M/S. RAMBHOJO'S, JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 991/JPR/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7520 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 14-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Business income; Search and seizure; Opportunity of being heard; Principle of natural justice; Initiation of penalty proceedings; Reasonable cause; Fair market value; Block assessment; Retraction
• Section: 271(1)(c); 143(3); 153A; 69B; 32; 69; 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,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 VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 991/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2014-15 M/S RAMBHAJOS 397, FIRST FLOOR, RAM BHAWAN, HANUMANJI KA RASTA, JAIPUR. CUKE VS. THE ACIT, CENTRAL CIRCLE-1 JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAJFR 4553 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI VIJAY GOYAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 12/10/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 11/01/2019 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-4, JAIPUR DATED 03.11.2017 FOR THE ASSESSMEN T YEAR 2014-15 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND S OF APPEAL:- ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE IMPOSITION O F PENALTY OF RS. 57,33,335/- @ 10% OF SURRENDERED AMOUNT IN RETU RN AND STATEMENT U/S 132(4) OF THE I.TAX ACT BEING RS. 5,73,33,348/- UNDER SECTION ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 2 271AAB (1)(A) OF I.T. ACT, 1961 MORE SO WHEN THIS A MOUNT DOES NOT COME UNDER PREVIEW OF DEFINITION OF UNDISCLOSED INC OME. 2. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE IMPOSITION O F PENALTY OF RS. 35,408/- @ 20% OF RS. 1,77,039/- UNDER SECTION 271A AB (1)(B) OF I.T. ACT, 1961 MORE SO WHEN THIS AMOUNT DOES NOT COME UN DER PREVIEW OF DEFINITION OF UNDISCLOSED INCOME. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF MAN UFACTURING AND TRADING OF GEM STONES AND JEWELLERY. THE ASSESSEES FIRM OPERATES THROUGH ITS THREE BRANCHES SITUATED AT JAIPUR, JODH PUR AND MUMBAI. A SEARCH AND SEIZURE ACTION WAS CARRIED OUT U/S 132(1 ) OF THE ACT ON 04.09.2013 AT VARIOUS BUSINESS AND RESIDENTIAL PREM ISES OF RAMBHAJOS GROUP AND ASSESSEE FIRM IS PART OF THE SAID GROUP. SUBSEQUENTLY, THE ASSESSEE FURNISHED ITS RETURN OF INCOME ON 01.10.20 14 DECLARING TOTAL INCOME OF RS. 5,91,64,560/- WHICH INCLUDES INCOME O F RS. 5,73,33,348/- WHICH WAS SURRENDERED DURING THE COURSE OF SEARCH P ROCEEDINGS. IN THE RETURN OF INCOME, THE ASSESSEE ALSO DISCLOSED AN AM OUNT OF RS. 1,77,039/- WHICH, AS PER THE ASSESSING OFFICER, REPRESENTS THE UNDISCLOSED INCOME OF THE ASSESSEE FIRM. THE ASSES SING OFFICER THEREAFTER COMPLETED THE ASSESSMENT U/S 143(3) R.W. S. 153(1)(B) OF THE ACT VIDE ORDER DATED 16.03.2016 AT A TOTAL INCOME O F RS. 5,93,25,040/-. THE ASSESSING OFFICER SIMULTANEOUSLY INITIATED THE PENALTY PROCEEDING IN RELATION TO UNDISCLOSED INCOME BY WAY OF ISSUANCE O F NOTICE DATED 16.03.2016 U/S 271AAB OF THE ACT. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 3 3. SUBSEQUENTLY, DURING PENALTY PROCEEDING, A FRESH SHOW CAUSE NOTICE DATED 17.08.2016 WAS ISSUED TO THE ASSESSEE. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE ADDITIONAL INCOME WAS D ULY DECLARED IN THE RETURN OF INCOME FILED U/S 139(1) OF THE I.T. ACT A ND THEREFORE, THE SAME CANNOT BE TREATED AS CONCEALED INCOME OF THE A SSESEE. IT WAS FURTHER SUBMITTED THAT THE DEPARTMENT HAS CARRIED O UT SEARCH AND SEIZURE OPERATIONS ON THE ASSESSEE GROUP AND DURING THE COURSE OF SEARCH, THE DEPARTMENT HAS NOT FOUND ANY EVIDENCE, WHICH SHOWS THAT THE ASSESSEE WAS HAVING ANY UNDISCLOSED INCOME. IT WAS FURTHER SUBMITTED THAT IT WAS BONA-FIDE DISCLOSURE BY THE A SSESSEE AND THE INTENTION BEHIND THE DISCLOSURE WAS TO AVOID LITIGA TION AND BUY PEACE. IT WAS FURTHER SUBMITTED THAT THE DEPARTMENT COULD NOT PROVE ANY SOURCE OF UNDISCLOSED INCOME DURING THE COURSE OF ASSESSME NT PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT ON THE DATE OF SEARCH, T HE ASSESSEE WAS HAVING REQUISITE TIME TO FILE ITS RETURN OF INCOME AND THE ADDITIONAL INCOME WAS DULY DECLARED IN THE RETURN OF INCOME SO FILED U/S 139(1) OF THE ACT. 4. THE SUBMISSIONS WERE CONSIDERED BY THE ASSESSING OFFICER, HOWEVER, THE SAME WERE NOT FOUND ACCEPTABLE. THE AS SESSING OFFICER REFERRING TO THE PROVISIONS OF SECTION 271AAB OF TH E ACT STATED THAT THE ASSESSEE HAS SATISFIED ALL THE ESSENTIAL REQUIREMEN TS OF SECTION 271AAB OF THE ACT: THERE SHOULD BE A SEARCH U/S 132 OF THE ACT, THE SAID SEARCH SHOULD BE CONDUCTED ON OR AFTER 01.07.2012, THERE S HOULD BE UNDISCLOSED INCOME AND THE UNDISCLOSED INCOME SHOUL D RELATE TO THE SPECIFIED PREVIOUS YEAR. IN TERMS OF QUANTUM OF PEN ALTY, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD ADMITTED UNDISCL OSED INCOME OF ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 4 RS. 5,73,33,348/- IN HIS STATEMENT U/S 132(4) OF TH E ACT AND ALSO FURNISHED ITS RETURN OF INCOME ON OR BEFORE THE SPE CIFIED DUE DATE ON 30.11.2014 WHICH WAS EXTENDED BY THE CBDT U/S 119 O F THE ACT FROM 30 TH SEPTEMBER, 2014 FOR THE ASSESSMENT YEAR 2014-15 FO R ALL PURPOSES OF THE ACT. ACCORDINGLY, THE AO LEVIED THE PENALTY @ 10% ON THE UNDISCLOSED INCOME OF RS. 5,73,33,348/- U/S 271AAB( 1)(A) OF THE ACT. REGARDING THE ADDITIONAL INCOME OF RS. 1,77,039/- D ISCLOSED IN THE ITR, THE AO LEVIED THE PENALTY @ 20% OF THE SAID UNDISCL OSED INCOME U/S 271AAB(1)(B) OF THE ACT. 5. THE ASSESSEE MOVED AN APPEAL BEFORE THE LD. CIT( A) AGAINST THE SAID LEVY OF PENALTY AND SUBMITTED BEFORE HIM THAT THE ASSESSEE IN ITS RETURN OF INCOME HAS DECLARED ADDITIONAL INCOME SUR RENDERED DURING THE COURSE OF SEARCH AND SEIZURE AMOUNTING TO RS. 4 ,38,10,387/- ON ACCOUNT OF EXCESS STOCK FOUND DURING THE SEARCH, RS . 5 LACS ON ACCOUNT OF EXCESS CASH FOUND DURING THE SEARCH, RS. 1,12,0 0,000/- ON ACCOUNT OF CASH ADVANCES FOR LAND PURCHASES, AND RS. 20 LA CS ON ACCOUNT OF SILVER & OTHER POSSIBLE DISCREPANCIES TOTALING TO R S. 5,75,10,387/-. IT WAS FURTHER SUBMITTED THAT THE ADDITIONAL INCOME SO DECLARED IN THE RETURN OF INCOME CANNOT BE TREATED AS CONCEALED INC OME OF THE ASSESSEE AS THE DEPARTMENT HAS NOT FOUND ANY EVIDEN CE, WHICH SHOWS THAT THE ASSESSEE WAS HAVING SOME SOURCE OF UNDISCL OSED INCOME. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COOPERATED WITH THE DEPARTMENT AND TRUE DISCLOSURE OF INCOME WAS MADE, THE INTENTION WAS TO AVOID LITIGATION AND BUY PEACE AND THE DISCLOSUR E WAS NOT BASED ON ANY MATERIAL GATHERED AS A RESULT OF SEARCH BUT THE SAME WAS SUO-MOTO SURRENDERED BY THE ASSESSEE. IT WAS FURTHER SUBMITT ED THAT THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 5 PROVISIONS OF SECTION 271AAB ARE PARI MATERIA TO SECTION 271AAA IN SO FAR AS BOTH THE PROVISIONS ARE DISCRETIONARY IN NAT URE AND GIVEN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE PENALTY SHOULD NOT BE LEVIED. 6. THE LD. CIT(A) CONSIDERED THE ASSESSEES SUBMISS ION, HOWEVER, THE SAME WERE NOT FOUND ACCEPTABLE TO HIM. THE LD. CIT(A) HELD THAT THE PENALTY PROVISIONS U/S 271AAB WERE INTRODUCED F OR SEARCH AND SEIZURE CONDUCTED ON OR AFTER 01.07.2012 TO STRENGT HEN THE PENAL PROVISIONS. IT WAS STATED BY THE LD. CIT(A) THAT UN LIKE SECTION 271AAA WHERE IMMUNITY FROM IMPOSITION OF PENALTY IS POSSIB LE SUBJECT TO FULFILLMENT OF CONDITIONS IN SECTION 271AAA(2), THE RE IS NO IMMUNITY FROM PENALTY U/S 271AAB OF THE ACT. IT WAS HELD THA T THE PENALTY U/S 271AAB IS MANDATORY IN NATURE AND IS IMPOSED AT THE VARYING RATE OF 10%, 20% OR 30% DEPENDING ON THE FULFILLMENT OF CER TAIN CONDITIONS THEREIN. IT WAS HELD BY THE LD. CIT(A) THAT ALL THE CONDITIONS SPECIFIED IN SECTION 271AAB HAVE BEEN FULFILLED, THEREFORE, THE PENALTY U/S 271AAB BEING IN THE NATURE OF MANDATORY PENALTY AND THERE BEING NO DISCRETION WITH THE INCOME TAX AUTHORITIES, THE PENALTY SO IMP OSED BY THE AO WAS CONFIRMED. AGAINST THE SAID LEVY AND CONFIRMATION O F PENALTY, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 7. AT THE OUTSET, THE LD. AR SUBMITTED THAT AN APPL ICATION HAS BEEN SUBMITTED FOR TAKING AN ADDITIONAL GROUND OF APPEAL AND REQUESTED FOR PERMISSION TO RAISE THE FOLLOWING ADDITIONAL GROUND OF APPEAL WHICH READS AS UNDER:- ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 6 1. THE PENALTY ORDER PASSED U/S 271AAB OF INCOME T AX ACT, 1961 IS WRONG, BAD IN LAW, IN-VALID AND VOID-AB-INI TIO AS THE LD. AO INITIATED THE PENALTY U/S 271AAB OF THE INCOME T AX ACT, 1961 WITHOUT SPECIFYING THE CLAUSE OF SECTION 271AAB OF THE ACT IN THE PENALTY NOTICE UNDER WHICH THE PENALTY WAS INITIATE D I.E. WHETHER IT IS FOR CLAUSE (A) OR CLAUSE (B) OR CLAUSE(C) OF SECTION 271AAB(1) BECAUSE THE CONDITIONS FOR IMPOSING THE PENALTY UND ER EACH SUCH CLAUSES ARE SEPARATE. 8. THE LD. AR HAS SUBMITTED THAT THE ADDITIONAL GRO UND IS PURELY A LEGAL GROUND AND IT GOES TO THE ROOT OF THE MATTER, THE SAME SHOULD BE ADMITTED IN THE INTEREST OF JUSTICE. IN SUPPORT, RE LIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF NA TIONAL THERMAL POWER CORPORATION LTD. VS. CIT 229 ITR 383. AFTER H EARING BOTH THE PARTIES AND CONSIDERING THE FACT THAT THE ASSESSEE IN HIS ADDITIONAL GROUND OF APPEAL HAS CHALLENGED THE INITIATION OF P ROCEEDING U/S 271AAB OF THE ACT WHICH IS PURELY LEGAL IN NATURE, THE ADDITIONAL GROUND OF APPEAL IS ADMITTED FOR ADJUDICATION. 