AAB BY THE AO IS MANDATORY OR DISCRETIONARY HAS BEEN CONSI DERED BY THE VISAKHAPATNAM BENCH OF THIS TRIBUNAL IN CASE OF ACI T VS. M/S. MARVEL ASSOCIATES (SUPRA) IN PARA 5 TO 7 AS UNDER :- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. D URING THE APPEAL HEARING, THE LD. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 16 A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENALTY UNDER THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION O F INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FURTHER STATED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARIMATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSM ENT AND ACCORDINGLY ARGUED THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MAN DATORY BUT DISCRETIONARY. WHEN THERE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGI BLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTION 158BFA(2 ) OF THE ACT AND ARGUED THAT THE WORDS USED IN SECTION 271AAB OF THE ACT AND THE WOR DS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENAL TY SECTION 271AAB OF THE ACT PENALTY IS NOT AUTOMATIC AND IT IS ON THE MERITS OF EACH CASE. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SECTION 158BFA (2) OF THE ACT A ND SECTION 271AAB OF THE ACT WHICH READS AS UNDER; 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHER E SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF SEARCH, IN A STATEMENT UNDER SUB-S ECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME AND S PECIFIES 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 ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 17 (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 SP ECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIONS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) O F SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF THE UNDI SCLOSED INCOME REFERRED TO IN SUB-SECTION (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (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 TA X LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CLAUSE (C ) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE 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 MONEY 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 ASSE SSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUC H CASES THE PENALTY SHALL BE IMPOSED ON THAT PORTION OF UNDISCLOSED INCOME DE TERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 18 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. SIM ILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE A CT, FORTIFIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THIS SECTION . 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 CO NSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECTION 274 DEALS WITH THE PROCEDURE FO R LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HE ARD. THEREFORE, FROM PLAIN READING OF SECTION 271AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOSED UNLESS THE ASSESSEE IS GIVEN A REASONABLE O PPORTUNITY AND ASSESSEE IS BEING HEARD. ONCE THE OPPORTUNITY IS GIVEN TO THE ASSESSE E, THE PENALTY CANNOT BE MANDATORY AND IT IS ON THE BASIS OF THE FACTS AND M ERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY THE ACT TO HEAR THE ASSESSEE A ND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREM ENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONABLE OPPOR TUNITY IS NOT A MERE FORMALITY BUT IT IS TO ADHERE TO THE PRINCIPLES OF NATURAL JU STICE. HONBLE A.P. HIGH COURT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHIL E DEALING WITH THE PENALTY U/S 158BFA HELD THAT WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECTION 158BFA OF THE ACT THAT A RE ENTITLED TO BE MANDATORY, THE WORDS MAY DIRECT IN SUB SECTION 2 THERE OF INTENDED TO DIRECTORY. IN OTHER WORDS, WHILE PAYMENT OF INTEREST IS MANDATORY LEVY OF PENA LTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DISCRETION IS VESTED AND AUTHO RITY HAS TO BE EXERCISED IN A REASONABLE AND RATIONAL MANNER DEPENDING UPON THE F ACTS AND CIRCUMSTANCES OF THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF THE ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD THAT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON MERITS OF THE EACH CASE. THUS THE TRIBUNAL HAS HELD THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATORY BUT THE AO HAS THE DISCRETI ON TO TAKE A DECISION AND SHALL BE BASED ON JUDICIOUS DECISION O F THE AO. HENCE WE FORTIFY OUR VIEW BY THE ABOVE DECISIONS OF TRIBUNAL IN CASE OF ACIT VS. MARVEL ASSOCIATES. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 19 7. AS REGARDS THE VALIDITY OF NOTICE UNDER SECTION 274 FOR WANT OF SPECIFYING THE GROUND AND DEFAULT, WE FIND THAT WHE N THE BASIC CONDITION OF THE UNDISCLOSED INCOME NOT RECORDED IN THE BOOKS OF ACCOUNTS DOES NOT EXISTS, THEN THE SAME HAS TO BE S PECIFIED BY THE AO IN THE SHOW CAUSE NOTICE AND FURTHER THE AO IS REQU IRED TO GIVE A FINDING WHILE IMPOSING THE PENALTY UNDER SECTION 27 1AAB. EVEN IF THE AO IS SATISFIED AND COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECORDED THE UNDISCLOSED INCOME IN THE BOOKS OF ACC OUNTS OR IN THE OTHER DOCUMENTS / RECORD MAINTAINED IN NORMAL CO URSE RELATING TO SPECIFIED PREVIOUS YEAR, THE SHOW CAUSE NOTICE SHALL ALSO SPECIFY THE DEFAULT COMMITTED BY THE ASSESSEE TO AT TRACT THE PENALTY @ 10% OR 20% OR 30% OF THE UNDISCLOSED INCOME. THERE IS NO DISPUTE THAT THE AO HAS NOT SPECIFIED THE DEFAULT AND CHARG E AGAINST THE ASSESSEE WHICH NECESSITATED THE LEVY OF PENALTY UND ER SECTION 271AAB OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS NOT GIVE N AN OPPORTUNITY TO EXPLAIN HIS CASE FOR SPECIFIC DEFAULT ATTRACTING TH E LEVY OF PENALTY IN TERMS OF CLAUSES (A) TO (C) OF SECTION 271AAB(1) OF THE ACT. THE CHANNAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V S. SHRI R. ELANGOVAN (SUPRA) AT PAGES 7 TO 10 HAS HELD AS UNDE R :- IT IS CLEAR FROM THE SUB SECTION (3) OF SECTION 271 AAB THAT SECTIONS 274 AND SECTION 275 OF THE ACT SHALL, SO FAR AS MAY BE, APP LY. SUB SECTION (1) OF SECTION 274 OF THE ACT MANDATES THAT ORDER IMPOSING PENALTY HAS TO BE IMPOSED ONLY AFTER HEARING THE ASSESSEE OR GIVING A ASSESSEE OPPORTUNITY OF HEARING. OPPORTUNITY THAT IS TO BE GIVEN TO THE ASS ESSEE SHOULD BE A MEANINGFUL ONE AND NOT A FARCE. NOTICE ISSUED TO TH E ASSESSEE REPRODUCED (SUPRA), DOES NOT SHOW WHETHER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR HAVING UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 271AAB OF THE ACT. NOTICE IN OUR OPINION WAS VAGUE. HONBLE KARNA TAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA) RELYING IN IT S