9. IN THIS REGARD, THE LD AR SUBMITTED THAT SUB-SE CTION (3) OF THE SECTION 271AAB PRESCRIBES THAT SECTION 274 AND SECT ION 275 OF THE ACT SHALL, SO FAR AS MAY BE, APPLY. SUB SECTION (1) OF THE SECTION 274 OF THE ACT MANDATES THAT ORDER IMPOSING PENALTY HAS TO BE IMPOSED ONLY AFTER HEARING THE ASSESSEE OR GIVING ASSESSEE OPPORTUNIT Y OF HEARING. OPPORTUNITY I.E. TO BE GIVEN SHOULD BE MEANINGFUL O NE AND NOT A FARCE. IT WAS SUBMITTED THAT THE LD. AO INITIATED THE PENA LTY U/S 271AAB OF INCOME TAX ACT, 1961 WITHOUT SPECIFYING THE CLAUSE OF SECTION 271AAB OF THE ACT IN THE ASSESSMENT ORDER AND PENALTY NOTI CE UNDER WHICH THE PENALTY WAS INITIATED I.E. WHETHER IT IS FOR CLAUSE (A) OR CLAUSE (B) OR ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 7 CLAUSE (C) OF SECTION 271AAB(1). THE CONDITIONS FOR IMPOSING THE PENALTY UNDER EACH SUCH CLAUSES ARE SEPARATE THEREF ORE, THE CAUSE OF THE DEFAULT SHOULD BE SPECIFIED WHILE INITIATION OF PENALTY IN ASSESSMENT ORDER AS WELL AS IN THE NOTICE ISSUED U/S 274 OF I. TAX ACT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TOWARDS THE INITIATION OF P ENALTY IN ASSESSMENT ORDER AND NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271AAB AS UNDER: A) INITIATION OF PENALTY IN ASSESSMENT ORDER:- THE LD. AO INITIATED THE PENALTY PROCEEDING U/S 271 AAB OF INCOME TAX ACT IN THE ASSESSMENT ORDER DATED 16-03-2016. THE LD AO INITIATED PENALTY BY MENTIONING THAT:- ' IT IS PERTINENT TO MENTION HERE THAT THE SEARCH OPE RATION RELEVANT TO THIS CASE HAS BEEN CONDUCTED 04-09-2013 I.E. FY 201 3-14 RELEVANT TO AY 2014-15. THIS DATE OF INITIATION OF SEARCH U/S 1 32 OF THE ACT FALLS AFTER 1 ST DAY OF JULY, 2012 AS REQUIRED N SUB SECTION (1) OF THE SECTION 271AAB. THE FY 2013-14 IS THE 'SPECIFIED PREVIOUS Y EAR' IN THIS CASE AS EXPLAINED IN CLAUSE (B) OF THE EXPLANATION GIVEN IN THE SECTION 271AAB. ON THE BASIS OF THE DOCUMENTS/PAPERS/EVIDENCES FOUN D AND SEIZED FROM ITS BUSINESS PREMISE (4, PEARL PREMIER, JAMNALAL BA JAJ MARG, OPP. HOTEL RAJ MAHAL, C-SCHEME, JAIPUR), SHRI NITIN GILARA AND VIPUL GILARA (PARTNERS OF THE ASSESSEE FIRM) HAD ACCEPTED UNDISC LOSED INCOME OF RS. 5,73,33,348/- IN HIS STATEMENT U/S 132(4) OF THE AC T. THE TOTAL INCOME DECLARED IN THE RETURN OF INCOME FOR THE 'SPECIFIED PREVIOUS YEAR' INCLUDES THIS 'UNDISCLOSED INCOME' AND FURTHER INCO ME DISCLOSED IN ITR OF RS. 1,77,039/- (TOTAL RS. 5,75,10,387/-) WHICH R EPRESENTED THE 'UNDISCLOSED INCOME' AS EXPLAINED IN CLAUSE (C) OF THE EXPLANATION GIVEN ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 8 IN THE SECTION 271AAB. ACCORDINGLY, PENALTY U/S 271 AAB OF THE ACT IN INITIALED ON SUCH AMOUNT OF RS. 5,75,10,387/- BY WA Y OF ISSUE OF NOTICE U/S 271AAB R.W.S 274 OF THE ACT SEPARATELY. B) NOTICE U/S 274 R/W SECTION 271AAB DATED 16.03.20 16:- THE LD AO ISSUED NOTICE U/S 274 R.W.S 271AAB DATED 16-03-2016 AND 17-08-2016. IN BOTH THE NOTICES, THE CLAUSE (A) OR (B) OR (C) OF SECTION 271AAB HAS NOT BEEN SPECIFICALLY MENTIONED. THE CON DITIONS FOR IMPOSING THE PENALTY UNDER EACH SUCH CLAUSES ARE SE PARATE, THEREFORE, THE NOTICE ISSUED U/S 274 SHOULD BE SPECIFIC. C) PENALTY ORDER:- THE LD AO LEVIED PENALTY OF RS. 57,33,335/- UNDER S UB CLAUSE (A) OF SECTION 271AAB (1) AND RS 35,408/- UNDER SUB CLAUSE (B) OF SECTION 271AAB (1) OF I.TAX ACT. THUS, THE CLAUSE OF SECTION 271AAB(1) HAS NOT BEEN SPECIFIED IN THE INITIATION OF PENALTY IN ASSESSMENT ORDER AS WELL A S IN THE NOTICES ISSUED U/S 274 OF I.TAX ACT, THE LEVY OF PENALTY IS BAD IN LAW AND VOID AB INITIO. 10. IT WAS SUBMITTED BY THE LD AR THAT FROM THE REA DING OF THE NOTICE ISSUED U/S 274 OF I.TAX ACT AND FROM THE ASSESSMENT ORDER, THE LD. AO HAS NOT PUT THE APPELLANT ON NOTICE AS TO UNDER WHI CH CLAUSE OF SUB SECTION (1) OF SECTION 271AAB, THE PENALTY HAS BEEN PROPOSED TO BE IMPOSED. IT IS TO BE APPRECIATED THAT THE APPELLANT WAS NEVER ISSUED NOTICE UNDER SECTION 271AAB(1)(A) AND 271AAB(1)(B) OF THE ACT AND NO EXPLANATION OF THE APPELLANT WAS SOUGHT BY THE LD. AO UNDER SECTION 271AAB(1)(A) AND 271AAB(1)(B). THEREFORE, THE IMPOS ITION OF PENALTY UNDER SECTION 271AAB(1)(A) AND 271AAB(1)(B) IS VOID AB-INITIO AND BAD ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 9 IN LAW IN AS MUCH AS NO OPPORTUNITY TO BE HEARD HAS BEEN PROVIDED BY THE LD. AO BEFORE IMPOSITION OF THE PENALTY AS THE NOTICE ITSELF IS VAGUE. 11. IT WAS SUBMITTED THAT LD. AO HAS NOT RECORDED H IS SATISFACTION IN THE ASSESSMENT ORDER AS TO UNDER WHAT CIRCUMSTANCES OR MANNER THE PROVISIONS OF SECTION 271AAB(1)(A) AND 271AAB(1)(B) ARE ATTRACTED IN THE CASE OF APPELLANT. FURTHER, IT IS RELEVANT THAT LD. AO HAS NOT DISCUSSED THE DEFAULT OF THE APPELLANT ATTRACTING T HE PROVISIONS OF SECTION 271AAB(1)(A) AND 271AAB(1)(B). THE ASSESSME NT HAS BEEN COMPLETED ACCEPTING THE RETURNED INCOME. THEREFORE, WITHOUT RECORDING HIS SATISFACTION, LD. AO WAS NOT JUSTIFIED IN INITI ATING PENALTY PROCEEDINGS UNDER SECTION 271AAB(1) AND IMPOSING PE NALTY UNDER SECTION 271AAB(1)(A) AND 271AAB(1)(B) OF THE ACT. 12. IT WAS SUBMITTED THAT THE LD. AO COULD NOT HAVE ASKED THE APPELLANT TO SHOW CAUSE FOR ALL THE THREE DIFFERENT CLAUSES OF SECTION 271AAB(1) OF THE IT ACT. IT IS WELL-SETTLED PRINCIP LE OF LAW THAT THE APPELLANT SHOULD HAVE BEEN SPECIFICALLY ASKED TO RE PLY ON DEFAULT WITH REFERENCE TO THE SPECIFIC PROVISION OF THE INCOME T AX ACT, 1961. THIS IS SO AS PER THE DECISION IN THE CASE OF MANJUNATHA CO TTON & GINNING FACTORY 359 ITR 565 WHICH HAS BEEN FOLLOWED BY THE HONBLE TRIBUNAL JAIPUR BENCH IN THE CASE OF MRADULA AGARWAL VS. INC OME TAX OFFICER IN ITA NO. 176/JP/2016 DATED 16.09.2016. THE LD. AO HA S IMPOSED PENALTY U/S 271AAB(1)(A) AND 271AAB(1)(B) BUT THE A PPELLANT WAS NOT ISSUED ANY SHOW CAUSE NOTICE MENTIONING THIS SPECIF IC CLAUSE OF THE SECTION NOR THE PENALTY PROCEEDINGS WERE INITIATED IN THE ASSESSMENT ORDER MENTIONING SECTION 271AAB(1)(A) AND 271AAB(1) (B). IN VIEW OF ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 10 THESE ILLEGALITIES THE LEVY OF PENALTY DESERVES TO BE DELETED. LD. AO ISSUED THE SHOW CAUSE NOTICE ON 16-03-2016 AND 17/0 8/2016, WHICH DO NOT DISCLOSE THAT APPELLANT WAS REQUIRED TO SHOW CA USE SPECIFICALLY FOR DEFAULT U/S 271AAB(1)(A) AND 271AAB(1)(B) OF THE AC T. IN VIEW OF THE ABOVE FACTS THE PENALTY PROCEEDING WAS NOT INITIATE D, VALIDITY AND BEFORE IMPOSITION OF PENALTY SHOW CAUSE NOTICE WAS NOT ISS UED VALIDITY AS THERE WAS NO SPECIFIC MENTION OF SECTION 271AAB(1)(A) AND 271AAB(1)(B) FOR WHICH THE LD. AO SUBSEQUENTLY IMPOSED THE PENALTY. THE APPELLANT WAS NOT AWARE TO PUT ITS DEFENSE FOR NON-LEVY OF PENALT Y. IT IS ALSO SUBMITTED THAT A DUTY WAS CAST UPON THE LD. AO TO INITIATE PE NALTY PROCEEDINGS SPECIFICALLY AND SEEK REPLY OF THE APPELLANT ACCORD INGLY. BUT NOTHING WAS DONE OF THIS SORT. THUS, THE INITIATION OF THE PENA LTY PROCEEDINGS ITSELF WAS UNLAWFUL, ILLEGAL AND UNJUST. IN THESE CIRCUMST ANCES THE LEVY OF PENALTY WAS NOT JUSTIFIED AND THE SAME DESERVES TO BE DELETED. 13. IT WAS SUBMITTED THAT SECTION 271AAB OF THE ACT HAS THREE DIFFERENT LIMBS FOR LEVY OF PENALTY AT THREE DIFFER ENT RATES (I) 10% U/S 271AAB(1)(A), (II) 20% U/S 271AAB(1)(B) AND (III) 3 0% TO 90% U/S 271AAB(1)(C). THE SHOW CAUSE NOTICE ISSUED ALONG WI TH THE ASSESSMENT ORDER IS ALSO SILENT REGARDING THE APPLICABILITY OF THE SPECIFIC LIMB OF SECTION FOR LEVY OF PENALTY. IN THE ABSENCE OF THIS , THE APPELLANT WAS PRECLUDED IN SUBMITTING A COGENT REPLY. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FA CTORY, 259 ITR 565 (KAR.) HAS HELD THAT PENALTY IS NOT LEVIABLE IN SIM ILAR CIRCUMSTANCES. THUS THIS BEING A LEGAL LACUNA, PENALTY LEVIED MAY KINDLY BE DELETED. THE RELIANCE IS ALSO PLACED ON THE DECISION OF HON BLE ITAT CHENNAI BENCH IN THE CASE OF DCIT VS. SHRI R. ELANGOVAN IN ITA NO. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 11 1199/CHN/2017 DATED 05.04.2018, WHEREIN HONBLE ITA T IN THE SAID ORDER WHILE CONSIDERING THE VALIDITY OF SHOW CAUSE NOTICE AND INITIATION OF PROCEEDINGS UNDER SECTION 271AAB AND FOLLOWING T HE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY (SUPRA) AS WELL AS THE DECISION O F HONBLE SUPREME COURT DISMISSING THE SLP FILED BY THE REVENUE IN TH E CASE OF CIT VS. SSAS EMERALD MEADOWS, 242 TAXMAN 150 (SC) HELD THA T THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271AAB O F THE ACT NOT SPECIFYING THE GROUND AND CLAUSES FOR LEVY OF PENAL TY WAS NOT VALID AND CONSEQUENTLY THE PENALTY ORDER WAS SET ASIDE. RELIA NCE IS ALSO PLACED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF SHEVETA CONSTRUCTION CO. PVT LTD IN DBIT APPEAL NO. 534/200 8 DATED 06.12.2016, DECISIONS OF THE CO-ORDINATE BENCH IN C ASE OF SHRI DINESH KUMAR AGARWAL V/S. ACIT, CENTRAL CIRCLE-1, JAIPUR (ITA NO. 855 & 856/JP/2017 DATED 24.07.2018), SHRI RAVI MATHUR VS. DCIT, CENTRAL CIRCLE-4, 2018 (6) TMI 1128, SHRI ANIL MATHUR V. DC IT, CENTRAL CIRCLE-4, JAIPUR 2018 (6) TMI 1311 AND SHRI SURESH CHAND MITT AL VS. DCIT, CENTRAL CIRCLE-2, JAIPUR, 2018 (7) TMI 220. THUS, IT WAS SUBMITTED THAT THE ORDER OF IMPOSING PENALTY UNDER SECTION 271AAB IS UNLAWFUL AND NOT SUSTAINABLE IN LAW. 14. IT WAS FINALLY SUBMITTED THAT IT IS TRITE LAW T HAT PENALTIES SHOULD NOT BE IMPOSED UNLESS THE CASE FALLS UNDER THE FOUR CORNERS OF LAW MANDATING THE PENALTY. THUS SUCH LAWS ARE TO BE STR ICTLY IMPLEMENTED. THUS, THE CLAUSE OF SECTION 271AAB(1) HAS NOT BEEN SPECIFIED IN THE INITIATION OF PENALTY IN ASSESSMENT ORDER AS WELL A S IN THE NOTICES ISSUED U/S 274 OF ACT, THE LEVY OF PENALTY IS BAD IN LAW A ND VOID AB INITIO. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 12 15. HEARD BOTH THE PARTIES AND PURUSED THE MATERIA L AVAILABLE ON RECORD. FIRSTLY, THE AO HAS TO RECORD HIS SATISFAC TION IN THE ASSESSMENT ORDER AS TO WHETHER THE ASSESSEE CASE FALLS UNDER S ECTION 271AAB OF THE ACT OR NOT. THE PENALTY PROCEEDINGS ARE THEREAFTER INITIATED WITH THE ISSUE OF NOTICE U/S. 274 AND CULMINATE IN THE PENAL TY ORDER U/S. 271AAB OF THE ACT. FURTHER, THERE CANNOT BE ANY DISPUTE TH AT THE ASSESSEE SHOULD BE CONFRONTED WITH THE CHARGE AGAINST HIM WH ICH IS SINE QUA NON FOR ANY VALID PENALTY PROCEEDINGS. IT IS ONLY WHEN THE ASSESSEE IS MADE AWARE OF SUCH A CHARGE AGAINST HIM THAT HE CAN PRES ENT HIS CONTENTIONS. THUS PRESCRIBING THE CHARGE IN THE PENALTY NOTICE A ND PENALTY ORDER IS MUST. ABSENCE OF A CHARGE IN THE PENALTY NOTICE AND NOT FINDING THE ASSESSEE GUILTY OF A CLEAR OFFENCE IN THE PENALTY O RDER VITIATES THE PENALTY ORDER. 16. THE QUESTION THAT ARISES FOR CONSIDERATION IS T HE NATURE OF CHARGE(S) SPECIFIED UNDER SECTION 271AAB OF THE ACT . WHETHER IT PROVIDES FOR A SINGULAR CHARGE OF UNDISCLOSED INCOM E FOR THE SPECIFIED PREVIOUS YEAR FOUND DURING THE COURSE OF SEARCH INI TIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 OR IT PRO VIDES FOR MULTIPLES CHARGES AS SO CONTENDED BY THE LD AR IN TERMS OF CL AUSE (A), CLAUSE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECTION 271AAB OF THE ACT. 17. ON CLOSE READING OF PROVISIONS OF SECTION 271AA B, WE FIND 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 PURPOSES OF QUANTIFYING THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 13 PENALTY, THE ASSESSING OFFICER HAS TO EXAMINE THE S ATISFACTION OF ANCILLARY CONDITIONS AS SPECIFIED UNDER CLAUSE (A), CLAUSE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECTION 271AAB. MERELY BE CAUSE THE QUANTUM OF PENALTY VARIES FROM 10% TO 30% SUBJECT TO COMPLI ANCES WITH THE ANCILLIARY CONDITIONS, IT CANNOT BE SAID THAT WHERE THE AO HAS INITIATED THE PENALTY UNDER SECTION 271AAB, THERE IS ANY AMBI GUITY IN THE CHARGE OR THERE IS ANY LACK OF APPLICATION OF MIND ON PART OF THE ASSESSING OFFICER. FURTHER, THE LEVY OF PENALTY UNDER SECTIO N 271AAB IS NOT BASED ON ADDITION MADE AND INVESTIGATION/ENQUIRY CONDUCTE D DURING 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 NOTICE IS ISSUED U/S 271AAB, THE ASSESSING OFFICER IS MAKING THE ASSESSEE AWARE OF THE CHARGE AGAINST HIM IN TERMS OF UNDISCLOSED INCOME FOUND DU RING THE COURSE OF SEARCH AND THUS, THE ASSESSEE IS GRANTED AN OPPORTU NITY TO REFUTE SUCH CHARGE AND FILE HIS EXPLANATIONS/SUBMISSIONS. UNLIK E PROVISIONS OF SECTION 271(1)(C) WHICH PROVIDES FOR SEPARATE CHARG E OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCUR ATE PARTICULARS OF INCOME, THERE IS A SINGULAR CHARGE UNDER SECTION 2 71AAB I.E, OF THE EXISTENCE OF UNDISCLOSED INCOME FOR THE SPECIFIED P REVIOUS YEAR FOUND DURING THE COURSE OF SEARCH. THEREFORE, IN THE INS TANT CASE, WHERE THE NOTICE DATED 16.3.2016 IS ISSUED TO THE ASSESSEE 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 HIM AND A N OPPORTUNITY HAS THUS BEEN GIVEN TO HIM TO REBUT SUCH CHARGE AND THE REFORE, WE DONOT SEE ANY INFIRMITY IN THE INITIATION OF THE PENALTY PROCEEDINGS AND CONSEQUENT PENALTY ORDER SO PASSED BY THE AO. A SI MILAR VIEW HAS BEEN ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 14 TAKEN BY THE CO-ORDINATE BENCH IN CASE OF MAHESH KU MAR JAIN & OTHERS (ITA NO. 630/JP/17 & OTHERS DATED 27.11.2017), AVAILABLE AT APB PAGE 156-195, WHEREIN IT WAS HELD AS UNDER: 10. THE FIRST AND FOREMOST QUESTION THAT ARISES FOR CONSIDERATION IS THE NATURE OF PENALTY PROVISIONS AS CONTAINED IN SECTIO N 271AAB(1)(A) AND 271AAB(1)(C). IN OTHER WORDS, WHETHER THESE PROVISI ONS PROVIDE FOR LEVY OF PENALTY ON ACCOUNT OF SEPARATE AND INDEPENDENT C HARGES OR THESE PROVISION PROVIDE FOR LEVY OF PENALTY FOR THE SAME CHARGE UNDER SECTION 271AAB, HOWEVER, SUBJECT TO SATISFACTION OF THE PRE SCRIBED CONDITIONS, THE QUANTUM OF PENALTY MAY VARY AS SPECIFIED IN THE RESPECTIVE SUB- CLAUSES OF 271AAB OF THE ACT. 11. IN THIS REGARD, WE REFER TO THE PROVISIONS OF SECTION 271AAB WHICH ARE REPRODUCED AS UNDER: 271AAB. (1) THE ASSESSING OFFICER MAY, NOTWITHSTAN DING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRE CT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, (A) A SUM COMPUTED AT THE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT U NDER SUB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SPECIFIES THE M ANNER IN WHICH SUCH INCOME HAS BEEN DERIVED; (II) SUBSTANTIATES THE MANNER IN WHICH THE UNDISC LOSED INCOME WAS ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 15 DERIVED; AND (III) ON OR BEFORE THE SPECIFIED DATE (A) PAYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; AND (B) FURNISH ES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSE SSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT U NDER SUB-SECTION (4) OF SECTION 132 , DOES NOT ADMIT THE UNDISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE (A) DECLARES SUCH INCOME IN THE RETU RN OF INCOME FURNISHED 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 WHICH SHALL NOT BE LESS THAN THIRTY PER CENT BUT WHICH SHALL NOT EXCEED NINETY PERCENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT COVERED BY THE PROVISIO NS OF CLAUSES (A) AND (B). (2) NO PENALTY UNDER THE PROVISIONS OF CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 SHALL BE IMPOSED UPON THE ASSESSEE IN RESPECT OF T HE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTION (1) O R 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 THI S SECTION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 16 (A) 'SPECIFIED DATE' MEANS THE DUE DATE OF FURNIS HING OF 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, BU T 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 OR OTHER V ALUABLE 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 SE ARCH 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 COMMISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL COMMISSIONER OR] CO MMISSIONER 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 RECOR DED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 17 TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CO NDUCTED. 12. ON READING OF THE ABOVE PROVISIONS, IT PROVID ES THAT THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CASE WHERE SEARCH HA S BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSESSE E SHALL PAY BY WAY OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYA BLE BY HIM, A SUM COMPUTED AT THE RATE OF 10% OF THE UNDISCLOSED INCO ME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSESSEE, IN THE COURSE OF T HE SEARCH, IN A STATEMENT UNDER SUB-SECTION (4) OF SECTION 132 , ADMITS THE UNDISCLOSED INCOME AND SATISFIES OTHER CONDITIONS AS PROVIDED I N 271AAB(1)(A). IT FURTHER PROVIDES THAT WHERE THE DECLARATION OF UNDI SCLOSED INCOME IS NOT MADE BY THE SEARCHED PERSON IN THE COURSE OF SEARCH BUT IS DECLARED IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PR EVIOUS YEAR AND SUBJECT TO SATISFACTION OF OTHER CONDITIONS, PENALT Y @ 20% IS PAYABLE BY HIM. IT FURTHER PROVIDES THAT WHERE THE DECLARATIO N OF UNDISCLOSED INCOME IS NEITHER MADE BY THE SEARCHED PERSON IN TH E COURSE OF SEARCH NOR DECLARED IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR AND ADDITIONS ARE MADE DURING THE COURSE OF AS SESSMENT PROCEEDINGS, PENALTY WHICH CAN VARY FROM 30% TO 90% IS PAYABLE BY HIM. 13. BOTH THE PROVISIONS AS CONTAINED IN SECTION 271 AAB(1)(A) AND 271AAB(1)(C) THUS PROVIDES FOR LEVY OF PENALTY IN C ASES WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012 AND QUANTUM OF PENALTY HAS BEEN KEPT AT 10% WH ERE THERE IS DECLARATION IN THE STATEMENT RECORDED DURING THE CO URSE OF SEARCH, AND ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 18 WHERE THERE IS NEITHER A DECLARATION IN THE STATEME NT U/S 132(4) RECORDED DURING THE COURSE OF SEARCH NOR A DECLARAT ION IN THE RETURN OF INCOME, THE PENALTY HAS BEEN KEPT AT A HIGHER PEDES TAL WHICH CAN VARY FROM 30% TO 90%. FURTHER, IT IS NOTED THAT THE PRO VISIONS OF SECTION 271AAB OVERRIDES SECTION 271(1)(C) WHICH INFACT CON TAIN PROVISIONS FOR LEVY OF PENALTY UNDER TWO SEPARATE LIMBS- CONCEALME NT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. FURTHER, THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF SA S EMERALD MEADOWS (SUPRA) RENDERED IN THE CONTEXT OF TWO SEPARATE LIM BS/CHARGES UNDER SECTION 271(1)(C) THEREFORE DOESNT SUPPORT THE CAS E OF THE ASSESSEE COMPANY. IN OUR CONSIDERED VIEW, BOTH THE PROVISION S OF SECTION 271AAB(1)(A) AND 271AAB(1)(C) PROVIDES FOR LEVY OF PENALTY FOR AN IDENTICAL CHARGE I.E, UNDISCLOSED INCOME FOR THE SP ECIFIED PREVIOUS YEAR WHICH IS FOUND DURING THE COURSE OF SEARCH INITIATE D UNDER SECTION 132 ON OR AFTER THE 1ST DAY OF JULY, 2012. THEREFORE, WE ARE UNABLE TO ACCEDE TO THE CONTENTION OF THE LD AR THAT THE LD C IT(A) HAS ERRED IN CONFIRMING THE LEVY OF PENALTY U/S 271AAB(1)(A) WHI CH PROVIDES FOR A SEPARATE AND INDEPENDENT CHARGE AND COMES UNDER DIF FERENT SECTION THAN THE PROVISIONS OF SECTION 271AAB(1)(C) WHICH H AS BEEN SPECIFICALLY INVOKED BY THE AO. 18. FURTHER, EVEN FOR SAKE OF ARGUMENT, IF IT IS AS SUMED THAT PRIMARY CHARGE OF UNDISCLOSED INCOME HAS TO BE READ ALONG W ITH ANCILLARY CONDITIONS AND THUS MULTIPLES CHARGES HAVE BEEN PRE SCRIBED IN TERMS OF CLAUSE (A), CLAUSE (B) OR CLAUSE (C) TO SUB-SECTION (1) TO SECTION 271AAB AND WHERE THE ASSESSING OFFICER HAS NOT STATED THE SPECIFIED CHARGE AT THE TIME OF INITIATION OF PENALTY PROCEEDINGS, IN O UR CONSIDERED VIEW, SUCH UNCERTAIN CHARGE AT THE STAGE OF INITIATION OF PENALTY PROCEEDINGS ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 19 CAN BE MADE GOOD WITH A CLEAR-CUT CHARGE IN THE PEN ALTY ORDER. IN ANY CASE, EXISTENCE OF A CLEAR-CUT CHARGE IN PENALTY OR DER IS A MUST SO AS TO VALIDATE ANY PENALTY ORDER AND SO LONG AS THERE IS A CLEAR FINDING IN THE PENALTY ORDER, NO INFIRMITY CAN BE SAID TO ARISE IN TERMS OF INITIATING OF SUCH PROCEEDINGS AND SUBSEQUENT PENALTY ORDER. IN THIS REGARD, REFERENCE CAN BE MADE TO THE THREE MEMBER BENCH DEC ISION IN CASE OF HPCL MITTAL ENERGY VS ADD. CIT REPORTED IN 97 TAXMA NN.COM 03. THOUGH THE SAID DECISION HAS BEEN RENDERED IN CONTE XT OF SECTION 271(1)(C), IT HAS LAID DOWN CERTAIN LEGAL PROPOSITI ON REVOLVING AROUND INITIATION OF PENALTY PROCEEDING AND CHARGES TOWARD S LEVY OF PENALTY AND WE, THEREFORE, DEEM IT RELEVANT TO CONSIDER THE SAM E FOR THE PURPOSES OF PRESENT APPEAL. 