OWN JUDGMENT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPR A) HAD HELD AS UNDER:- 2. THIS APPEAL HAS BEEN FILED RAISING THE FOLLOWI NG SUBSTANTIAL QUESTIONS OF LAW: (1) WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITL Y MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATE D FOR FURNISHING OF INACCURATE PARTICULARS OR THAT FOR ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 20 CONCEALMENT OF INCOME MAKES THE PENALTY ORDER LIABL E FOR CANCELLATION EVEN WHEN IT HAS BEEN PROVED BEYON D REASONABLE DOUBT THAT THE ASSESSEE HAD CONCEALED INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE PENALTY NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) I S BAD IN LAW AND INVALID DESPITE THE AMENDMENT OF SECTION 271(1B) WITH RETROSPECTIVE EFFECT AND BY VIRTUE OF THE AMENDMENT, THE ASSESSING OFFICER HAS INITIATED THE PENALTY BY PROPERLY RECORDING THE SATISFACTION FOR THE SAME? (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DECIDING THE AP PEALS AGAINST THE REVENUE ON THE BASIS OF NOTICE ISSUED U NDER SECTION 274 WITHOUT TAKING INTO CONSIDERATION THE ASSESSMENT ORDER WHEN THE ASSESSING OFFICER HAS SPE CIFIED THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCO ME? 3. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTIO N 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE ACT) TO BE BAD IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDINGS HAD BEEN INITIATED I.E., WHETHER FOR CO NCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THIS COURT RENDERED IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 4. IN OUR VIEW, SINCE THE MATTER IS COVERED BY JUDG MENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIA L QUESTION OF LAW ARISES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE AP PEAL IS ACCORDINGLY DISMISSED. IN THE EARLIER CASE OF MANJUNATHA COTTON AND GINNIN G FACTORY (SUPRA) THEIR LORDSHIP HAD OBSERVED AS UNDER:- ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 21 NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIF ICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETH ER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF INCOME. SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQ UIREMENT OF LAW ; THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE ; ) TAKING UP OF PENALTY PROCEEDINGS O N ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW ; PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEE DINGS : THOUGH PROCEEDINGS FOR IMPOSITION OF PENALTY EMANATE FROM PROCEEDINGS OF ASSESSMENT, THEY ARE INDEPENDENT AND A SEPARATE ASP ECT 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 PR OCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE PROCEEDINGS ON THE MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESS MENT IN PURSUANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED INVALID IN THE PENALTY PROCEEDINGS. VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN T HE ABOVE JUDGMENT WAS INDIRECTLY AFFIRMED BY THE HONBLE APEX COURT, WHEN IT DISMISSED AN SLP FILED BY THE REVENUE AGAINST THE JUDGMENT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA), SPECIFICALLY OBSERVING THAT THERE WAS NO M ERITS IN THE PETITION FILED BY THE REVENUE. CONSIDERING THE ABOVE CITED 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 IN FRUCTUOUS. IN VIEW OF THE DECISION OF THE CHENNAI BENCH (SUPRA ), THE SHOW CAUSE NOTICE ISSUED BY THE AO IN THE CASE OF THE ASSESSEE IS NOT SUSTAINABLE. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 22 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 MA NDATORY BUT THE AO HAS DISCRETION TO TAKE A DECISION AND THE SAME SHAL L 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 REQUIRED TO SPECIFICALLY STATE IN THE SHOW CA USE NOTICE THE GFOUND AND THE DEFAULT COMMITTED BY THE ASSESSEE AS TO ATT RACT THE PENALTY U/S 271AAB OF THE ACT @ 10% 20% OR 30% OF THE UNDISCLOS ED INCOME. IN THE ABSENCE OF SPECIFYING THE DEFAULT AND CHARGE AG AINST THE ASSESSEE FOR WHICH THE PENALTY WAS PROPOSED TO BE LEVIED THE SHOW CAUSE NOTICE ISSUED BY THE AO AND INITIATION OF PROCEEDING FOR L EVY OF PENALTY U/S 271AAB ARE NOT VALID. HENCE, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE HOLD THAT THE SHOW CAUSE ISSUED BY THE AO IN THE CASE ASSESSEE IS NOT SUSTAINABLE AND LIABLE TO THE QUASHED. 10. GROUND NO. 2 IS REGARDING MERITS OF LEVY OF PEN ALTY. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT IN THE STATEMENT RE CORDED U/S 132(4) THE ASSESSEE HAS VERY SPECIFICALLY STATED THAT HE W AS DECLARING/SURRENDERING INCOME SUBJECT TO HIS REQUES T THAT NO PENALTY AND PROSECUTION PROCEEDINGS WILL BE INITIATED. IN V IEW OF THIS IT WAS ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 23 REQUESTED TO THE AO NOT TO IMPOSE ANY PENALTY IN TH E CASE AS THE ASSESSEE FURNISHED RETURN IN GOOD FAITH. THE RETURN WAS FILED DISCLOSING INCOME IN ORDER TO AVOID LITIGATION AND TO PURCHASE PEACE OF MIND. THE LD. AR HAS FURTHER SUBMITTED THAT PROVISIONS OF SEC TION 271AAB ARE DEEMING PROVISIONS. IN THE CASE OF THE ASSESSEE THE RE IS VIRTUALLY NO CONCEALMENT AND NO PENALTY SHOULD BE LEVIED FOR A T ECHNICAL DEFAULT. THE ASSESSEE FURNISHED RETURN IN GOOD FAITH TO PURC HASE PEACE OF MIND AND WITH A STRONG HOPE THAT THE DEPARTMENT WOULD HO NOR THE ASSURANCE GIVEN FOR NOT LEVYING PENALTY. INCOME DECLARED BY T HE ASSESSEE IN THE RETURN OF INCOME ACCEPTED WITH MINOR VARIATION . THERE CANNOT BE ANY CONCEALMENT PRIOR TO FILING OF RETURN . QUESTION OF CONSIDERING WHETHER ASSESSEE IS LIABLE FOR ACTION U /S 271(1)(C) WOULD ARISE ONLY WHEN RETURN OF INCOME IS SCRUTINIZ ED BY ASSESSING OFFICER AND HE FINDS SOME MORE ITEMS OF I NCOME OR ADDITIONAL INCOME OVER AND ABOVE WHAT IS DECLARED I N THE RETURN. WHERE THE ASSESSING OFFICER ACCEPTED THE INCOME TH EN ASSESSEE CANNOT BE CHARGED FOR ANY CONTUMACIOUS CONDUCT AND THERE IS NO QUESTION OF PENALTY. THE BASIS OF LEVY OF PENALT Y IS RETURN OF INCOME. THERE CAN BE NO CONCEALMENT UNTIL THERE IS DUTY TO DISCLOSE. THE DUTY TO DISCLOSE PARTICULARS OF INCOM E ARISES AT THE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 24 TIME WHEN THE ASSESSEE FURNISHES RETURN OF INCOME A ND IF IN FILING HIS RETURN HE CONCEALS THE PARTICULARS OF IN COME OR FURNISHES INACCURATE PARTICULARS HE INCURS PENALTY U/S 271(1)(C). THAT THE INCOME WAS SURRENDERED ON THE BASIS OF SOM E DOCUMENTS ON WHICH THE NAME OF SOME PERSONS AND SOM E AMOUNT IS MENTIONED. THE LEARNED ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY REGARDING THOSE DOCUMENTS WHETHER THE PERSON THE NAME OF WHICH MENTIONED IS AN EXISTING P ERSON OR THE AMOUNT MENTIONED WAS ADVANCED TO HIM. ACTUALLY