19. IN THE AFORESAIDSAID DECISION, THE COORDINATE B ENCH AFTER ANALYZING CATENA OF JUDICIAL PRONOUNCEMENTS, INCLUD ING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) WHICH HAS ALSO BEEN CITED BY THE LD AR IN THE INSTANT CASE, IT WAS HELD AS UNDER: 15. THE MOOT QUESTION IS THAT WHAT SHOULD BE THE NATUR E OF SPECIFICATION OF A CHARGE BY THE AO AT THE STAGE OF INITIATION OF PENALTY PROCEEDINGS AND AT THE TIME OF PASSING THE PENALTY ORDER. IS THE AO REQUIRED TO SPECIFY IN THE PENALTY NOTICE /ORDER AS TO WHETHER IT IS A CASE OF 'CONCEALMENT OF PARTICULARS OF INCOME'; OR 'FURNISHING OF INACCURATE PARTICULARS OF INCOME'; O R BOTH OF THEM, WHICH CAN BE EXPRESSED BY USING THE WORD 'AND' BETW EEN THE TWO EXPRESSIONS. WHEN THE AO IS SATISFIED THAT IT IS A CLEAR-CUT CASE OF ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 20 CONCEALMENT OF PARTICULARS OF INCOME, HE MUST SPECI FY IT SO IN THE NOTICE AT THE TIME OF INITIATION OF PENALTY PROCEED INGS AND ALSO IN THE PENALTY ORDER. THE AO CANNOT INITIATE PENALTY O N THE CHARGE OF 'CONCEALMENT OF PARTICULARS OF INCOME', BUT ULTI MATELY FIND THE ASSESSEE GUILTY IN THE PENALTY ORDER OF 'FURNISHING INACCURATE PARTICULARS OF INCOME'. IN THE SAME MANNER, HE CANN OT BE UNCERTAIN IN THE PENALTY ORDER AS TO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY USING SLASH BET WEEN THE TWO EXPRESSIONS. WHEN THE AO IS SATISFIED THAT IT IS A CLEAR-CUT CASE OF 'FURNISHING OF INACCURATE PARTICULARS OF INCOME', H E MUST AGAIN SPECIFY IT SO IN THE NOTICE AT THE TIME OF INITIATI ON OF PENALTY PROCEEDINGS AND ALSO IN THE PENALTY ORDER. AFTER IN ITIATING PENALTY ON THE CHARGE OF 'FURNISHING OF INACCURATE PARTICUL ARS OF INCOME', HE CANNOT IMPOSE PENALTY BY FINDING THE ASSESSEE GU ILTY OF 'CONCEALMENT OF PARTICULARS OF INCOME'. AGAIN, HE C ANNOT BE UNCERTAIN IN THE PENALTY ORDER AS TO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY USING SLASH BET WEEN THE TWO EXPRESSIONS. WHEN THE AO IS SATISFIED THAT IT IS A CLEAR-CUT CASE OF IMPOSITION OF PENALTY U/S. 271(L)(C) OF THE ACT ON TWO OR MORE ADDITIONS/DISALLOWANCES, ONE OR MORE FALLING UNDER THE EXPRESSION 'CONCEALMENT OF PARTICULARS OF INCOME' AND THE OTHE R UNDER THE 'FURNISHING OF INACCURATE PARTICULARS OF INCOME', H E MUST SPECIFY IT SO BY USING THE WORD 'AND' BETWEEN THE TWO EXPRESSI ONS IN THE NOTICE AT THE TIME OF INITIATION OF PENALTY PROCEED INGS. IF HE REMAINS CONVINCED IN THE PENALTY PROCEEDINGS THAT T HE PENALTY WAS RIGHTLY INITIATED ON SUCH COUNTS AND IMPOSES PE NALTY ACCORDINGLY, HE MUST SPECIFICALLY FIND THE ASSESSEE GUILTY OF ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 21 'CONCEALMENT OF PARTICULARS OF INCOME' AND ALSO 'FU RNISHING OF INACCURATE PARTICULARS OF INCOME' IN THE PENALTY OR DER. IF THE CHARGE IS NOT LEVIED IN THE ABOVE MANNER IN ALL THE THREE CLEAR-CUT SITUATIONS DISCUSSED ABOVE IN THE PENALTY NOTICE AN D ALSO IN THE PENALTY ORDER, THE PENALTY ORDER BECOMES UNSUSTAINA BLE IN LAW. 16. THE HON'BLE KARNATAKA HIGH COURT IN CIT V. MANJUNA THA COTTON AND GINNING FACTORY HAS HELD THAT A PERSON W HO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND I MPOSING PENALTY ON HIM AS SECTION 274 MAKES IT CLEAR THAT A SSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AND SHOULD HAVE F ULL OPPORTUNITY TO MEET THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(L)(C) DO N OT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE HON'BLE HIGH C OURT WENT ON TO HOLD THAT: 'CLAUSE (C) DEALS WITH TWO SPECIFIC OFFE NCES, THAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME.... BUT DRAWING UP PENALTY PR OCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOT HER OFFENCE OR FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW.. THUS ONCE THE PROCEEDINGS ARE I NITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON T HE SAME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALT Y PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID'. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 22 17. IN MANU ENGG. WORKS (SUPRA) PENALTY WAS IMPOSED BY NOTING: 'THAT THE ASSESSEE HAD CONCEALED ITS INCOME AND/OR THAT IT HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME '. STRIKING DOWN THE PENALTY, THE HON'BLE HIGH COURT HELD THAT: 'IT WAS INCUMBENT UPON THE IAC TO COME TO A POSITIVE FINDIN G AS TO WHETHER THERE WAS CONCEALMENT OF INCOME BY THE ASSE SSEE OR WHETHER ANY INACCURATE PARTICULARS OF SUCH INCOME H AD BEEN FURNISHED BY THE ASSESSEE. NO SUCH CLEAR-CUT FINDIN G WAS REACHED BY THE IAC AND, ON THAT GROUND ALONE, THE ORDER OF PENALTY PASSED BY THE IAC WAS LIABLE TO BE STRUCK DOWN.' 18. IN PADMA RAM BHARALI (SUPRA), THE HON'BLE HIGH COU RT DID NOT SUSTAIN PENALTY LEVIED U/S. 271(L)(C) WHEN: 'TH E INITIATION OF THE PENALTY PROCEEDING WAS FOR CONCEALMENT OF THE P ARTICULARS OF INCOME. BUT THE TRIBUNAL FINALLY HELD THAT THE ASSE SSEE WOULD BE DEEMED TO HAVE CONCEALED THE PARTICULARS OF INCOME OR TO HAVE FURNISHED INACCURATE PARTICULARS OF SUCH INCOME.' 19. THUS IT IS EVIDENT THAT WHEN THE AO IS SATISFIED A T THE STAGE OF INITIATION OF PENALTY PROCEEDINGS OF A CLEAR-CUT CHARGE AGAINST THE ASSESSEE IN ANY OF THE THREE SITUATIONS DISCUSS ED ABOVE (SAY, CONCEALMENT OF PARTICULARS OF INCOME), BUT IMPOSES PENALTY BY HOLDING THE ASSESSEE AS GUILTY OF THE OTHER CHARGE (SAY, FURNISHING OF INACCURATE PARTICULARS OF INCOME) OR AN UNCERTAI N CHARGE (CONCEALMENT OF PARTICULARS OF INCOME/FURNISHING OF INACCURATE PARTICULARS OF INCOME), THE PENALTY CANNOT BE SUSTA INED. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 23 20. ANOTHER CRUCIAL FACTOR TO BE KEPT IN MIND IS THAT THE SATISFACTION OF THE AO AS TO A CLEAR-CUT CHARGE LEV ELED BY HIM IN THE PENALTY NOTICE OR THE PENALTY ORDER MUST CONCUR WITH THE ACTUAL DEFAULT. IF THE CLEAR-CUT CHARGE IN THE PENA LTY NOTICE OR THE PENALTY ORDER IS THAT OF 'CONCEALMENT OF PARTICULAR S OF INCOME', BUT IT TURNS OUT TO BE A CASE OF 'FURNISHING OF INACCUR ATE PARTICULARS OF SUCH INCOME' OR VICE-VERSA, THEN ALSO THE PENALTY O RDER CANNOT LEGALLY STAND. 21. APART FROM THE ABOVE THREE SITUATIONS IN WHICH THE AO HAS CLEAR-CUT SATISFACTION, THERE CAN BE ANOTHER FOURTH SITUATION AS WELL. IT MAY BE WHEN IT IS DEFINITELY A CASE OF UND ER-REPORTING OF INCOME BY THE ASSESSEE FOR WHICH AN ADDITION/DISALL OWANCE HAS BEEN MADE, BUT THE AO IS NOT SURE AT THE STAGE OF I NITIATION OF PENALTY PROCEEDINGS OF THE PRECISE CHARGE AS TO 'CO NCEALMENT OF PARTICULARS OF INCOME' OR 'FURNISHING OF INACCURATE PARTICULARS OF INCOME'. IN SUCH CIRCUMSTANCES, HE MAY USE SLASH BE TWEEN THE TWO EXPRESSIONS AT THE TIME OF INITIATION OF PENALT Y PROCEEDINGS. HOWEVER, DURING THE PENALTY PROCEEDINGS, HE MUST GE T DECISIVE, WHICH SHOULD BE REFLECTED IN THE PENALTY ORDER, AS TO WHETHER THE ASSESSEE IS GUILTY OF 'CONCEALMENT OF PARTICULARS O F INCOME' OR 'FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOM E'. UNCERTAIN CHARGE AT THE TIME OF INITIATION OF PENALTY, MUST N ECESSARILY BE SUBSTITUTED WITH A CONCLUSIVE DEFAULT AT THE TIME O F PASSING THE PENALTY ORDER. IF THE PENALTY IS INITIATED WITH DOU BT AND ALSO CONCLUDED WITH A DOUBT AS TO THE CONCEALMENT OF PAR TICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF S UCH INCOME ETC., ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 24 THE PENALTY ORDER IS VITIATED. IF ON THE OTHER HAND , IF THE PENALTY IS INITIATED WITH AN UNCERTAIN CHARGE OF 'CONCEALMENT OF PARTICULARS OF INCOME/FURNISHING OF INACCURATE PARTICULARS OF I NCOME' ETC., BUT THE ASSESSEE IS ULTIMATELY FOUND TO BE GUILTY OF A SPECIFIC CHARGE OF EITHER 'CONCEALMENT OF PARTICULARS OF INCOME' OR 'FURNISHING OF INACCURATE PARTICULARS OF INCOME', THEN NO FAULT CA N BE FOUND IN THE PENALTY ORDER. 22. IN MANU ENGINEERING WORKS (SUPRA), THE HON'BLE GUJ ARAT HIGH COURT NOTICED THAT THE CHARGE AT THE STAGE OF INITI ATION OF PENALTY PROCEEDINGS AS WELL IN THE PENALTY ORDER WAS UNCERT AIN AND THE EXPRESSION USED AT BOTH THE STAGES WAS CONCEALMENT OF PARTICULARS OF INCOME AND/OR FURNISHING OF INACCURA TE PARTICULARS OF SUCH INCOME. IT STRUCK DOWN THE PENALTY BY HOLDI NG THAT THE ASSESSEE MUST HAVE BEEN FOUND TO BE GUILTY OF A CER TAIN CHARGE IN THE PENALTY ORDER. IT, HOWEVER, DID NOT FIND ANYTHI NG AMISS WITH THE INITIATION OF PENALTY ON SUCH UNCERTAIN CHARGE, WHICH IS VIVID FROM THE FOLLOWING OBSERVATIONS : 'WE FIND FROM THE ORDER OF THE IAC, IN THE PENALTY PROCEEDINGS, THAT IS, THE FINAL CONCLUSION AS EXPRESSED IN PARA. 4 OF THE ORDER: 'I AM OF THE OPINION THAT IT WILL HAVE TO BE SAID T HAT THE ASSESSEE HAD CONCEALED ITS INCOME AND/OR THAT IT HAD FINISHE D INACCURATE PARTICULARS OF SUCH INCOME'. NOW, THE LANGUAGE OF ' AND/OR' MAY BE PROPER IN ISSUING A NOTICE AS TO PENALTY ORDER O R FRAMING OF CHARGE IN A CRIMINAL CASE OR A QUASI-CRIMINAL CASE, BUT IT WAS INCUMBENT UPON THE IAC TO COME TO A POSITIVE FINDIN G AS TO ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 25 WHETHER THERE WAS CONCEALMENT OF INCOME BY THE ASSE SSEE OR WHETHER ANY INACCURATE PARTICULARS OF SUCH INCOME H AD BEEN FURNISHED BY THE ASSESSEE.' 23. IT IS THUS EVIDENT THAT UNCERTAIN CHARGE AT THE STAGE OF INITIATION OF PENALTY PROCEEDINGS CAN BE MADE GOOD WITH A CLEAR- CUT CHARGE IN THE PENALTY ORDER. IN ANY CASE, EXIST ENCE OF A CLEAR- CUT CHARGE IN PENALTY ORDER IS A MUST SO AS TO VALI DATE ANY PENALTY ORDER. 20. SIMILAR PROPOSITION HAS BEEN LAID DOWN IN CASE OF SHEVETA CONSTRUCTIONS (SUPRA) WHEREIN THE HONBLE RAJASTHAN HIGH COURT HAS HELD THAT THE AO HAS TO GIVE A NOTICE AS TO WHETHE R HE PROPOSES TO LEVY PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INA CCURATE PARTICULARS. HE CANNOT HAVE BOTH THE CONDITIONS AND IF IT IS SO HE HAS TO SAY SO IN THE NOTICE AND RECORD A FINDING IN THE PENALTY ORDE R. 21. IN THE INSTANT CASE, THE AO HAS RECORDED HIS SA TISFACTION WHILE PASSING THE ASSESSMENT ORDER THAT THERE IS UNDISCLO SED INCOME FOUND DURING THE COURSE OF SEARCH AND OTHER CONDITIONS BE ING SATISFIED AND THEREFORE, THE ASSESSEE IS LIABLE FOR PENALTY U/S 2 71AAB, THEREAFTER THE NOTICE INITIATING THE PENALTY PROCEEDINGS U/S 271AA B WAS ISSUED TO THE ASSESSEE. THEREAFTER, THE ASSESSING OFFICER HAS GIV EN A FINDING AS REFLECTED IN THE PENALTY ORDER THAT THE ASSESSEE IS LIABLE FOR PENALTY U/S 271AAB(1)(A) WHICH PROVIDES FOR LEVY OF PENALTY @ 1 0% ON THE UNDISCLOSED INCOME OF RS 5,73,33,348/- FOUND DURING THE COURSE OF SEARCH AND ADMITTED IN HIS STATEMENT RECORDED U/S 1 32(4). FURTHER, IT ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 26 WAS ALSO HELD THAT THE ASSESSEE IS LIABLE FOR PENAL TY U/S 271AAB(1)(B) OF THE ACT WHICH PROVIDES FOR LEVY OF PENALTY @ 20% ON THE UNDISCLOSED INCOME OF RS. 1,77,039/- DISCLOSED IN THE INCOME TA X RETURN BY THE ASSESSEE. AS HELD BY THE COORDINATE BENCH (SUPRA), THE UNCERTAIN CHARGE AT THE TIME OF INITIATION OF PENALTY HAS BEE N MADE GOOD AND SUBSTITUTED WITH A CONCLUSIVE DEFAULT AT THE TIME O F PASSING THE PENALTY ORDER AND THAT IN SUCH A CASE, NO FAULT CAN BE FOUN D IN THE PENALTY ORDER. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY TH E HONBLE RAJASTHAN HIGH COURT IN CASE OF SHWETA CONSTRUCTION (SUPRA). HENCE, FOLLOWING THE SAME, WE DONOT SEE ANY INFIRMITY IN THE INITIAT ION OF PENALTY PROCEEDINGS AND CONSEQUENT PENALTY ORDER SO PASSED BY THE ASSESSING OFFICER AND THE CONTENTIONS SO RAISED BY THE LD AR IN THIS REGARD CANNOT BE ACCEPTED. FURTHER, WE FIND THAT THE DECISION OF THE COORDINATE BENCHES SO RELIED UPON BY THE LD AR, HAVE BEEN REND ERED WITHOUT TAKING INTO CONSIDERATION EARLIER DECISION OF THE C O-ORDINATE BENCH IN CASE OF MAHESH JAIN (SUPRA) AND EARLIER DECISION OF THE LARGER BENCH OF THE TRIBUNAL IN CASE OF ONGC MITTAL (SUPRA) AND THU S DOESNT ACT AS A BINDING PRECEDENT. IN LIGHT OF ABOVE DISCUSSIONS, T HE ADDITIONAL GROUND SO RAISED BY THE ASSESSEE IS HEREBY DISMISSED. 22. NOW, COMING TO THE MERITS OF LEVY OF PENALTY. D URING THE COURSE OF SEARCH, THE PARTICULAR OF INCOME IN THE HANDS OF THE ASSESSEE WHICH WAS SURRENDERED IN THE STATEMENT RECORDED U/S 132(4 ) OF ACT IS AS UNDER: ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 27 S.NO PARTICULARS AMOUNT (RS) (I) ON ACCOUNT OF EXCESS STOCK FOUND AT THE PREMISES OF ASSESSEE 4,36,33,348 (II) ON ACCOUNT OF EXCESS CASH FOUND AT THE RESIDENCE OF PARTNERS 5,00,000 (III) ON ACCOUNT OF CASH ADVANCES OR LAND PURCHASES ON THE BASIS OF RECEIPTS SEIZED VIDE ANNEXURE AS-2 PG 1-4 AT THE RESIDENCE OF PARTNER 1,12,00,000 (IV) ON ACCOUNT OF SILVER UTENSILS FOUND AT THE RESIDENCE OF PARTNERS 12,70,861 (V) OTHER POSSIBLE DISCREPANCIES IN BOOKS OF ACCOUNT (RS. 20,00,000/- MINUS RS. 12,70,861) 7,29,139 TOTAL 5,73,33,348 THE ASSESSEE FILED ITS RETURN U/S 139(1) OF INCOME TAX ACT ON 01/10/2014 DECLARING TOTAL INCOME OF RS. 5,91,64,56 1/- UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION'. IN PROFIT AN D LOSS ACCOUNT, INCOME OF RS. 5,75,10,387/- HAS BEEN SHOWN AS 'INCO ME SURRENDERED DURING THE SEARCH' AND NET PROFIT OF RS. 5,91,20,61 5 HAS BEEN DECLARED AS REGULAR BUSINESS INCOME OF THE ASSESSEE. THE AS SESSMENT WAS COMPLETED U/S 143(3) OF ACT, AT TOTAL INCOME RS. 5, 93,25,040/- WHEREIN THE RETURNED INCOME WAS ACCEPTED EXCEPT FOR AN ADDI TION OF RS. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 28 1,60,479/- WHICH WAS MADE ON A/C OF DISALLOWANCE OF CERTAIN EXPENSES. THE LD AO LEVIED PENALTY OF RS. 57,33,335/- UNDER C LAUSE (A) OF SECTION 271AAB(1) @ 10% OF RS. 5,73,33,348/- BEING INCOME S URRENDERED IN SEARCH AS RECORDED IN STATEMENT U/S 132(4) AND OF R S. 35,408/- UNDER SUB CLAUSE (B) OF SECTION 271AAB (1) OF ACT @ 20% O F RS. 1,77,039/-, BEING DIFFERENCE OF RS. 5,75,10,387/- MINUS 5,73,33 ,348/- OF SURRENDERED INCOME AS REPORTED IN THE RETURN OF INC OME. 23. IT WAS SUBMITTED BY THE LD AR THAT THE ADDITIO NAL INCOME DECLARED IN RETURN OF INCOME WAS BUSINESS INCOME AND NOT UND ISCLOSED INCOME. THE TERM UNDISCLOSED INCOME HAS BEEN DEFINED U/S 271AAB OF THE ACT AS UNDER:- EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (A) 'UNDISCLOSED INCOME' MEANS- (I) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPR ESENTED, EITHER WHOLLY OR PARTLY, BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS- (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEA RCH 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 CHIEF COMM ISSIONER OR COMMISSIONER BEFORE THE DATE OF THE SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REP RESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXP ENSE RECORDED ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 29 IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAIN ED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YE AR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH NOT BEEN CONDUCTED. 24. IT WAS SUBMITTED THAT THE ADDITIONAL BUSINESS I NCOME DECLARED IN THE INCOME TAX RETURN FILED U/S 139(1) OF INCOME TA X ACT, 1961, CANNOT BE TREATED AS 'UNDISCLOSED INCOME' WITHIN THE SPEC IFIC MEANING GIVEN IN SECTION 271AAB. THE DEPARTMENT CARRIED OUT SEARC H AND SEIZURE OPERATIONS OVER ASSESSEE GROUP AND DURING THE COURS E OF THE SEARCH, THE DEPARTMENT HAS NOT FOUND ANY EVIDENCE OF UNACCO UNTED PURCHASE/SALES OR SOURCE OF UNDISCLOSED INCOME. THE DISCLOSURE OF ADDITIONAL INCOME WAS BONA-FIDE DISCLOSURE BY THE A SSESSEE IN ORDER TO BUY PEACE AND AVOID PROLONGED LITIGATION. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE DEPARTMENT COULD NOT PR OVE ANY SOURCE OF UNDISCLOSED INCOME OF THE ASSESSEE. THE LD AO COMPL ETED THE ASSESSMENT U/S 143(3) OF INCOME TAX ACT AND MERELY ON THE BASIS OF SEARCH STATEMENT, THE ADDITIONAL BUSINESS INCOME WA S ACCEPTED. THE ADDITIONAL INCOME DECLARED IN PROFIT AND LOSS ACCOU NT OF THE ASSESSEE IS BASED ON THE SEARCH STATEMENT IN ORDER TO AVOID PRO LONGED LITIGATION AND BUY PEACE AND THIS HAS BEEN SPECIFICALLY MENTIO NED IN SUBMISSION FILED BEFORE THE LD AO. 25. IT WAS SUBMITTED THAT THE REVENUE AUTHORITIES H AVE EXERTED UNDUE PRESSURE AND OBTAINED THE SURRENDER OF INCOME FROM THE ASSESSEE. ATTENTION WAS DRAWN TOWARDS BOARDS CIRCU LAR DATED 10 TH MARCH, 2003 WHEREIN THE BOARD HAS EXPRESSED ITS CON CERN ABOUT THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 30 PRACTICE OF CONFESSION OF ADDITIONAL INCOME DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS AND, THEREFORE, CLARIFIED T HAT THE CONFESSION DURING THE COURSE OF SEARCH AND SURVEY OPERATION DO NOT SERVE ANY USEFUL PURPOSE. THERE SHOULD BE FOCUS AND CONCENTRA TION ON COLLECTION OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE T HE INCOME TAX DEPARTMENT. THE BOARD HAS AGAIN ISSUED A CIRCULAR D ATED 18 TH DECEMBER, 2014 AND ADVISED THE TAXING AUTHORITIES T O AVOID OBTAINING ADMISSION OF UNDISCLOSED INCOME UNDER COERCION/UNDU E INFLUENCE. EXCEPT THE STATEMENT UNDER SECTION 132(4), THERE IS NO UNDISCLOSED INCOME IN THE CASE OF THE ASSESSEE. THE ASSESSEE WA S FORCED TO ADMIT AND SURRENDER THE INCOME IN THE STATEMENT RECORDED UNDER SECTION 132(4). THE PROVISIONS OF SECTION 271AAB CLEARLY RE QUIRES THAT SUCH UNDISCLOSED INCOME TO BE SUBSTANTIATED AND, THEREFO RE, THE ASSESSEE IS REQUIRED TO SPECIFY THE MANNER IN WHICH SUCH INCOME HAS BEEN DERIVED AND FURTHER SUBSTANTIATE THE SAME FURNISHING MATERI AL AVAILABLE WITH HIM. IN THE ABSENCE OF ANY RECORD OR MATERIAL TO SH OW ANY UNDISCLOSED SOURCE OF INCOME, THE ENTIRE DISCLOSURE ON PAPERS I S TO AVOID UNDUE HARASSMENT AND UNWANTED LITIGATION. 26. IT WAS SUBMITTED THAT FACTUALLY THERE WAS NO UN DISCLOSED INCOME IN THE HANDS OF THE ASSESSEE, THIS MAY BE FURTHER S EEN FROM THE FOLLOWING SUBMISSION ON EACH OF INGREDIENTS OF SURR ENDER:- A) STOCK OF RS. 4,36,33,348/- SURRENDERED IN SEARCH STATEMENT AGAINST WHICH RS. 4,38,10,387/- SHOWN AS BUSINESS I NCOME UTILIZED/ REPRESENTED AS EXCESS STOCK. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 31 THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS. 5,75,10,387/- SHOWN AS 'INCOME SURRENDERED DURING THE SEARCH' IN PROFIT & LOSS ACCOUNT OUT OF WHICH RS. 4,38,10,387/- STATED AS AG AINST EXCESS STOCK. THE LD AO HAS NOT DETERMINED IT AS INCOME FROM OTHE R SOURCES U/S 69 OF INCOME TAX ACT IN THE ASSESSMENT BUT ACCEPTED AS BU SINESS INCOME OF CURRENT YEAR. NOW THE MUTE QUESTION ARISE, WHETHER THE EXCESS STOCK REPRESENTS UNACCOUNTED PURCHASES OR DIFFERENCE ON A CCOUNT OF VALUATION OF STOCK AT THE TIME OF SEARCH AT MARKET VALUE AS A GAINST THE COST. (I) NO DOCUMENT OF UNACCOUNTED PURCHASE/SALES WAS F OUND:- AT THE OUTSET, WE SUBMIT THAT THE DEPARTMENT HAS CA RRIED OUT THE INTENSIVE SEARCH OPERATIONS OVER THE ASSESSEE AND N O DOCUMENT WAS FOUND TO SHOW UNACCOUNTED PURCHASES OF STOCK. NEITH ER ANY ENTRY IN THE BOOKS OF ACCOUNT WAS FOUND TO SHOW UNACCOUNTED PURC HASES OR SALES NOR ANY LOOSE DOCUMENT WAS FOUND TO SHOW THE UNACCO UNTED PURCHASES. (II) EXCESS STOCK IS RESULT OF VALUATION OF STOCK A T MARKET RATE AS ON THE DATE OF SEARCH AS AGAINST COST. THE EXCESS STOCK WAS ARRIVED BY VALUATION OF STOCK AT MARKET RATE AS ON 04/09/2013. THE GOLD RATE WAS TAKEN BY THE VALUER A T RS. 31,900/- PER TEN GRAM WHICH WAS MARKET RATE OF 03/09/2013. THE A SSESSEE'S METHOD OF VALUATION OF STOCK IS 'COST'. THE STOCK TALLY M ADE BY THE SEARCH TEAM RELATING TO THIS ASSESSEE AT THE TIME OF SEARCH WAS AS UNDER:- ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 32 S.NO STOCK FOUND FROM THE PREMISES STOCK AS PER BOOKS OF ACCOUNT OF ASSESSEE PHYSICALLY FOUND AS VALUED BY THE VALUER (I) M/S RAM BHAJO'S MUMBAI 2,37,44,058 1,50,13,750 (II) M/S RAM BHAJO'S JODHPUR 4,79,55,354 4,65,15,883 (III) M/S RAM BHAJO'S JAIPUR 27,94,24,619 32,89,89,166 (IV) AT RESIDENCE OF PARTNERS 63,55,000 TOTAL 35,11,24,031 39,68,73,799 (V) SILVER ITEMS AT RESIDENCE OF PARTNERS 12,70,861 TOTAL STOCK INCLUDING SILVER ITEMS 39,81,44,660 THE ABOVE STOCK WAS VALUED AT MARKET PRICE AS ON TH E DATE OF SEARCH. IN ORDER TO ESTIMATE THE VALUE OF STOCK AT COST, TH E GP DECLARED IN LAST YEAR SHOULD BE DEDUCTED FROM THE MARKET VALUE OF TH E STOCK IN ORDER TO ARRIVE AT THE ESTIMATED VALUE OF STOCK AT COST. IF THIS WAS DONE, THEN THERE WOULD BE NO EXCESS STOCK AND THIS MAY BE SEEN FROM THE FOLLOWING CHART: S.NO PARTICULARS STOCK AS PER BOOKS OF ACCOUNT OF ASSESSEE PHYSICALLY FOUND AS VALUED BY THE VALUER ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 33 TOTAL 35,11,24,031 39,81,44,660 LESS GP OF PRECEDING YEAR (13.92%) (-) 5,54,21,736 STOCK ESTIMATED AT COST 34,27,22,924 THEREFORE, IF THE VALUATION OF STOCK IS MADE AT COS T, THEN ITS ESTIMATED COST COMES TO RS. 34,27,22,924/- AGAINST WHICH THE BOOKS STOCK COMPUTED BY THE SEARCH TEAM FROM THE BOOKS OF ACCOU NT OF THE ASSESSEE WAS RS. 35,11,24,031/-. FACTUALLY, THERE W AS SHORT STOCK BY RS. 84,01,107/- HENCE, THERE COULD NOT BE ANY EXCES S STOCK. HOWEVER, THE DIFFERENCE WAS ON ACCOUNT OF VALUATION WHICH WA S ACCEPTED BY THE ASSESSEE IN ORDER TO AVOID LITIGATION AND HONOR SEA RCH STATEMENT. HOWEVER, IN ANY WAY, THIS COULD NOT BE TERMED AS UN DISCLOSED INCOME, BUT IT IS PREPONMENT OF ACCOUNTING OF INCOME. (III) EXCESS STOCK IN QUANTITY WAS ON ACCOUNT OF NO T GIVING PROPER DEDUCTION FOR CHAPADI ETC BY VALUER AT JAIPUR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE HAS CHALLENGED THE VALUATION OF THE JEWELLERY STOCK LYI NG AT JAIPUR OFFICE VIDE LETTER DATED 15/12/2015 AS UNDER:- FURTHER, KUNDAN MEENA JEWELLERY IS SPECIAL JEWELLE RY QUITE DIFFERENT TO ORDINARY JEWELLERY. KUNDAN MEENA JEWELLERY ALSO HAS WAX, COLOUR STONES, TASSELS, SEMI PRECIOUS STONES, SILVER AND D IAMONDS. THEREFORE, THE VALUATION SHOULD HAVE BEEN MADE BY ADJUSTING TH E GROSS WEIGHT FOR ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 34 WAX, TASSELS AND OTHER IMPURITIES. IN JAIPUR, THE V ALUATION OF KUNDAN JEWELLERY WAS MADE IN TOTALITY WITHOUT SPECIFYING T HE INDIVIDUAL ITEM AND WITHOUT GIVING THE DEDUCTION FOR WAX, TASSELS AND O THER IMPURITIES. THE VALUER AT JAIPUR OFFICE/SHOP VALUED THE JEWELLERY A T THE RATE OF FINE GOLD (24 CARAT GOLD) PREVAILING IN MARKET AS ON THE