THE DOCUMENTS ON THE BASIS OF WHICH SURRENDER WAS MADE WERE NEVER EXAMINED AND NO EVIDENCES WERE BROUGHT ON REC ORD THAT THE AMOUNT MENTIONED ON THOSE DOCUMENTS ARE CONCEALED INCOME OF THE ASSESSEE. THE CONTENTS OF THE DOCUMEN TS WERE NEVER PROVED TO BE TRUE. THE ASSESSEE HAS SURRENDER ED INCOME ON THE BASIS OF THOSE DOCUMENTS ONLY TO BUY PEACE A ND AVOID PROLONGED LITIGATION. IN ACTUAL THOSE DOCUMENTS ON THE BASIS OF WHICH SURRENDER WAS MADE AFTER THOUGHT DOCUMENTS PR EPARED DURING THE COURSE OF SEARCH FOR MAKING SURRENDER IN VARIOUS YEARS AND NO SUCH PERSONS EXIT. THE ASSESSEE HAS PAID TA X AND INTEREST ON THOSE SURRENDERED INCOME. NOW IN PENALT Y ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 25 PROCEEDING IT IS REQUESTED THAT ASSESSEE SHOULD NOT BE PENALIZED FOR COOPERATING THE DEPARTMENTAL AUTHORITIES AND PAYMENT OF TAX BECAUSE IN ACTUAL THERE WERE NO CONCEALMENT AND THE TOTAL SURRENDER WAS DIVIDED IN EARLIER YEAR S AND THE ASSESSEE WAS HAVING BONAFIDE BELIEF THAT NO PENALTY WAS LEVIABLE ON SUCH SURRENDER. THE LEGAL HELP WAS ALSO NOT AVAILABLE AT THE TIME OF SURRENDER SO THE ASSESSEE WAS NOT KNOWING THE CONSEQUENCES OF SURRENDER IN EARLIER YE ARS AND THE SURRENDER WAS MADE BY THE ASSESSEE WITH A BONAFIDE BELIEF THAT NO PENALTY WAS LEVIABLE. THE LD. ASSESSING OFF ICER IN THE PARA 3 ON PAGE NO. 2 OF THE ASSESSMENT ORDER HAS ME NTIONED THAT THE TOTAL INCOME DECLARED IN THE ROI FOR THE S PECIFIED YEAR INCLUDES THIS UNDISCLOSED INCOME OF RS. 8,13,41,547 /- WHICH REPRESENTED THE UNDISCLOSED INCOME AS EXPLAINED IN CLAUSE (C) OF EXPLANATION GIVEN IN THE SECTION 271AAB. IT IS NOT CLARIFIED THAT WHY THE LEARNED ASSESSING OFFICER HAS TREATED THE I NCOME OF RS. 8,13,41,547/- AS UNDISCLOSED INCOME. BECAUSE THE AS SESSEE WAS MAINTAINING A SEPARATE ACCOUNT FOR THE INCOME SURRE NDERED DURING THE COURSE OF SEARCH. THESE PAPERS WERE ALSO MAINTAINING AS BOOKS OF ACCOUNTS PLACED ON PAPER BOOK PAGE NUMB ER 1 TO 92. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 26 IN THESE PAPERS ALL THE ENTRIES ARE FOR THE CURRENT AND EARLIER FINANCIAL YEAR I.E. FROM 01.04.2013 TO DATE OF SEAR CH I.E. 03.04.2014. ALL THE TRANSACTIONS ARE FOR THE CURREN T YEAR WHICH HAD NOT BEEN ENDED BEFORE THE DATE OF THE SEARCH OR FOR WHICH THE RETURN WAS ALREADY FILED. ALL THE TRANSACTIONS ARE RECORDED. NOTHING ADVERSE WAS FOUND WHICH SUGGEST THAT THE AS SESSEE'S INTENTION WAS NOT TO DISCLOSE THE INCOME RECORDED I N THE SEIZED DOCUMENTS. KEEPING THE RECORDS/DIARY IN THE OFFICE PREMISES ALONG WITH REGULAR BOOKS OF ACCOUNTS SHOWS THAT THE ASSESSEE HAS NO INTENTION TO CONCEAL HIS INCOME. TH IS WAS A BONAFIDE MISTAKE TO NOT INCORPORATE THE INCOME IN T HE REGULAR BOOKS OF ACCOUNTS AND IT DOES NOT PROVE THE GUILTY MIND AND INTENTION TO CONCEAL THE INCOME ON THE PART OF THE ASSESSEE. THEREFORE, WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD NO PENALTY CAN BE LEVIED U/S 271AAB OF THE INCOME TAX ACT, 1961. HE HAS RELIED UPON THE SAME DECISION OF THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT ORDER DATED 13.06 .2018 IN ITA NO. 969/JP2017. 11. ON THE OTHER HAND LD. DR HAS SUBMITTED THAT WHE N THE DISCLOSURE WAS MADE ON THE BASIS OF THE INCRIMINATO RY MATERIAL ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 27 FOUND DURING THE SEARCH AND SEIZURE ACTION THEN THE INCOME SO DISCLOSED BY THE ASSESSEE IS AN UNDISCLOSED INCOME AS PER THE PROVISIONS OF 271AAB OF THE ACT. THOUGH, THE ASSESS EE HAS PAID THE TAX BY THE SPECIFIED DATE HOWEVER, AS PER CLAUSE-(A) OF SECTION 271AAB(1) OF THE ACT THE PENALTY @ 10% O F UNDISCLOSED IS LEVIABLE. THE LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L 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, EXP ENDITURE ON CONSTRUCTION OF HOUSE AND EXPENDITURE ON THE MAR RIAGE OF DAUGHTER. THUS, MEASURE AMOUNT OF UNDISCLOSED INCOM E ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 28 CONSISTED THE SUNDERY ADVANCES. ALL THESE TRANSACTI ONS DO NOT PERTAIN TO THE BUSINESS ACTIVITY OF THE ASSESSEE BU T THESE ARE EITHER ADVANCES GIVEN BY THE ASSESSEE OR EXPENDITUR E INCURRED ON CONSTRUCTION OF THE HOUSE OR EXPENDITURE ON THE MARRIAGE OF THE DAUGHTER. THEREFORE, THE ENTRIES IN THE SEIZ ED MATERIAL ARE NOT THE TRANSACTIONS GENERATING INCOME EXCEPT S OME INTEREST INCOME. AT THE OUTSET WE NOTE THAT THE COO RDINATE BENCH OF THIS TRIBUNAL IN CASE OF SHRI RAVI MATHUR VS. DCIT (SUPRA) 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 O F THE 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 TH IS SECTION DOES NOT DEPEND ON THE ADDITION MADE DURING THE ASSESSME NT PROCEEDINGS. HENCE THE PENALTY PROCEEDINGS UNDER SE CTION 271AAB ARE COMPLETELY INDEPENDENT OF THE ENQUIRY AN D FINDING OF THE AO IN THE ASSESSMENT ORDER EXCEPT FOR THE LIMIT ATION PROVIDED AS PER SECTION 275 OF THE ACT. WE HAVE ALREADY HEL D THAT THE PENALTY IS NOT AUTOMATIC BUT THE AO HAS TO TAKE A D ECISION TO IMPOSE THE PENALTY AFTER GIVING AN OPPORTUNITY OF H EARING TO THE ASSESSEE IN TERMS OF SECTION 274 OF THE ACT. THUS T HE AO IN THE PROCEEDINGS UNDER SECTION 271AAB OF THE ACT HAS TO FIRST DECIDE THAT THE CONDITIONS PRESCRIBED UNDER THE SAID SECTI ON ARE SATISFIED FOR LEVY OF PENALTY AND THEN TO FURTHER TAKE A DECI SION AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE FOR NON COMPLIANCE OF ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 29 ANY OF THE CONDITIONS UNDER CLAUSES (A) TO (C) OF S UB-SECTION (1) REGARDING THE QUANTUM OF PENALTY. THE PRIMARY COND ITION FOR LEVY OF PENALTY IS THE EXISTENCE OF UNDISCLOSED INCOME A S PER THE DISCLOSURE MADE BY THE ASSESSEE UNDER SECTION 132(4 ). THE TERM UNDISCLOSED INCOME HAS BEEN DEFINED IN EXPLANATIO NS TO SECTION 271AAB. THEREFORE, AS PER THE DEFINITION PROVIDED I N THE EXPLANATION, THE UNDISCLOSED INCOME MAY HAVE VARIOU S FORMS AND THE SAME IS NOT RECORDED IN THE BOOKS OF ACCOUNTS O R OTHER DOCUMENTS MAINTAINED IN NORMAL COURSE RELATING TO T HE SPECIFIED PREVIOUS YEAR. AS PER SUB-CLAUSE (I) OF CLAUSE (C) OF 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 ENTR Y IN BOOKS OF ACCOUNTS OR OTHER DOCUMENTS OR TRANSACTIONS FOUND I N THE COURSE OF SEARCH. THIS DEFINITION IS FURTHER SUBJECT TO T WO CONDITIONS THAT THE SAID INCOME HAS NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR OR OTHERWISE NOT BEING DISCLOSED TO THE PRINCIPAL CHIEF COMMISSI ONER, PRINCIPAL COMMISSIONER OR COMMISSIONER BEFORE THE DATE OF SEA RCH. THE OTHER FORMS OF UNDISCLOSED INCOME AS DEFINED IN SUB CLAUSE (II) IS ANY ENTRY IN RESPECT OF EXPENSES RECORDED IN THE BO OKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED IN THE NORMA L COURSE. THEREFORE, THE CLAUSE (II) CONTEMPLATES UNDISCLOSE D INCOME IN THE FORM OF FALSE ENTRIES OF EXPENSES RECORDED IN THE B OOKS 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 I NDIVIDUAL AND FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS N OT REPORTED ANY BUSINESS INCOME NOR IT WAS ASSESSED BY THE AO. THEREFORE, IT IS CLEAR THAT THE ASSESSEE WAS NOT REQUIRED BY ANY MANDATE OF LAW TO MAINTAIN REGULAR BOOKS OF ACCOUNTS. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN INCOME FROM SALARY, INCOME ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 30 FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE RETURNED INCOME WAS ACCEPTED BY THE AO WHILE FRAMIN G THE ASSESSMENT UNDER SECTION 143(3) AND HENCE ASSESSEE S CASE DOES NOT FALL IN THE CATEGORY WHERE THE REGULAR BOOKS OF ACCOUNTS ARE MANDATORY. THE ENTRIES OF INVESTMENT IN REAL ESTAT E WERE FOUND RECORDED IN THE DIARY AND IN THE ABSENCE OF ANY OTH ER DOCUMENT MAINTAINED IN THE NORMAL COURSE RELATING TO THE YEA R 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 R ECORDED THE OTHER TRANSACTIONS IN THE OTHER DOCUMENTS MAINTAINE D IN THE REGULAR COURSE RELATING TO THE YEAR UNDER CONSIDERA TION AND ONLY THESE ENTRIES ARE RECORDED IN THE DIARY. SINCE THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT BASED ON THE ADDITION A ND ENQUIRY CONDUCTED BY THE AO IN THE ASSESSMENT PROCEEDINGS, THEREFORE, IT IS INCUMBENT ON THE AO TO CONDUCT A PROPER EXAMINAT ION OF FACTS, CIRCUMSTANCES AND EXPLANATION FURNISHED BY THE ASSE SSEE BEFORE ARRIVING TO THE CONCLUSION THAT PENALTY UNDER SECTI ON 271AAB IS LEVIABLE AND FURTHER WHETHER IT IS 10% OR 20% OR 30 % OF SUCH UNDISCLOSED INCOME. THEREFORE, THE AO IS UNDER STA TUTORY 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 TH AT THE AO FIRST SPECIFY THE CHARGES AGAINST THE ASSESSEE AND TO MAK E KNOWN THE ASSESSEE OF HIS DEFAULT SO AS TO AFFORD AN OPPORTUN ITY TO EXPLAIN THE DEFAULT/CHARGES SO BROUGHT AGAINST THE ASSESSEE . WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE ON THE SPECIFIC DEFAULT, THE ORDER PASSED BY THE AO UNDER SECTION 2 71AAB SUFFERS FROM SERIOUS ILLEGALITY AND THEREFORE NOT SUSTAINAB LE IN LAW. WHEN A STRINGENT ACTION IS PROVIDED IN THE STATUTE AGAIN ST THE DEFAULT COMMITTED BY THE ASSESSEE, THEN IT ALSO CAST AN EQU ALLY STRINGENT AND STRICT DUTY ON THE AUTHORITY RESPONSIBLE TO TAK E SUCH ACTION. THEREFORE, WHEN THE PROVISIONS FOR LEVY OF PENALTY UNDER SECTION 271AAB IS A SPECIFIC PROVISION TO DEAL WITH THE UND ISCLOSED INCOME ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 31 AND IT PROVIDES A STRICT PENAL ACTION THEN THE CORR ESPONDING DUTY OF THE TAX AUTHORITY IS ALSO EQUALLY STRINGENT. TH E 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 PASSE D UNDER SECTION 271AAB. THE AO HAS ALSO NOT GIVEN A FINDIN G THAT THE CASE OF THE ASSESSEE FALLS IN THE DEFINITION OF UND ISCLOSED INCOME PROVIDED UNDER CLAUSE (C)(I) OF EXPLANATION TO SECT ION 271AAB. WHEN THE TRANSACTIONS OF INVESTMENT IN REAL ESTATE ARE RECORDED IN THE DIARY BEING OTHER DOCUMENTS MAINTAINED BY TH E ASSESSEE FOR THE SAID PURPOSE, THEN IN THE ABSENCE OF ANY RE QUIREMENT OF MAINTAINING REGULAR BOOKS OF ACCOUNTS BY THE ASSESS EE, THE CASE OF THE ASSESSEE WOULD NOT FALL IN 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 TH E ASSESSEE IN THE CASE OF DCIT VS MANISH AGARWALA (ANOTHER MEMBER IN THE SAME NEZONE GROUP) IN ITA NO. 1479/KOL/2015 FOR AY 2013-14 DATED 9.2.2018 BY THE ORDER OF THIS TRIBUNAL , WHER EIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT T HE AO HAS LEVIED THE PENALTY U/S. 271AAB ON THE GROUND TH AT THE INCOME FROM 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 HAS ACCEPTED THAT DURING SEARCH THE ASSESSEE HAS ADMITTED U/S. 132(4) OF THE ACT ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 32 THE INCOME FROM SPECULATIVE TRADING. THE UNDISPUTED FACTS 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 ACT AND THEREAFTER LEVIED TEN PERCENT OF RS.3 C R., WHICH HAVE BEEN DELETED BY THE IMPUGNED ORDER OF LD. CIT( A). 4. THE LD. DR BROUGHT TO OUR NOTICE THAT IN THE VE RY SAME GROUP CASE OF MANOJ BESWAL & ORS. THE TRIBUNAL HAD CONFIRMED THE LEVY OF PENALTY AND CONTENDED BEFORE US THAT PENALTY U/S. 271AAB OF THE ACT IS MANDATORY AND THE REFORE, ACCORDING TO LD. DR, THE LD. CIT(A) ERRED IN DELETI NG THE PENALTY BY STATING THAT THE ASSESSEE DID NOT HAD AN Y MENS REA NOT TO DISCLOSE THE AMOUNT IN QUESTION. ACCORD ING TO HIM, PENALTY HAS TO BE MANDATORILY LEVIED U/S. 271A AB OF THE ACT ON THE UNDISCLOSED INCOME FOUND DURING SEAR CH. ON THE OTHER HAND, LD. AR SHRI MIRAZ D. SHAH, SUPPORTI NG THE DECISION OF LD. CIT(A) MADE CONTENTIONS THOUGH TAKE N UP BEFORE THE LD. CIT(A) BUT HAS NOT BEEN ADJUDICATED ON THOSE AVERMENTS, WHICH THE LD. AR URGES BEFORE US T O CONSIDER WHILE ADJUDICATING THE APPEAL OF THE REVEN UE. 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. COUNSEL, THOSE LEGAL ARGU MENTS WERE NOT CONSIDERED BY THE AO IN THE RIGHT PERSPECT IVE. THE FIRST CONTENTION OF THE LD. AR IS THAT SINCE SE C. 271AAB OF THE ACT IS A PENALTY SECTION IT SHOULD BE CONSTR UED ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 33 STRICTLY, WHICH WE AGREE BEING IT IS A TRITE LAW TH AT PENALTY PROVISIONS HAVE TO BE STRICTLY INTERPRETED. NEXT CO NTENTION OF LD. AR IS THAT SEC. 271AAB OF THE ACT IS NOT MAN DATORY 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 S AID CONTENTION OF LD. AR BECAUSE WHEN A SIMILAR ISSUE W AS ADJUDICATED BY ITAT LUCKNOW (THE AUTHOR OF THIS ORD ER WAS A MEMBER OF THE BENCH) IN SANDEEP CHANDAK & ORS. VS . CIT (2017) 55 ITR (TRIB) 209 AND 2017 (5) TMI 675- ITAT- LUCKNOW IN ITA NO. 416, 417 AND 418/LKW/2016 DATED 30.01.2017 WHILE ADJUDICATING A CASE WHERE PENALTY WAS LEVIED UNDER SECTION 271AAB OF THE ACT IT WAS HELD THAT THE PROVISIONS OF SEC. 271AAB OF THE ACT ARE NOT MANDAT ORY, WHICH MEANS THAT PENALTY NEED NOT BE LEVIED IN EACH AND EVERY CASE WHEREVER THE ASSESSEE HAS MADE DEFAULT A S 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 WITH SHALL ESPECIALLY IN PENALTY PROCEEDING. USING THE WORD MAY IN OUR OPINION, GI VES A DISCRETION TO THE AO TO LEVY THE PENALTY OR NOT TO LEVY, EVEN IF THE ASSESSEE HAS MADE THE DEFAULT UNDER THE SAID PROVISION. THEREFORE, THE 2ND GROUND OF REVENUE FA ILS AND WE HOLD THAT PENALTY U/S. 271AAB OF THE ACT IS NOT MANDATORY AND IS DISCRETIONARY. BEFORE PROCEEDING F URTHER, WE NOTE THAT THE EX PARTE ORDER PASSED BY THE COORD INATE BENCH RELIED UPON BY LD. DR, MANOJ BESWAL, SUPRA, H AVE BEEN RECALLED IN MA NOS. 218 TO 220/KOL/2017 DATED 12.01.2018 BY OBSERVING AS UNDER: BY VIRTUE OF THESE MISCELLANEOUS APPLICATIONS, THE