DATE OF SEARCH. FOR KUNDAN JEWELLERY THE VALUER SIMPLY TOOK THE GROSS W EIGHT OF KUNDAN JEWELRY AND CONVERTED IT INTO THE WEIGHT IN FINE JE WELLERY. FOR THIS PURPOSE HE CONVERTED THE GROSS WEIGHT OF KUNDAN JEW ELRY INTO FINE JEWELLERY BY GIVING THE DEDUCTION OF 10% IN THE GRO SS WEIGHT BY CONSIDERING THE KUNDAN JEWELLERY IS OF 21.6 CARAT. FOR VALUATION OF KUNDAN JEWELLERY HE MUST HAVE GIVEN PROPER DEDUCTIO N FOR WAX AND OTHER IMPURITIES AND THEN HE SHOULD CONVERT THE RE SULTED WEIGHT IN 24 CARAT FOR VALUATION AT THE RATE OF FINE GOLD (RATE OF 24 CARAT). FOR THIS PURPOSE KINDLY REFER THE VALUATION OF KUNDAN JEWELR Y MADE AT JODHPUR BRANCH, MUMBAI BRANCH OF ASSESSEE AND JEWELRY FOUND AT RESIDENCE (WHERE THE VALUER WAS DIFFERENT) WHERE GROSS WEIGH T WAS FIRSTLY ADJUSTED FOR NET WEIGHT AND THEN IT WAS CONVERTED I NTO WEIGHT OF FINE JEWELLERY. FURTHER, AT THESE PLACES VALUATION OF PR ECIOUS AND SEMI PRECIOUS STONES STUDDED IN THE JEWELLERY WAS SEPARA TELY MADE. AT THIS PLACES THE VALUER GAVE HEAVY DEDUCTION FOR WAX, TAS SELS AND OTHER IMPURITIES, WHICH WAS NOT CONSIDERED BY THE VALUER WHO VALUED THE KUNDAN JEWELLERY AT PREMISE SITUATED AT PEARL PREMI ER. IN ASSESSMENT ORDER, THE LD AO IS SILENT ON THIS IS SUE RAISED BY THE ASSESSEE. ATTENTION WAS ALSO INVITED TOWARDS THE VA LUATION OF JEWELLERY STOCK DONE BY THE VALUERS AT THE TIME OF SEARCH AS UNDER: ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 35 VALUATION AT JAIPUR 10% DEDUCTION WAS GIVEN FOR IMPURITIES FOR 22 CARAT AND 24 CARAT. PB PG 3 VALUATION AT JODHPUR 30% TO 35% CHAPADI +WAX+OTHER IMPURITIES PB 8 VALUATION AT MUMBAI OFFICE 40% TO 48% CHAPADI +WAX+OTHER IMPURITIES PB PG 52 ITEM 15& 16 THEREFORE THE EXCESS WEIGHT IS ON ACCOUNT OF NON DE DUCTION ON ACCOUNT OF CHAPADI, WAX ETC FOR THE KUNDAN MEENA JEWELLERY FOUND AT JAIPUR OFFICE. FURTHER, THERE IS NO FINDING OF THE LD AO THAT THE ALLEGED EXCESS STOCK WAS EXCESS STOCK WHICH WAS NOT FOUND RECORDED IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE. B) CASH RS. 5,00,000/- THE CASH OF RS. 5,50,000/- WAS FOUND FROM THE RESID ENCE OF THE PARTNERS OF THE ASSESSEE OUT OF WHICH RS. 5,00,000/ - WAS EXPLAINED BY THE PARTNERS IN SEARCH STATEMENT AS BELONG TO THE A SSESSEE FIRM. THE ASSESSEE HAS DECLARED ADDITIONAL BUSINESS INCOME OF RS. 5,75,10,387/- FOR CURRENT YEAR SHOWN AS 'INCOME SURRENDERED DURIN G THE SEARCH' IN PROFIT & LOSS ACCOUNT OUT OF WHICH RS. 5,00,000/- R EPRESENTS CASH. THE LD AO HAS NOT DETERMINED IT AS INCOME FROM OTHER SO URCES U/S 69 OF INCOME TAX ACT IN THE ASSESSMENT BUT ACCEPTED AS BU SINESS INCOME OF ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 36 CURRENT YEAR. THEREFORE, MERELY ON THE BASIS OF SUR RENDER MADE IN THE SEARCH STATEMENT, THIS CANNOT BE HELD AS 'UNDISCLOS ED INCOME' FOR THE PURPOSE OF LEVY OF PENALTY U/S 271AAB. C) ADVANCE AGAINST PURCHASE OF LAND RS. 1,12,00,000 /- DURING THE COURSE OF SEARCH UNDER SECTION 132 THOUG H LOOSE DOCUMENT WAS FOUND AND SEIZED DURING THE SEARCH WHICH CONTAI NS THE ADVANCES GIVEN BY THE ASSESSEE FOR PURCHASE OF LAND. HOWEVER , THE SAID ENTRY IN THE LOOSE PAPER GIVING ADVANCES FOR PURCHASE OF LAN D ITSELF IS NOT AN UNDISCLOSED INCOME. THE ASSESSEE HAS DECLARED ADDITIONAL BUSINESS INCOM E OF RS. 5,75,10,387/- FOR CURRENT YEAR SHOWN AS 'INCOME SURRENDERED DURING THE SEARCH' IN PROFIT & LOSS ACCOUNT OUT OF WHICH RS. 1,12,00,000/- REPRESENTS AS UTILIZED IN ADVANCE AGA INST PURCHASE OF LAND. THE LD AO HAS NOT DETERMINED IT AS INCOME FRO M OTHER SOURCES U/S 69 OF INCOME TAX ACT IN THE ASSESSMENT BUT ACCEPTED AS BUSINESS INCOME OF CURRENT YEAR. NO DOCUMENT OF UNACCOUNTED PURCHASE OR SALES WAS FOUND SHOWING ANY UNACCOUNTED BUSINESS BY THE A SSESSEE FIRM. THEREFORE, NORMAL BUSINESS INCOME OF THE ASSESSEE W AS UTILIZED IN MAKING THE PAYMENTS FOR PURCHASE OF LAND. THEREFORE, MERELY ON THE BASIS OF SURRENDER MADE IN THE SEARCH STATEMENT, THIS CANNOT BE HELD AS 'UNDISCLOSED INCO ME' FOR THE PURPOSE OF LEVY OF PENALTY U/S 271AAB. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 37 D) SILVER ITEMS RS. 12,70,861/- IT WAS SUBMITTED THAT EXPLANATION GIVEN FOR THE JEW ELLERY STOCK OF THE FIRM SHOULD BE CONSIDER FOR SILVER ITEMS . HOWEVER THE SILVER ITEMS FOUND AT THE RESIDENCE OF THE ASSESSEE CANNOT BE CONSIDER ED AS UNDISCLOSED INCOME OF THE ASSESSEE IN VIEW OF THE FACT THAT THE SE SILVER ITEMS WERE FOUND FROM THE RESIDENCE OF SIX FAMILIES. THE TOTAL WEIGHT OF THESE SILVER ITEMS IS 30.825 KG. THESE ITEMS WERE PERSONAL ITEMS OF THE FAMILY MEMBERS AND HOLDING IS VERY REASONABLE CONSIDERING THE SIZE OF THE FAMILY. HOWEVER UNDER THE PRESSURE OF THE DEPARTMEN T, THESE PERSONS HAVE SURRENDERED THE SILVER ITEMS AS STOCK OF THE B USINESS FIRMS JUST TO BUY PEACE AND AVOID LITIGATION. E) OTHER DISCREPANCIES IN ACCOUNT RS. 7,29,139:- THE PARTNERS HAVE SURRENDERED RS. 12,70,861/- AGAIN ST THE SILVER ITEMS AND RS.7,29,139/- AGAINST ANY DISCREPANCY IN BOOKS OF ACCOUNT TOTALING TO RS. 20,00,000/- IN THE HANDS OF FIRM. IN ASSESSM ENT, THE LD AO HAS NOT POINTED OUT ANY OTHER DISCREPANCY IN ACCOUNT, T HEN HOW IT CAN CONSTITUTES AS 'UNDISCLOSED INCOME'. THEREFORE, M ERELY ON THE BASIS OF SURRENDER MADE IN THE SEARCH STATEMENT, THIS CANNOT BE HELD AS 'UNDISCLOSED INCOME' FOR THE PURPOSE OF LEVY OF PEN ALTY U/S 271AAB. 27. IT WAS SUBMITTED THAT THE ASSESSEE HAS SHOWN AD DITIONAL INCOME OF RS. 5,75,10,387/- IN PROFIT AND LOSS ACCOUNT UND ER THE HEAD INCOME SURRENDERED DURING THE SEARCH. IN COMPUTATION OF TOTAL INCOME, THE ASSESSEE SHOWN IT AS INCOME FROM BUSINESS OR PROFE SSION. THE LD AO ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 38 HAS NOT ASSESSED IT AS INCOME U/S 69 UNDER THE HEAD 'INCOME FROM OTHER SOURCES' BUT ACCEPTED IT AS BUSINESS INCOME. THEREFORE, THE SURRENDERED INCOME REPRESENTS THE NORMAL BUSINESS I NCOME MORE SO WHEN NO DOCUMENT WAS FOUND TO SHOW UNACCOUNTED PURC HASE AND SALES. THE PROFIT IS RESULT OF SALES & PURCHASE TRA NSACTIONS WHICH ARE FULLY RECORDED IN THE REGULAR BOOKS OF ACCOUNT FOUN D AT THE TIME OF SEARCH. THE ACCOUNTING YEAR OF THE ASSESSEE WAS NOT COMPLETED AS ON THE DATE OF THE SEARCH. FURTHER, THE PROFIT CAN BE DECLARED ONLY AFTER END OF THE YEAR. AFTER THE END OF THE YEAR, FINAL A CCOUNT ARE PREPARED AND ONLY AFTER THAT PROFIT CAN BE ASCERTAINED. 28. IT WAS FURTHER SUBMITTED THAT THE LEVY OF PENAL TY U/S 271AAB IS DISCRETIONARY NOT MANDATORY IN NATURE. IT IS SUBMI TTED THAT THE AO WHILE PASSING THE ORDER UNDER SECTION 271AAB HAS TO EXAMINE THE CASE IN TERMS OF THE PROVISIONS OF SAID SECTION AND, THE REFORE, THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT AUTOMATIC BUT D ISCRETIONARY. THE PROVISIONS OF SECTION 271AAB ITSELF SPEAK THAT THES E ARE NOT MANDATORY. IN SECTION 271AAB THE TERM THE AO MAY IS USED, W HICH SHOWS THE LEVY OF PENALTY IS NOT MANDATORY. THE SECTION STATE S THAT THE ASSESSING OFFICER MAY DIRECT. THUS IT IS NOT SHALL WHICH WOULD HAVE MADE THE LEVY OF PENALTY MANDATORY. THUS THE LD. CIT (A) WAS WRONG IN OBSERVING THAT LEVY OF PENALTY U/S 271AAB WAS MANDATORY. SECO NDLY THE PROVISIONS OF SECTION 271AAB(3) LAY DOWN THAT PENAL TY SHALL BE LEVIED UNDER THE SECTION WITH REFERENCE TO SECTION 274. IN OTHER WORDS THE PROVISIONS OF SECTION SHALL APPLY IN LEVYING PENALT Y UNDER THIS SECTION. SECTION 274 STATES THAT NO ORDER IMPOSING PENALTY UNDER THIS CHAPTER SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 39 REASONABLE OPPORTUNITY OF BEING HEARD. THUS HEARIN G HAS TO BE GIVEN TO THE ASSESSEE BEFORE LEVY OF PENALTY. THIS ITSELF SH OWS THAT PENALTY IS LEVIABLE ONLY AFTER HEARING THE ASSESSEE AND IN CAS E ASSESSEE IS ABLE TO MAKE OUT A CASE BY SHOWING SOME REASONABLE CAUSE OR OTHERWISE THEN PENALTY SHALL NOT BE LEVIABLE. PENALTY IS NOT AUTOM ATICALLY LEVIABLE. 29. FURTHERMORE, EVERY ADDITIONAL INCOME DECLARED I N THE RETURN FILED IS NOT AMOUNT OF UNDISCLOSED INCOME. THERE MAY BE S EVERAL BONAFIDE REASONS OF DECLARING ADDITIONAL INCOME IN THE RETUR N. THE ASSESSEE HAS DISCLOSE THE ADDITIONAL INCOME IN THE RETURN FILED U/S 153A AS A PRECAUTIONARY MEASURE JUST TO AVOID PROLONGED LITIG ATION AND JUST TO BUY THE PEACE. THERE IS NO EVIDENCE WITH THE DEPARTMENT THAT THE ASSESSEE WAS HAVING SOME UNDISCLOSED INCOME. 30. THE DISCRETION FOR NOT TO LEVY THE PENALTY SHOU LD BE USED IN FAVOUR OF ASSESSEE ON CONSIDERATION OF THE FOLLOWIN G FACTS:- A) THE DIFFERENCE IN STOCK IS ON ACCOUNT OF VALUATI ON OF PHYSICAL STOCK FOUND AT THE TIME OF SEARCH AT MARKET VALUE AS ON T HE DATE OF SEARCH WHEREAS THE STOCK WAS PURCHASED NOT ON THE DATE ON SEARCH BUT ON VARIOUS PAST DATES AND THE ASSESSEE FOLLOWS THE MET HOD OF STOCK VALUATION AT COST. B) THE LD AO HAS ACCEPTED THE ADDITIONAL INCOME SUR RENDERED BY THE ASSESSEE AS BUSINESS INCOME OF CURRENT YEAR AND TH E NORMAL BUSINESS INCOME WAS UTILIZED IN STOCK, LAND ADVANCES, CASH A ND STOCK OF SILVER ITEMS. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 40 C) THE ASSESSEE HAS SURRENDERED RS. 7,29,139/- AGA INST ANY POSSIBLE DISCREPANCY IN BOOKS OF ACCOUNT AND THE LD AO HAS N OT NOTICED ANY DISCREPANCY IN THE BOOKS OF ACCOUNT, THEREFORE THIS SURRENDER CANNOT BE TREATED AS 'UNDISCLOSED INCOME' 31. IT WAS FURTHER SUBMITTED THAT SINCE, THE ASSESS EE HAS NOT ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS NOT GUILTY O F CONDUCT CONTUMACIOUS OR DISHONEST, OR HAS NOT ACTED IN CONS CIOUS DISREGARD OF ITS OBLIGATION, PENALTY CANNOT BE LEVIED. IN THIS R EGARD, ATTENTION WAS DRAWN TOWARDS THE HONBLE SUPREME COURTS DECISION IN THE CASE OF HINDUSTAN STEELS LTD. VS. STATE OF ORISSA, 83 ITR 2 6 (SC) WHEREIN IT WAS HELD AS UNDER: AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDING AND PE NALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED, EIT HER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMA CIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETH ER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIG ATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDICIA LLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. EV EN IF A MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO I MPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WH EN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WH ERE THE BREACH FLOWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LI ABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 41 32. PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSE SSEE HAS SURRENDERED THE UNDISCLOSED INCOME IN ITS STATEMENT RECORDED U/S 132(4) AND THEREFORE, THERE CANNOT BE ANY QUESTION OF SAID SURRENDER OF INCOME NOT FALLING IN THE DEFINITION OF UNDISCLOSED INCOME. IT WAS SUBMITTED THAT THE PENALTY U/S 271AAB IS MANDATORY IN NATURE AND IS IMPOSED AT THE VARYING RATE OF 10%, 20% OR 30% DEPE NDING ON THE FULFILLMENT OF CERTAIN CONDITIONS THEREIN. IT WAS S UBMITTED THAT ALL THE CONDITIONS SPECIFIED IN SECTION 271AAB HAVE BEEN FU LFILLED IN THE INSTANT CASE, THEREFORE, THE PENALTY U/S 271AAB BEING IN TH E NATURE OF MANDATORY PENALTY AND THERE BEING NO DISCRETION WIT H THE INCOME TAX AUTHORITIES, THE PENALTY SO IMPOSED BY THE AO WAS R IGHTLY CONFIRMED BY THE LD CIT(A) AND THE ORDER OF THE LD CIT(A) SHOULD BE UPHELD. 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING THE CONTENT ION OF THE LD AR WHERE HE HAS CHALLENGED THE FINDINGS OF THE LD. CIT(A) TH AT PENALTY U/S 271AAB IS MANDATORY IN NATURE AND THERE IS NO DISCR ETION WITH THE INCOME TAX AUTHORITIES. IT WAS SUBMITTED BY THE LD AR THAT IN SECTION 271AAB, THE WORD MAY IS USED INSTEAD OF SHALL S O IT IS NOT MANDATORY BUT SAME IS DISCRETIONARY. IT WAS SUBMITTED THAT IT IS SETTLED POSITION OF LAW THAT PENALTIES ARE NOT COMPULSORY, NOT MANDATOR Y BUT ARE ALSO DISCRETIONARY CONSIDERING THE OVERALL FACTS AND CIR CUMSTANCES OF THE CASE. 34. IN THIS REGARD, WE REFER TO THE PROVISIONS OF S ECTION 271AAB WHICH BEGINS WITH THE STIPULATION THAT THE ASSESSIN G OFFICER MAY DIRECT THE ASSESSEE AND THE ASSESSEE SHALL PAY THE PENALTY AS PER CLAUSE (A) TO ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 42 (C) SO SATISFIED IN SUB-SECTION (1) TO SECTION 271A AB. FURTHER, AS PER SUB-SECTION (3) OF SECTION 271AAB, THE PROVISIONS O F SECTION 274 AND SECTION 275 AS FAR AS MAY BE APPLIED IN RELATION TO PENALTY UNDER THIS SECTION WHICH MEANS THAT BEFORE LEVYING THE PENALTY , THE ASSESSING OFFICER HAS TO ISSUE A SHOW-CAUSE GRANTING AN OPPOR TUNITY TO THE ASSESSEE. THUS, THE LEVY OF PENALTY IS NOT AUTOMAT IC BUT THE ASSESSING OFFICER HAS TO DECIDE BASED ON FACTS AND CIRCUMSTAN CES OF THE CASE. SIMILAR VIEW HAS BEEN TAKEN BY THE VARIOUS CO-ORDIN ATE BENCHES AND USEFUL REFERENCE CAN BE DRAWN TO THE DECISION OF TH E CO-ORDINATE BENCH IN CASE OF ACIT VS MARVEL ASSOCIATES 92 TAXMANN.COM 109 WHEREIN IT WAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE APPEAL HEARING, THE L D. A.R. VEHEMENTLY ARGUED THAT THE A.O. HAS LEVIED THE PENA LTY UNDER THE IMPRESSION THAT THE LEVY OF PENALTY IN THE CASE OF ADMISSION OF INCOME U/S 132(4) IS MANDATORY. THE LD. A.R. FURTHE R STATED THAT PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DISCRETIONARY. THE PROVISIONS OF SECTION 271AAB OF THE ACT IS PARI MATERIA WITH THAT OF SECTION 158BFA OF THE ACT RELATING TO BLOCK ASSESSMENT AND ACCORDINGLY ARGUED THAT THE LEVY OF PENALTY UND ER SECTION 271AAB IS NOT MANDATORY BUT DISCRETIONARY. WHEN THE RE IS REASONABLE CAUSE, THE PENALTY IS NOT EXIGIBLE. THE LD. A.R. TAKEN US TO THE SECTION 271AAB OF THE ACT AND ALSO SECTIO N 158BFA(2) OF THE ACT AND ARGUED THAT THE WORDS USED IN SECTIO N 271AAB OF THE ACT AND THE WORDS USED IN SECTION 158BFA(2) OF THE ACT ARE IDENTICAL. HENCE, ARGUED THAT THE PENALTY SECTION 2 71AAB OF THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 43 ACT PENALTY IS NOT AUTOMATIC AND IT IS ON THE MERIT S OF EACH CASE. FOR READY REFERENCE, WE REPRODUCE HEREUNDER SECTION 158BFA (2) OF THE ACT AND SECTION 271AAB OF THE ACT WHICH READ S AS UNDER: 271AAB [PENALTY WHERE SEARCH HAS BEEN INITIATED]: (1) THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYT HING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRE CT THAT, IN A CASE WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 O N OR AFTER THE 1ST DAY OF JULY, 2012, THE ASSESSEE SHALL PAY BY WA Y OF PENALTY, IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM (A) A SUM COMPUTED AT T HE RATE OF TEN PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSE SSEE (I) IN THE COURSE OF SEARCH, IN A STATEMENT UNDER SUB- SECTION (4) OF SECTION 132, ADMITS THE UNDISCLOSED INCOME A ND SPECIFIES THE MANNER IN WHICH SUCH IN COME 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) FURNIS HES THE RETURN OF INCOME FOR THE SPECIFIED PREVIOUS YEAR DECLARING SUCH UNDISCLOSED INCOME THEREIN; (B) A SUM COMPUTED AT THE RATE OF TWENTY PER CENT OF TH E UNDISCLOSED ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 44 INCOME OF THE SPECIFIED PREVIOUS YEAR, IF SUCH ASSE SSEE (I) IN THE COURSE OF THE SEARCH, IN A STATEMENT UNDER S UB - SECTION (4_) OF SECTION 132, DOES NOT ADMIT THE UND ISCLOSED INCOME; AND (II) ON OR BEFORE THE SPECIFIED DATE- (A) DECLARES SUCH INCOME IN THE RETURN OF INCOME FURNISHED FOR THE SPECIFIED PREVIOUS YEAR; AND (B) P AYS THE TAX, TOGETHER WITH INTEREST, IF ANY, IN RESPECT OF THE UNDISCLOSED INCOME; (C) A SUM WHICH SHALL NOT BE LESS THAN THIRTY PER CENT BUT WHICH SHALL NOT EXCEED NINETY PER CENT OF THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR, IF IT IS NOT C OVERED 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 ASSESS EE IN RESPECT OF THE UNDISCLOSED INCOME REFERRED TO IN SUB-SECTIO N (1). SECTION 158BFA(2): (2) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THIS CHAPTER, MAY D IRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHAL L NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE IN RESPECT OF T HE UNDISCLOSED ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 45 INCOME DETERMINED BY THE ASSESSING OFFICER UNDER CL AUSE (C) OF SECTION 158BC: PROVIDED THAT NO ORDER IMPOSING PENALTY SHALL BE MA DE IN RESPECT OF A PERSON IF (I) SUCH PERSON HAS FURNIS HED 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 OF FERS 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 B Y THE ASSESSING OFFICER IS IN EXCESS OF THE INCOME SHOWN IN THE RETURN AND IN SUCH CASES THE PENALTY SHALL BE IMPOSED ON T HAT PORTION OF UNDISCLOSED INCOME DETERMINED WHICH IS IN EXCESS OF THE AMOUNT OF UNDISCLOSED INCOME SHOWN IN THE RETURN. 6. CAREFUL READING OF SECTION 271AAB OF THE ACT, TH E WORDS USED ARE 'AO MAY DIRECT' AND 'THE ASSESSEE SHALL PAY BY WAY OF PENALTY'. SIMILAR WORDS ARE USED SECTION 158BFA(2) OF THE ACT. THE WORD MAY DIRECT INDICATES THE DISCRETION TO THE AO. FURTHER, SUB SECTION (3) OF SECTION 271AAB OF THE ACT, FORTI FIES THIS VIEW. SUB SECTION (3) OF SECTION 271AAB: ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 46 THE PROVISIONS OF SECTION 274 AND 275 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE PENALTY REFERRED TO IN THI S SECTION. 7. THE LEGISLATURE HAS INCLUDED THE PROVISIONS OF S ECTION 274 AND SECTION 275 OF THE ACT IN 271AAB OF THE ACT WITH CL EAR INTENTION TO CONSIDER THE IMPOSITION OF PENALTY JUDICIALLY. SECT ION 274 DEALS WITH THE PROCEDURE FOR LEVY OF PENALTY, WHEREIN, IT DIRECTS THAT NO ORDER IMPOSING PENALTY SHALL BE MADE UNLESS THE ASS ESSEE HAS BEEN HEARD OR HAS BEEN GIVEN A REASONABLE OPPORTUNI TY OF BEING HEARD. THEREFORE, FROM PLAIN READING OF SECTION 271 AAB OF THE ACT, IT IS EVIDENT THAT THE PENALTY CANNOT BE IMPOS ED UNLESS THE ASSESSEE IS GIVEN A REASONABLE OPPORTUNITY AND ASSE SSEE 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 F ACTS AND MERITS PLACED BEFORE THE A.O. ONCE THE A.O. IS BOUND BY TH E ACT TO HEAR THE ASSESSEE AND TO GIVE REASONABLE OPPORTUNITY TO EXPLAIN HIS CASE, THERE IS NO MANDATORY REQUIREMENT OF IMPOSING PENALTY, BECAUSE THE OPPORTUNITY OF BEING HEARD AND REASONAB LE OPPORTUNITY IS NOT A MERE FORMALITY BUT IT IS TO AD HERE TO THE PRINCIPLES OF NATURAL JUSTICE. HON'BLE A.P. HIGH CO URT IN THE CASE OF RADHAKRISHNA VIHAR IN ITTA NO.740/2011 WHILE DEALIN G WITH THE PENALTY U/S 158BFA HELD THAT 'WE ARE OF THE OPINION THAT WHILE THE WORDS SHALL BE LIABLE UNDER SUB SECTION (1) OF SECT ION 158BFA OF THE ACT THAT ARE ENTITLED TO BE MANDATORY, THE WORD S MAY DIRECT IN SUB SECTION 2 THERE OF INTENDED TO DIRECTORY'. IN O THER WORDS, WHILE PAYMENT OF INTEREST IS MANDATORY LEVY OF PENA LTY IS DISCRETIONARY. IT IS TRITE POSITION OF LAW THAT DIS CRETION IS VESTED AND AUTHORITY HAS TO BE EXERCISED IN A REASONABLE A ND RATIONAL ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 47 MANNER DEPENDING UPON THE FACTS AND CIRCUMSTANCES O F THE EACH CASE. PLAIN READING OF SECTION 271AAB AND 274 OF TH E ACT INDICATES THAT THE IMPOSITION OF PENALTY U/S 271AAB OF THE ACT IS NOT MANDATORY BUT DIRECTORY. ACCORDINGLY WE HOLD TH AT THE PENALTY U/S 271AAB IS NOT MANDATORY BUT TO BE IMPOSED ON ME RITS OF THE EACH CASE. 35. THEREFORE, WE AGREE WITH THE CONTENTIONS OF THE LD AR THAT THE LEVY OF PENALTY UNDER SECTION 271AAB IS NOT MANDATO RY. IN THE INSTANT CASE, IT THEREFORE NEEDS TO BE EXAMINED WHETHER THE RE IS ANY BASIS FOR LEVY OF PENALTY OR NON-LEVY THEREOF AND THE SAME WI LL DEPEND UPON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHICH W E SHALL DISCUSS IN SUBSEQUENT PARAGRAPHS. 