ASSESSEE SEEKS TO RECALL THE ORDER PASSED BY THIS TRIBUNAL IN I.T.A. NOS. 1471, 1475&1476/KOL/2015 IN THE HANDS OF AMIT AGARWAL, MADAN LAL BESWAL AND ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 34 MANOJ BESWAL RESPECTIVELY FOR THE ASSESSMENT YEAR 2013-14 ON THE GROUND THAT NOTICE WAS NOT SERVED ON THE ASSESSEE FOR THE HEARING AND ON CERTAIN FACTUAL ERROR THAT HAD CREPT IN THE ORDER OF THE TRIBUNAL. THE FIRST PRELIMINARY OBJECTION RAISED BY THE LD. AR WA S THAT THE NOTICE OF HEARING WAS NOT SERVED ON THE ASSESSEE FOR THE HEARING SCHEDULED ON 06.11.2017 AND HENCE, THE ASSESSEE COULD NOT BE PRESENT ON THE SAID DATE BY WAY OF PERSONAL APPEARANCE. THE SECOND OBJECTION RAISED BY THE LD. AR WAS THAT THE TRIBUNAL HAD STATED IN PARA 9 OF ITS ORDER THAT THE ASSESSEE HIMSELF HAD ACCEPTED THAT HE IS ENGAGED IN COMMODITIES TRADING BUSINESS AND THEREFORE MANDATED TO MAINTAIN BOOKS OF ACCOUNTS IN TERMS OF SECTION 44AA OF THE ACT AND THEREBY INFERRING THAT THE ASSESSEE HAD REPORTED THE PROFIT FROM COMMODITIES TRADING BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. BASED ON THIS CRUCIAL FINDING, THE TRIBUNAL HAD CONCLUDED THAT SI NCE THE TRANSACTION OF COMMODITIES TRADING HAD NOT BEEN ENTERED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH ON 01.08.2012 AND THEREBY IT TAKES THE CHARACTER OF UNDISCLOSED INCOME FOR WHICH PENALTY U/S 271AAB OF THE ACT IS EXIGIBLE. IN THIS REGARD, WE FIND THAT THE LD. AR DREW OUR ATTENTION TO THE COMPUTATION OF THE TOTAL INCOME WHEREIN THE ASSESSEE HAD OFFERED INCOME FROM COMMODITY TRADING ONLY UNDER THE HEAD INCOME FROM OTHER SOURCES. WE ALSO FIND THAT THE LD. AO HAD ALSO SPECIFICALLY STATED IN THE BODY OF THE ASSESSMENT ORDER VIDE COLUMN NO. 10 THAT THE ASSESSEE IS HAVIN G ONLY SALARY INCOME AND INCOME FROM OTHER SOURCES. WE FIND THAT DUE TO THE ABSENCE OF THE ASSESSEE AT THE TIME OF HEARING THIS PARTICULAR FACT HAD ESCAPE D THE ATTENTION OF THE TRIBUNAL. ON PERUSAL OF THE FA CT ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 35 AVAILABLE ON RECORD, WE FIND THAT THE FINDING RECOR DED BY THIS TRIBUNAL IN PARA 9 OF ITS ORDER DATED 10.11.2017 THAT THE ASSESSEE IS MANDATED TO MAINTAIN BOOKS OF ACCOUNTS U/S 44AA OF THE ACT IS FACTUALLY INCORRECT AND DESERVES TO BE RECTIFIED. T HIS MISTAKE OF PRIMARY FACT HAD LEAD TO A CONCLUSION OF UPHOLDING THE LEVY OF PENALTY U/S 271AAB OF THE ACT . HENCE, IN THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE AFORESAID MISTAKE OF PRIMARY FACT RIGHTLY POINTED OUT BY THE LD. AR , WE DEEM IT FIT TO RECAL L THE ORDERS OF THIS TRIBUNAL DATED 10.11.2017 IN THE CAS E OF AFORESAID ASSESSEES. IN THE AFORESAID SCENARIO, THE LEGAL POSITION IS TH AT AN ORDER WHICH HAS BEEN RECALLED FOR DE NOVO ADJUDICATION, I S NO ORDER IN THE EYES OF LAW AND SO IT CANNOT BE TREATE D AS A PRECEDENT. HENCE, THE RELIANCE PLACED BY THE LD. DR IN RESPECT OF ASSESSEES IN THE SAME GROUP CONCERN CAS ES AS DECIDED BY THE TRIBUNAL NO LONGER SURVIVES AND CANN OT BE TREATED AS COVERED AGAINST THE ASSESSEE. 5. THE THIRD CONTENTION OF THE LD. AR IS THAT THE ASSESSEE IS AN INDIVIDUAL, WHO WAS DRAWING SALARY I NCOME. SO, ACCORDING TO HIM, HE NEED NOT MAINTAIN ANY BOOK S OF ACCOUNT AS PER THE ACT. ACCORDING TO LD. AR, UNDISP UTEDLY THE ASSESSEE WAS ENGAGED FOR THE FIRST TIME THIS AY ONLY IN TRADING OF COMMODITIES, THAT TOO WHICH WAS CONDUCTE D IN A NON-SYSTEMATIC MANNER AND THE INCOME FROM IT WAS DULY OFFERED TO TAX BY THE ASSESSEE IN HIS RETURN OF INC OME UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH, ACCORDING TO LD. AR WAS ACCEPTED AS SUCH BY THE AO AND DREW OUR ATTENTION TO PAGE ONE OF ASSESSMENT 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 DISCLO SED IN ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 36 HIS INCOME AND EXPENDITURE FOR AY 2013-14 UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES, AND THEREAFTER THE AO CONFIRMED THE ASSESSEES CLAIM AND THEREAFTER TOTAL INCOME WAS AS SESSED BY THE AO AS PER THE RETURN SUBMITTED BY THE ASSESS EE. IN THE LIGHT OF THE AFORESAID FACTS DISCERNED FROM ASS ESSMENT ORDER, THE ASSESSEES CASE IS THAT FOR THE FIRST TI ME IN THIS AY HE WAS DOING UNSYSTEMATIC SPECULATIVE ACTIVITY W HICH EARNED INCOME AND, IT WAS BROUGHT UNDER THE HEAD INCOME FROM OTHER SOURCES, AND SO, ACCORDINGLY, H E IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT AS STIPUL ATED IN SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT BECAUSE, T HESE PROVISIONS ARE ONLY FOR ASSESSES WHO ARE EARNING IN COME UNDER THE HEAD BUSINESS OR PROFESSION. WE NOTE TH AT SEC. 44AA OR SEC. 44AA(2)(II) OF THE ACT CASTS A DUTY UP ON THE ASSESSEE WHO ARE INTO BUSINESS OR PROFESSION AND SUCH ASSESSEES ARE BOUND TO MAINTAIN BOOKS OF ACCOUNT A S STIPULATED THEREIN. FOR APPRECIATING THIS SUBMISSIO N LET US GO THROUGH THE PROVISIONS OF LAW. 44AA. (1) EVERY PERSON CARRYING ON LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ANY OTHER PROFESSION AS IS NOTIFIED BY THE BOARD IN THE OFFIC IAL GAZETTE SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. (2) EVE RY PERSON CARRYING ON BUSINESS OR PROFESSION [NOT BEIN G A PROFESSION REFERRED TO IN SUBSECTION (1)] SHALL, (I) IF HIS INCOME FROM BUSINESS OR PROFESSION EXCEEDS [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALE S, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 37 BUSINESS OR PROFESSION EXCEED OR EXCEEDS [TEN LAKH] RUPEES IN ANY ONE OF THE THREE 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 PROFESSION IS LIKELY TO EXCEED [ONE LAKH TWENTY] THOUSAND RUPEES OR HIS TOTAL SALES, TURNOVER OR GRO SS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS OR PROFESSION ARE OR IS LIKELY TO EXCEED [TEN LAKH] RUPEES, [DURING SUCH PREVIOUS YEAR; OR (III) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER [SECTION 44AE] [OR SECTION 44BB OR SECTION 44BBB], AS THE CASE MAY BE, AND THE ASSESSEE HAS CLAIMED HIS INCOME TO BE LOWER THAN THE PROFITS OR GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS, AS THE CASE MAY BE, DURING SUCH [PREVIOUS YEAR; OR]] (IV) WHERE THE PROFITS AND GAINS FROM THE BUSINESS ARE DEEMED TO BE THE PROFITS AND GAINS OF THE ASSESSEE UNDER SECTION 44AD AND HE HAS CLAIMED SUCH INCOME TO BE LOWER THAN THE PROFITS AND GAINS SO DEEMED TO BE THE PROFITS AND GAINS OF HIS BUSINESS AND HIS INCOME EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX DURING SUCH PREVIOUS YEAR, ] KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER DOCUMENTS AS MAY ENABLE THE [ASSESSING] OFFICER TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PRO VISIONS OF THIS ACT. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 38 (3) THE BOARD MAY, HAVING REGARD TO THE NATURE OF THE BUSINESS OR PROFESSION CARRIED ON BY ANY CLASS OF PERSONS, PRESCRIBE, BY R ULES, THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS (INCLUDING INVENTORIES, WHEREVER NECESSARY) TO BE KEPT AND MAINTAINED UNDER SUB-SECTION (1) OR SUB-SECTION (2) , THE PARTICULARS TO BE CONTAINED THEREIN AND THE FORM AN D THE MANNER IN WHICH AND THE PLACE AT WHICH THEY SHALL B E 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 BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE KEPT AND MAINTAINED UNDER SUB-SECTI ON (1) OR SUB-SECTION (2) SHALL BE RETAINED.] SO FROM A READING OF THE ABOVE PROVISIONS WHICH CLE ARLY STIPULATES THAT ASSESSEE WHO ARE CARRYING ON BUSINESS OR PROFE SSION SHALL KEEP AND MAINTAIN SUCH BOOKS OF ACCOUNT AND OTHER D OCUMENTS WHICH MAY ENABLE THE AO TO COMPUTE THE TOTAL INCOME . WE NOTE THAT ASSESSEE IN THE STATEMENT OF TOTAL INCOME FILE D BEFORE THE AO HAS SHOWN INCOME ONLY UNDER TWO HEADS (I) SALARY IN COME (II) INCOME FROM OTHER SOURCES. WE WOULD LIKE TO REPRODU CE THE SUMMARY OF TOTAL INCOME OF THE ASSESSEE FILED ALONG WITH THE RETURN: INCOME FROM SALARY RS. 45,57,600 INCOME FROM OTHER SOURCES RS.3,00,24,047 RS.3,45,81,647 6. WE NOTE THAT THE AO HAS ACCEPTED THE AFORESAID STATEMENT OF TOTAL INCOME FILED BEFORE HIM WITHOUT CONTESTING THE CLAIM OF THE ASSESSEE AS TO WHETHER THE ASSESSEES CLAIM OF INCOME OTHER THAN FROM SALARY SHOULD BE FROM INCOME FROM BUSINE SS. THE CONFUSION THAT HAS ARISEN IN THIS CASE, WE NOTE IS ON THE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 39 MISDIRECTION OF AO IN THE ASSESSMENT PROCEEDINGS WH EREIN THE ASSESSMENT ORDER OF THE ASSESSEE, THE AO HAS OBSERV ED DURING SEARCH AND SEIZURE OPERATION, SHRI MANOJ BESWAL HAD MADE A CONSOLIDATED DISCLOSURE OF RS.32 CRORE VIDE HIS DIS CLOSURE PETITION. OUT OF THIS CONSOLIDATED DISCLOSURE, THE ASSESSEE O WNED UP RS. 3 CR. IN THE DISCLOSURE PETITION SHRI MANOJ BESWAL IT WAS STATED THAT THE SOURCE OF SUCH UNDISCLOSED INCOME WAS OUT OF CO MMODITY PROFIT. IT HAS BEEN SUBMITTED THAT THE AMOUNT HAS A LREADY BEEN DISCLOSED IN HIS INCOME & EXPENDITURE ACCOUNT FOR T HE AY 2013- 14 UNDER THE HEAD INCOME OUT OF SPECULATIVE BUSINE SS 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 I T WAS SHOWN IN THE INCOME SIDE THAT IS RIGHT HAND COLUMN AS IN COME FROM SPECULATIVE BUSINESS FROM SALE OF COMMODITIES AND LEFT HAND SIDE COLUMN REFLECTS THE EXPENDITURE; AND AO CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCLOSED UNDER THE HEADING INCOM E OUT OF SPECULATIVE BUSINESS FROM SALE OF COMMODITIES. THE CHARACTER OF A RECEIPT AND THE HEAD UNDER WHICH IT HAS TO BE TAX ED IS NOT BASED ON THE NOMENCLATURE OF RECEIPT OF INCOME SHOW N IN INCOME & EXPENDITURE ACCOUNT. ALL THE INCOMES OF REVENUE N ATURE WILL BE POSTED IN THE RIGHT HAND SIDE COLUMN OF INCOME IN THE INCOME & EXPENDITURE ACCOUNT AND THE DESCRIPTION GIVEN THERE IN CANNOT DETERMINE THE HEAD OF INCOME PRESCRIBED UNDER CHAPT ER IV OF THE ACT. THEREFORE, THE OBSERVATION OF THE AO IN ASSESS MENT ORDER IN THE LIGHT OF HIS ACTION OF ACCEPTING THE STATEMENT OF TOTAL INCOME FILED BY THE ASSESSEE ALONG WITH RETURN WHICH WITHO UT BEING CONTESTED, IS ERRONEOUS, UNLESS THE AO WAS ABLE TO NEGATE THE CLAIM OF THE ASSESSEE BY BRINGING THE INCOME FROM C OMMODITY TRANSACTIONS AS PART OF BUSINESS INCOME. IT SHOULD BE REMEMBERED THAT UNDER THE INCOME TAX ACT 1961, THE TOTAL INCOME OF AN ASSESSEE INDIVIDUAL /COMPANY IS CHARGEABLE TO TAX U/S. 4 OF THE ACT. TH E TOTAL INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISION S OF THE ACT. ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 40 SECTION 14 OF THE ACT LAYS DOWN THAT FOR THE PURPOS E OF COMPUTATION, INCOME OF AN ASSESSEE HAS TO BE CLASSI FIED UNDER FIVE HEADS. IT IS POSSIBLE FOR AN ASSESSEE/INDIVIDU AL/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 ASSES SEE HAS NOT COMMENCED BUSINESS THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS AND GAINS OF BUSINESS. TH AT DOES NOT MEAN THAT UNTIL AND UNLESS THE ASSESSEE COMMENCES I TS BUSINESS, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI & CHEMICALS LTD. VS. CIT (1997) 227 ITR 172 (SC). IT HAS BEEN F URTHER HELD THAT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONE Y IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTION FROM THAT RECEI PT IS PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACT ICE. FURTHER, THE HONBLE APEX COURT HELD THAT THE QUESTION AS TO WHETHER A PRINCIPAL RECEIPT IS OF THE NATURE OF INCOME AND FA LLS WITHIN THE CHARGE OF SEC. 4 OF THE ACT IS A QUESTION OF LAW WH ICH 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 NOTE THAT THE AO IN THE ASSESSMENT ORDER AFTER HAVI NG ACCEPTED THE STATEMENT OF TOTAL INCOME (SUPRA) AND THE RETUR N WHEREIN THE ASSESSEE HAS SHOWN THE INCOME FROM COMMODITIES UNDE R THE HEAD INCOME FROM OTHER SOURCES CANNOT NOW AFTER P ERUSAL OF INCOME & EXPENDITURE ACCOUNT DETERMINE THE CHARAC TER OF TRANSACTION IN THE PENALTY PROCEEDINGS AS INCOME F ROM BUSINESS OR PROFESSION WHICH APPROACH/ACTION IS ERRONEOUS. WE NOTE THAT THE ASSESSEE IN HIS STATEMENT OF TOTAL INCOME ALONG WITH RETURN HAS CLASSIFIED HIS INCOME UNDER TWO HEADS (I) SALAR Y AND (II) FROM OTHER SOURCES AND THE INCOME OF RS. 3 CR. AS INCOME FROM OTHER SOURCES, WHICH WE FIND THE AO HAS NOT CONTESTED IN THE ASSESSMENT ORDER, HAS THUS CRYSTALLIZED AND THE NEC ESSARY ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 41 INFERENCE DRAWN IS THAT ASSESSEE AN INDIVIDUAL WHO WAS ADMITTEDLY A SALARIED PERSON ENGAGED IN THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION (THAT TOO FOR THE FIRST TIME) IN AN ACTIVITY FROM WHICH HE DERIVE D INCOME FROM OTHER SOURCES ARE NOT REQUIRED TO MAINTAIN BOOKS O F ACCOUNT WHICH ARE APPLICABLE ONLY IF THE ASSESSEE WAS ENGAG ED IN BUSINESS OR PROFESSION. HOWEVER, WE FURTHER NOTE TH AT THE TRANSACTIONS WHICH YIELDED INCOME, THE ASSESSEE HAD IN FACT MAINTAINED RECORDS FROM WHICH THE AO WAS ABLE TO DE DUCE THE TRUE INCOME AND EXPENDITURE OF THE ASSESSEE. WE NOT E THE AO IN THE ASSESSMENT ORDER HAS ACCEPTED THE RETURNED INCO ME COMPRISING OF INCOME FROM SALARY AND INCOME FROM OT HER 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 THA T THE ASSESSEE IS HAVING ONLY SALARY INCOME AND INCOME FR OM OTHER SOURCES. THUS FROM A PERUSAL OF THE ASSESSMENT ORDE R, IT IS NOT IN DISPUTE THAT ASSESSEE IS NOT ENGAGED IN ANY BUSINES S. AND THE AO CANNOT CHANGE THE CHARACTER OF INCOME IN A DERIVATI VE PROCEEDING WHICH IS AN OFF-SHOOT OF ASSESSMENT PROCEEDINGS I.E . THE PENALTY PROCEEDINGS WITHOUT CONTESTING AND MAKING A FINDING AGAINST THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT ORDER AS DI SCUSSED ABOVE. 