36. NOW, COMING TO THE CONTENTION OF THE LD AR WHE RE HE CONTENDS THAT THE REVENUE AUTHORITIES HAVE EXERTED UNDUE PRESSURE ON THE ASSESSEE AND OBTAINED SURRENDER OF INCOME AN D THEREFORE, THERE WAS NO UNDISCLOSED INCOME IN THE HANDS OF THE ASSES SEE. IN THIS REGARD, WE REFER TO THE ASSESSMENT ORDER WHEREIN TH E ASSESSING OFFICER HAS STATED THAT THE PARTNERS OF THE ASSESSE E FIRM HAD ACCEPTED UNDISCLOSED INCOME IN THEIR STATEMENTS REC ORDED U/S 132(4), THEREAFTER, THE STATEMENTS WERE AGAIN RECOR DED DURING THE POST-SEARCH PROCEEDINGS AND THERE IS NOTHING ON RECORD WHICH SUGGEST ANY RETRACTION ON PART OF THE ASSESSE E, AND SUBSEQUENTLY, THE ASSESSEE HAS DISCLOSED THE SAME I N ITS RETURN OF INCOME FILED ON 1.10.2014. THEREFORE, THE ASSES SEE WAS HAVING AMPLE TIME TO RETRACT FROM SAID SURRENDER, H OWEVER THERE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 48 IS NO SUCH RETRACTION DURING POST-SEARCH PROCEEDING S AND EVEN THE ASSESSEE HAS INCLUDED THE SAME IN ITS RETURN OF INCOME. EVEN FROM THE PERUSAL OF THE STATEMENTS SO RECORDED OF T HE PARTNERS OF THE ASSESSEE FIRM, THERE IS NOTHING WHICH IN ANY WA Y SUGGESTS THAT THERE IS ANY FORCED SURRENDER BY THE ASSESSEE. THE CONTENTION OF THE LD AR THEREFORE HAS NO LEGAL LEG TO STAND WHERE HE CONTENDS THAT THE REVENUE AUTHORITIES HAVE EXERT ED UNDUE PRESSURE ON THE ASSESSEE AND OBTAINED SURRENDER OF INCOME AND THEREFORE, THERE WAS NO UNDISCLOSED INCOME IN THE H ANDS OF THE ASSESSEE. IN ANY CASE, THE ASSESSMENT PROCEEDINGS H AVE ATTAINED FINALITY WHERE SUCH UNDISCLOSED INCOME HAS BEEN OFF ERED AND BROUGHT TO TAX AND THE SAME IS NOT AN ISSUE BEFORE US. 37. NOW, COMING TO THE CONTENTION OF THE LD AR REGA RDING AMOUNT SURRENDERED DURING THE COURSE OF SEARCH NOT QUALIFY ING AS UNDISCLOSED INCOME U/S 271AAB. FOR THE PURPOSES OF LEVY OF PEN ALTY, WHAT HAS TO BE SEEN IS THAT WHETHER THE SURRENDER SO MADE, IN T ERMS OF STATEMENT OF THE ASSESSEES PARTNERS RECORDED U/S 132(4) DURI NG THE COURSE OF SEARCH, FALLS IN THE DEFINITION OF UNDISCLOSED INC OME WHICH HAS BEEN SPECIFICALLY LAID DOWN IN TERMS OF CLAUSE (C) OF EX PLANATION 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 ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 49 ACCOUNT OR OTHER DOCUMENTS OR TRAN SACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHICH HAS (A) NOT BEEN RECORDED ON OR BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO SUCH PREVIOUS YEAR; OR (B) OTHERWISE NOT BEEN DISCLOSED TO THE PRINCIPAL CHIEF COMMISSIONER OR CHIEF COMMISSIONER OR PRINCIPAL COMMISSIONER OR COMMISSIONER BEFORE THE DATE OF SEARCH; OR (II) ANY INCOME OF THE SPECIFIED PREVIOUS YEAR REPRESENTED, EITHER WHOLLY OR PARTLY, BY ANY ENTRY IN RESPECT OF AN EXPENSE RECORDED IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE RELATING TO THE SPECIFIED PREVIOUS YEAR WHICH IS FOUND TO BE FALSE AND WOULD NOT HAVE BEEN FOUND TO BE SO HAD THE SEARCH N OT BEEN CONDUCTED. 38. FIRSTLY, REGARDING STOCK OF KUNDAN MEENA, AND DIAMOND AND OTHER GEMSTONES STUDDED JEWELLERY WHICH HAS BEEN SU RRENDERED 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 THE BOOKS OF ACCOUNTS MAINTAINED IN THE NORMAL COUR SE RELATING TO SUCH PREVIOUS YEAR. IN OTHER WORDS, THE VALUE AT WHICH SUCH STOCK HAS BEEN ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 50 ACQUIRED BY THE ASSESSEE AND NOT THE VALUE WHICH SU CH STOCK CAN FETCH IN THE MARKET OR THE FAIR MARKET VALUE OF SUCH STOC K. IN THE INSTANT CASE, IT HAS BEEN CONTENDED THAT THE VALUATION OF T HE STOCK HAS BEEN DONE AT MARKET RATE AS ON THE DATE OF SEARCH WITHOU T CONSIDERING THE COST DISCLOSED IN THE BOOKS OF ACCOUNTS AND WITHOUT CONSIDERING THE WELL-ACCEPTED ACCOUNTING POLICY WHICH HAS BEEN FOLL OWED BY THE ASSESSEE FIRM WHERE IT VALUES ITS STOCK AT LOWER OF COST AND NET REALIZABLE VALUE. THE COST CAN BE DETERMINED ON TH E BASIS OF HISTORICAL AND/OR CURRENT COST SO RECORDED IN THE BOOKS OF ACC OUNTS. ALTERNATIVELY, PAST GROSS PROFIT PERCENTAGE CAN ALSO GIVE A REASON ABLE 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 APPLIED TO THE STOCK VALUED BY T HE REVENUE AT THE CURRENT MARKET 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 WE HAVE NOTED ABO VE, WE FIND THAT STOCK (INCLUDING STOCK OF SILVER JEWELLERY) AS PER BOOKS OF ACCOUNTS COMES TO RS 35,11,24,031 AS AGAINST RS 34,27,22,924 VALUED BY THE DEPARTMENT AT THE TIME OF SEARCH AND THEREFORE, CON TENTION SO ADVANCED BY THE LD AR IS FOUND REASONABLE. ANOTHER ASPECT WHICH HAS BEEN SUBMITTED BY THE ASSESSEE RELATES TO NON-DEDUC TION ON ACCOUNT OF CHAPADI, WAX ETC FOR THE KUNDAN MEENA JEWELLERY WHI LE PHYSICALLY WEIGHING THE JEWELLERY. IT WAS SUBMITTED BY THE LD AR THAT THE SAID FACT WAS DULY BROUGHT TO THE NOTICE OF ASSESSING OFFICER VIDE WRITTEN SUBMISSION DATED 15.12.2015, HOWEVER, THE SAME HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER. IN OUR VIEW, GIVEN THAT THE ASSESSEE HAS DISCLOSED THE WHOLE OF THE AMOUNT SURR ENDERED DURING THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 51 COURSE OF SEARCH IN ITS RETURN OF INCOME, THE AMOUN T SO SURRENDERED AND DISCLOSED IN THE RETURN OF INCOME HAS RIGHTLY BEEN BROUGHT TO TAX IN THE QUANTUM PROCEEDINGS. HOWEVER, AS FAR AS PENALTY PR OCEEDINGS ARE CONCERNED, THE ASSESSING OFFICER IS REQUIRED TO GIV E A SPECIFIC FINDING THAT THERE IS AN UNDISCLOSED INCOME FOUND DURING TH E COURSE OF SEARCH AND WHICH HAS NOT BEEN RECORDED IN THE BOOKS OF ACC OUNT. IN THE INSTANT CASE, WE FIND THAT THE ASSESSING OFFICER HA S MERELY GONE BY THE SURRENDER STATEMENT AND HAS NOT EXAMINED THE MATTER FROM THE PERSPECTIVE OF DETERMINING THE COST OF SUCH STOCK A ND THE QUANTIFICATION THEREOF 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 OTHER LOCA TIONS EXCEPT AT JAIPUR. THERE IS NO FINDING THAT THERE IS ANY EXCES S STOCK WHICH HAS BEEN PHYSICALLY FOUND AND WHICH HAS NOT BEEN FOUND RECORDED IN THE BOOKS OF ACCOUNTS AS ON THE DATE OF SEARCH. IN LIG HT OF ABOVE DISCUSSIONS, IT IS THUS CLEAR THAT DIFFERENCE IN ST OCK OF JEWELLERY AND SILVER ITEMS AS PER BOOKS AND AS FOUND AT THE TIME OF SEARCH IS ON ACCOUNT OF VALUATION OF SUCH STOCK AT THE MARKET VA LUE INSTEAD OF COST AND SUCH VALUATION DIFFERENCE AND ON ACCOUNT OF NON -DEDUCTION OF CHAPADI, WAX, ETC WHILE WEIGHING THE KUNDAN MEENA J EWELLERY AND THE SAME CANNOT BE A BASIS TO HOLD THAT IT REPRESENT UN DISCLOSED INCOME SO DEFINED IN EXPLANATION TO SECTION 271AAB OF THE ACT AND THE PENALTY LEVIED THEREON IS LIABLE TO BE SET-ASIDE. 39. NOW, COMING TO SURRENDER MADE ON ACCOUNT OF CAS H ADVANCES FOR LAND PURCHASES IN THE STATEMENT RECORDED U/S 132(4) OF THE ACT. DURING THE COURSE OF SEARCH, A DIARY HAS BEEN FOUND WHEREI N THERE ARE NOTINGS ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 52 RELATING TO ADVANCE GIVEN TO VARIOUS PERSONS TOWARD S PURCHASE OF LAND. THE NOTINGS DESCRIBE THE NAME OF THE PERSONS, THE A MOUNT ADVANCED WHICH RANGES FROM RS 2 LACS TO RS 50 LACS TO 4 PERS ONS TOTALING TO RS 1.12 CRORES AND THE DATE OF SUCH ADVANCE DURING THE PERIOD 28.07.2013 TO 3.9.2013 JUST BEFORE THE DATE OF SEAR CH ON 4.9.2013. THEREFORE, WHAT HAS BEEN FOUND DURING THE COURSE OF SEARCH IS CERTAIN ENTRIES RELATING TO UNDISCLOSED INVESTMENT IN PURCH ASE OF LAND. BESIDES THE SAID ENTRIES, THERE ARE NO OTHER DOCUMENTS/MATE RIAL IN TERMS OF ANY AGREEMENT TO SELL, THE DESCRIPTION OF THE PROPERTY ETC, WHICH HAS BEEN FOUND DURING THE COURSE OF SEARCH. AS PER THE DEFI NITION OF UNDISCLOSED INCOME U/S 271AAB, THE UNDISCLOSED INVESTMENT IN SO CALLED PURCHASE OF LAND CANNOT BE STATED TO BE INCOME WHICH IS REPRESE NTED BY ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THI NG. WHETHER IT CAN THEN BE SAID THAT SUCH UNDISCLOSED INVESTMENT REPRESENTS INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132. AN INVESTMENT PER SE REPRESENTS AN OUTFLOW OF FUNDS FROM THE ASSESSEES HAND AND AN INCOME PER SE REPRESENTS AN INFLOW OF FUNDS IN THE HANDS OF THE ASSESSEE. THEREFORE, ONCE THERE IS AN INFLOW OF FU NDS BY WAY OF INCOME, THERE COULD BE SUBSEQUENT OUTFLOW BY WAY OF INVESTMENT. INVESTMENT AND INCOME THUS CONNOTES DIFFERENT MEANI NG AND CONNOTATION AND THUS CANNOT BE USED INTER-CHANGEABL Y. IN THE DEFINITION OF UNDISCLOSED INCOME, WHERE IT TALKS AB OUT INCOME BY WAY OF ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUM ENTS OR TRANSACTIONS FOUND IN THE COURSE OF A SEARCH UNDER SECTION 132, WHAT PERHAPS HAS BEEN ENVISAGED BY THE LEGISLATURE IS AN INFLOW OF F UNDS IN THE HANDS OF THE ASSESSEE WHICH HAS BEEN FOUND RECORDED BY WAY O F ANY ENTRY IN THE ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 53 BOOKS OF ACCOUNTS OR OTHER DOCUMENTS, AND WHICH HAS NOT BEEN RECORDED BEFORE THE DATE OF SEARCH IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MAINTAINED BY THE ASSESSEE IN THE NORMAL COURSE. WE ARE ALSO CONSCIOUS OF THE FACT THAT THERE ARE DEEMING P ROVISIONS IN TERMS OF SECTION 69 AND 69B WHEREIN SUCH INVESTMENTS ARE DEE MED TO BE TREATED AS INCOME IN ABSENCE OF SATISFACTORY EXPLANATION. IN OUR VIEW, THE DEEMING FICTION SO ENVISAGED UNDER SECTION 69 AND S ECTION 69B WHERE INVESTMENTS WHICH ARE FOUND EITHER NOT RECORDED OR FOUND RECORDED AT A LESSER VALUE IN THE BOOKS OF ACCOUNTS, AND SUCH INV ESTMENTS ARE DEEMED TO BE INCOME OF THE ASSESSEE OF THE YEAR IN WHICH SUCH INVESTMENTS HAVE BEEN MADE, CANNOT BE EXTENDED AND APPLIED AUTOMATICALLY IN CONTEXT OF SECTION 271AAB. IT IS A WELL-SETTLED LEGAL PROPOSITION THAT THE DEEMING PROVISIONS ARE LIMITED FOR THE PURPOSES THAT HAVE BEEN BROUGHT ON THE STATUTE BOOK AND HAVE THEREFORE TO BE APPLIED IN THE CONTEXT OF PROVISIONS WHEREIN THEY H AVE BEEN BROUGHT ON THE STATUE BOOK AND NOT OTHERWISE. IN THE INSTANT CASE, THE DEEMING PROVISIONS ARE CONTAINED IN SECTION 69 AND SECTION 69B AND THEREFORE, THE SAME COULD HAVE BEEN APPLIED IN THE CONTEXT OF BRINGING TO TAX SUCH INVESTMENTS TO TAX IN THE QUANTUM PROCEEDINGS, THOU GH THE FACT OF THE MATTER IS THAT THE AO HAS NOT EVEN INVOKED THE SAID DEEMING PROVISIONS IN THE QUANTUM PROCEEDINGS IN THE INSTANT CASE. TH EREFORE, EVEN ON THIS ACCOUNT, THE DEEMING FICTION CANNOT BE EXTENDE D TO THE PENALTY PROCEEDINGS WHICH ARE SEPARATE AND DISTINCT FROM TH E ASSESSMENT PROCEEDINGS AND MORE SO, WHERE THE PROVISIONS OF SE CTION 271AAB PROVIDE FOR A SPECIFIC DEFINITION OF UNDISCLOSED IN COME. WHERE A SPECIFIC DEFINITION OF UNDISCLOSED INCOME HAS BEEN PROVIDED IN SECTION 271AAB, BEING A PENAL PROVISION, THE SAME MUST BE STRICTLY CONSTRUED AND IN LIGHT ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 54 OF SATISFACTION OF CONDITIONS SPECIFIED THEREIN AND IT IS NOT EXPECTED TO EXAMINE OTHER PROVISIONS WHERE THE SAME HAS BEEN DE FINED OR DEEMED FOR THE PURPOSES OF BRINGING THE AMOUNT TO TAX. IN LIGHT OF THE SAME, THE UNDISCLOSED INVESTMENT BY WAY OF ADVANCE FOR PU RCHASE OF LAND CAN BE SUBJECT MATTER OF ADDITION IN THE QUANTUM PROCEE DINGS, AS THE SAME HAS BEEN SURRENDERED DURING THE COURSE OF SEARCH IN THE STATEMENT RECORDED U/S 132(4) AND OFFERED IN THE RETURN OF IN COME, HOWEVER THE SAME CANNOT BE SAID TO QUALIFY AS AN UNDISCLOSED IN COME IN THE CONTEXT OF SECTION 271AAB READ WITH THE EXPLANATION THERETO AND PENALTY SO LEVIED THEREON DESERVED TO BE SET-ASIDE. 40. REGARDING SURRENDER OF RS 7,29,139 MADE ON ACCO UNT OF OTHER DISCREPANCIES, IN ABSENCE OF ANY SUCH DISCREPANCY S O FOUND BY THE ASSESSING OFFICER EITHER DURING THE ASSESSMENT OR P ENALTY PROCEEDINGS, THE SAID SURRENDER MAY BE THE BASIS FOR ASSESSMENT BUT CANT FORM THE BASIS FOR LEVY OF PENALTY IN ABSENCE OF A SPECIFIC FINDING AS TO HOW THE SAME QUALIFY AS AN