7. FINALLY, THE LD. AR SUBMITTED THAT DURING THE S EARCH, THE SEARCH PARTY FOUND THE RECORDS OF THE ASSESSEES TR ANSACTIONS IN SPECULATIVE COMMODITY FROM THE DRAWER OF ASSESSEES ACCOUNTANT FROM WHICH THE AO COULD COMPUTE THE INCOME OF THE A SSESSEE FROM THE SAID TRANSACTION WHICH AMOUNT ASSESSEE DEC LARED 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 SIN CE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 42 UNDISPUTEDLY THERE WAS ENOUGH AND MORE TIME FOR THE ASSESSEE TO SUBMIT THE ACCOUNTS DURING ASSESSMENT PROCEEDING S WHICH FACT HAS BEEN TAKEN NOTE OF AND CONCURRED BY THE LD. CIT (A). THEREAFTER, THE LD. AR DREW OUR ATTENTION TO THE DE FINITION OF UNDISCLOSED INCOME GIVEN UNDER SECTION 271AAB WHICH READS AS UNDER: PENALTY WHERE SEARCH HAS BEEN INITIATED. '271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTA NDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR A FTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF T HE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE ******** EXPLANATION FOR THE PURPOSES OF THIS SECTION, - (A) . (B) . (C) 'UNDISCLOSED INCOME' MEANS (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHE R VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OT HER DOCUMENTS OR ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 43 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; O R (B) OTHERWISE NOT BEEN DISCLOSED TO THE [PRINCIPAL CHIE F COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] 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 RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH N OT BEEN CONDUCTED. ACCORDING TO THE LD. AR, FROM THE FACTS AND CIRCUMS TANCES DESCRIBED ABOVE, SINCE THE ASSESSEE IS NOT ENGAGED IN BUSINESS OR PROFESSION, HE DOES NOT REQUIRE TO MAINTAIN THE BOO KS OF ACCOUNT AS PER SEC. 44AA OR SEC. 44AA(2) OF THE ACT, THEREF ORE, THE ASSESSEES CASE FALLS IN THE SECOND LIMB I.E. OR O THER DOCUMENTS AS STIPULATED U/S. 271AAB EXPLANATION (C) (SUPRA) W HICH DESCRIBES UNDISCLOSED INCOME FOR THE PURPOSES OF THIS SECTION WHICH IS VERY IMPORTANT TO ADJUDICATE THIS ISSUE. THEREFORE, THE QUESTION IS WHEN THE SEARCH TOOK PLACE, THE ASSESSEES TRANSACT IONS (IN THIS CASE, THE SPECULATIVE TRANSACTION) HAS BEEN FOUND T O BE RECORDED IN THE OTHER DOCUMENTS WHICH IS (RETRIEVED FROM T HE ASSESSEES ACCOUNTANTS DRAWER) AND BASED ON THAT THE ASSESSEE DECLARED RS. 3 CR. DURING SEARCH AND LATER RETURNED INCOME O F RS. 3 CR. AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES W HICH WAS ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 44 ACCEPTED BY THE AO IN TOTO. WE NOTE THAT SINCE THE INCOME UNDER QUESTION (RS. 3 CR.) WAS IN FACT ENTERED IN THE OT HER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE AY 2013-14, WHICH DOCUMENT WAS RETRIEVED DURING SEARCH, HENCE, THE AMOUNT OF RS. 3 CR. OFFERED BY THE ASSESSEE DOES NOT FALL IN THE KEN OF UNDISCLOS ED INCOME DEFINED IN SEC. 271AAB OF THE ACT. SO, RS. 3 CR. WH ICH WAS COMMODITY PROFIT RECORDED IN THE OTHER DOCUMENT MAI NTAINED BY THE ASSESSEE WHICH WAS RETRIEVED DURING SEARCH CANN OT BE TERMED AS UNDISCLOSED INCOME IN THE DEFINITION GIVEN U/S . 271AAB OF THE ACT. SINCE RS. 3 CR. CANNOT BE TERMED AS UNDIS CLOSED INCOME AS PER SEC. 271AAB OF THE ACT, NO PENALTY C AN BE LEVIED AGAINST THE ASSESSEE. THEREFORE, WE UPHOLD THE ORDE R 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 T O THE FACTS OF THE INSTANT CASES BEFORE US AND RESPECTFULLY FOLLOW ING 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 MATT ER IS REQUIRED TO BE EXAMINED WHETHER THE ALLEGED UNDISCLOSED INCO ME IS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE N ORMAL COURSE AS PER CLAUSE (C) TO EXPLANATION TO SECTION 271AAB. UNDISPUTEDLY THE ALLEGED INCOME WAS FOUND RECORDED IN THE DIARY WHICH IS NOTHING BUT THE OTHER RECORD MAINTAINED IN THE NO RMAL COURSE, THUS THE SAME WOULD NOT FALL IN THE DEFINITION OF U NDISCLOSED INCOME. ONCE THE SAID INCOME IS FOUND AS RECORDED IN THE OTHER DOCUMENTS MAINTAINED IN THE NORMAL 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 ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 45 DATE OF SEARCH. HENCE, IN VIEW OF THE ABOVE FACTS A ND 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 DECISION IN CASE OF SHRI RAVI MATHUR VS. DCIT (SUPR A) WE DELETE THE PENALTY LEVY U/S 271AAB OF THE ACT. 13 FOR THE ASSESSMENT YEAR 2014-15, THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS AS UNDER:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) ERRED IN PASSED THE ORDER U/S 271AAB OF THE INCOME TAX ACT, 1961 WHICH IS VOID AB-INITO DESERVES TO BE QUA SHED. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LE ARNED ASSESSING OFFICER IN IMPOSING THE PENALTY OF RS. 16 ,53,892/- U/S 271AAB OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE CRAVES YOUR INDULGENCE TO ADD AMEND OR ALTER ALL OR ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF H EARING. 14. THE ASSESSEE HAS RAISED ADDITIONAL GROUND WHICH IS COMMON FOR THE ASSESSMENT YEAR 2013-14. AS REGARDS THE ADDITIO NAL GROUND RAISED BY THE ASSESSEE THIS ISSUE HAS BEEN CONSIDERED FOR THE ASSESSMENT YEAR 2013-14 AND IN VIEW OF OUR FINDING ON THIS ISSUE WE HOLD THAT THE ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 46 PENALTY INITIATED BY THE AO IS NOT VALID AS THE SHO W CAUSE NOTICE SUFFERS FROM ILLEGALITY OF NOT SPECIFYING THE GROUNDS AND D EFAULT COMMITTED BY THE ASSESSEE. HENCE, THE ADDITIONAL GROUND RAISED B Y THE ASSESSEE IS DECIDED IN FAVOUR OF THE ASSESSEE. 15. ON MERITS OF THE LEVY OF PENALTY :- THE ONLY DIFFERENCE IN THE DISCLOSURE MADE BY THE ASSESSEE IS AN AMOUNT OF RS. 1,65,38,920/- OUT OF THE TOTAL DISCLOSURE OF RS. 11 CRORES. THE SAID DISCLOSURE WAS MADE BY THE ASSESSEE ON THE BASIS OF THE VALUATION OF THE S TOCK AS PER THE VALUATION REPORT OF THE DEPARTMENT VALUER APART FRO M A DISCLOSURE OF RS. 20 LACS ON ACCOUNT OF INTEREST INCOME. THE ASSESSEE FILED HIS RETURN OF INCOME AND OFFERED THE SAID AMOUNT OF RS. 1,65,38,9 20/- TO TAX. THE AO COMPLETED THE ASSESSMENT BY ACCEPTING SURRENDER INC OME OFFERED TO TAX AND THEREAFTER INITIATED THE PENALTY PROCEEDINGS U/ S 271AAB AND LEVIED PENALTY @ 10% OF THE UNDISCLOSED INCOME. THE ASSESS EE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) BUT COULD NO T SUCCEED. 16. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBM ITTED THAT THE DISCLOSURE MADE BY THE ASSESSEE IS NOT BASED ON THE INCRIMINATING MATERIAL FOUND DURING SEARCH AND SEIZURE PROCEEDING BUT THE MEASURE PART OF IT IS BASED ON THE VALUATION OF STOCK OF TH E ASSESSEE BY THE VALUER. THE LD. AR OF THE ASSESSEE HAS SUBMITTED TH AT THE DEPARTMENTAL ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 47 VALUER HAS TAKEN THE VALUATION AS PER THE MARKET RA TE AS AGAINST THE COST OR REALIZATION VALUE WHICHEVER IS LESS OF THE STOCK. THEREFORE, THE DISCLOSURE OBTAINED BY THE DEPARTMENT ON THE BASIS OF SUCH VALUATION CANNOT BE HELD AS UNDISCLOSED INCOME OF THE ASSESSE E ATTRACTING THE PENALTY U/S 271AAB OF THE ACT. THE LD. AR HAS REFER RED TO THE VALUATION REPORT AND SUBMITTED THAT THE VALUATION WAS DONE AS PER THE PREVAILING MARKET PRICE OF THE GOLD AND EVEN WITHOUT CONSIDERI NG THE IMPURITY DUE TO THE OTHER METALS IN MAXING OF THE JEWELLERY. THU S, THE DISCLOSURE BASED ON SUCH VALUATION WOULD NOT FALL IN THE DEFIN ITION OF UNDISCLOSED INCOME AS PER THE PROVISIONS OF SECTION 271AAB OF T HE ACT. THE LD. AR HAS FURTHER CONTENDED THAT THE ENTIRE STOCK IS PART OF THE BOOKS OF ACCOUNT AND THEREFORE, VALUATION CANNOT BE A BASIS OF UNDISCLOSED INCOME ATTRACTING THE PENALTY U/S 271AAB OF THE ACT . HE HAS REITERATED ITS CONTENTION AS RAISED FOR THE ASSESSMENT YEAR 20 13-14. 17. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED TH AT THE ASSESSEE WAS VERY WELL AWARE ABOUT THE DEFAULT AND THE NATURE OF INCOME HE HAS DISCLOSED AND SURRENDERED DURING THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE IT ACT. THE SURRENDER IN QUESTION WAS MADE BECAUSE THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE OF THE INVESTMENT IN QUESTION . IT IS CLEAR CASE OF UNDISCLOSED INCOME DETECTED DURING THE COURSE OF SE ARCH AND SEIZURE ACTION AND, THEREFORE, THE SURRENDER MADE BY THE ASSESSEE ITSELF IS SELF-EXPLANATORY ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 48 TO THE NATURE OF INCOME SURRENDERED BY THE ASSESSEE . THE LD. D/R HAS CONTENDED THAT THE ASSESSEE HAS PARTICIPATED IN THE PENALTY PROCEEDINGS AND HAS NOT RAISED ANY OBJECTION OR HAS DEMANDED BEFORE THE AO ABOUT HIS UNAWARENESS OF THE NATURE OF DEFAULT ATTRACTING THE LEVY OF PENALTY UNDER SECTION 271AAB. IT IS NOT THE CASE OF THE ASSESSEE THAT THE DISCLOSURE WAS TAKEN UNDER COERCION AND FURTHER THE ASSESSEE HAS O FFERED THE SAID AMOUNT TO TAX IN THE RETURN OF INCOME WHICH RULES OUT THE SCO PE OF ANY PRESSURE OR COERCION BY THE SEARCH TEAM FOR TAKING DISCLOSURE F ROM THE ASSESSEE. THUS THE OBJECTION RAISED BY THE ASSESSEE THAT THE AO HA S NOT SPECIFIED THE CLAUSE UNDER SECTION 271AAB(1) OF THE ACT HAS NO MERIT WHE N THE ASSESSEE HIMSELF HAS EXPLAINED THE NATURE OF INCOME DISCLOSED AND SU RRENDERED AND ALSO PAID THE TAX ON THE SAME. THE LD. D/R HAS SUBMITTED THA T AS PER THE EXPLANATORY NOTE OF FINANCE BILL, 2012, THE PROVISIONS OF SECTI ON 271AAB ARE MANDATORY IN NATURE AND AO HAS NO DISCRETION BUT THE ASSESSEE SH ALL PAY THE PENALTY IN ADDITION TO THE TAX ON THE UNDISCLOSED INCOME SURRE NDERED UNDER SECTION 132(4) OF THE ACT. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE SURRENDE R OF RS. 1,65,38,920/- WAS MADE BY THE ASSESSEE DURING THE COURSE OF SEARCH AN D SEIZURE PROCEEDINGS AND OFFERED TO TAX FOR THE YEAR UNDER CONSIDERATIO N. THE DETAILS OF THE SURRENDERED INCOME PERTAINS TO THE YEAR UNDER CONSI DERATION ARE AS UNDER:- ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 49 ON ACCOUNT OF DEBTORS (ADVANCES GIVEN RS. 80,00,000 /- UNEXPLAINED CASH FOUND RS. 10,00,000/- ACCRUED INTEREST ON DEBTORS RS. 20,00,000/- EXCESS STOCK FOUND DURING SEARCH RS. 55,38,920/- TOTAL RS. 1,65,38,920/- WE FIND THAT OUT OF THESE FOUR ITEMS OF SURRENDERS ONLY ADVANCES OF RS. 80,00,000/- IS BASED ON THE INCRIMINATING MATERIAL AND ALL OTHER ITEMS ARE NOT BASED ON THE SEIZED MATERIAL. THE INTEREST ON ADVANCES/ DEBTORS IS ONLY AN ESTIMATED AMOUNT DISCLOSED DURING THE YE AR BUT NO RECORD OR ANY DOCUMENT WAS FOUND DURING THE SEARCH AND SEIZUR E ACTION. AS REGARDS THE EXCESS STOCK WE FIND FROM THE RECORD AS PRODUCED BEFORE US BY THE LD. DR THAT THE VALUATION REPORT IS BASED O N THE MARKET PRICE OF THE GOLD JEWELLERY PREVAILING ON THE DATE OF SEARCH AS AGAINST THE COST OR REALIZATION WHEREVER IS LESS. THEREFORE, THE COM PUTATION OF EXCESS STOCK BASED ON THE MARKET PRICE OF THE STOCK CANNOT BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE AS IT IS THE SUB JECT MATTER OF REGULAR ASSESSMENT AND CANNOT BE REGARDED AS UNDISCLOSED IN COME BASED ON INCRIMINATING MATERIAL. THERE IS NO SUCH FACT EITHE R RECORDED DURING THE SEARCH AND SEIZURE PROCEEDING OR IN THE ASSESSMENT ORDER OR IN THE PENALTY PROCEEDING TO SHOW THAT THERE WAS DISCREPAN CY IN THE STOCK AS ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 50 RECORDED IN THE BOOKS OF ACCOUNT AND FOUND AT THE T IME OF SEARCH. IN THE ABSENCE OF ANY DISCREPANCY IN THE QUANTITY OF S TOCK THE VALUATION OF THE STOCK IS PURELY A QUESTION OF ASSESSMENT AND CA NNOT BE HELD AS UNDISCLOSED INCOME DETECTED DURING THE COURSE OF SE ARCH AND SEIZURE PROCEEDING. THEREFORE, TO THE EXTENT OF EXCESS STOC K BASED ON THE VALUATION REPORT THE DISCLOSURE OF THE INCOME BY TH E ASSESSEE WOULD NOT FALL IN THE CATEGORY OF UNDISCLOSED INCOME AS PER E XPLANATION TO SECTION 271AAB OF THE ACT. IT IS NOT THE CASE OF THE REVENU E THAT ANY STOCK OF JEWELLERY WAS FOUND WHICH IS NOT RECORDED IN THE BO OKS OF ACCOUNT BUT THE VALUE OF STOCK IS COMPUTED BASED ON THE VALUATI ON REPORT OF THE DEPARTMENTAL VALUER. ONCE THE DIFFERENCE IN THE VAL UE OF STOCK IS ONLY DUE TO MARKET PRICE AS AGAINST THE COST OF THE SAID STOCK, THE SAME WILL NOT FALL IN THE AMBIT OF UNDISCLOSED INCOME AS DEFI NED UNDER CLAUSE-(C) OF EXPLANATION -1 OF SECTION 271AAB OF THE ACT. 19. SIMILARLY THE ACCRUED INTEREST OF RS. 20,00,000 /- IS ALSO ONLY ESTIMATED AND NOT BASED ON ANY INCRIMINATING DOCUME NTS. THIS AMOUNT WAS ESTIMATED AS THERE WERE ADVANCES AS PER THE ENT RIES OF THE SEIZED MATERIAL. EVEN OTHERWISE ACCRUED INTEREST IS DEPEND ENT ON THE OUTCOME OF THE LEVY OF PENALTY IN RESPECT OF ADVANCES GIVEN BY THE ASSESSEE. WE HAVE CONSIDERED THE ISSUE OF ADVANCES FOR THE ASSES SMENT YEAR 2013-14 ITA NO. 855 & 856/JP/2017 SHRI DINESH KUMAR AGARWAL VS. ACIT 51 AND ACCORDINGLY IN VIEW OF OUR FINDING ON THE SAID ISSUE THE PENALTY U/S 271AAB OF THE ACT IS NOT SUSTAINABLE IN RESPECT OF THE SURRENDER AMOUNT OF RS. 1,65,38,920/-. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2018. SD/- SD/- HKKXPAN FOT; IKY JKO (BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/07/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI DINESH KUMAR AGARWAL, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT - ACIT, CENTRAL CIRCLE-1, 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. 855 & 856/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR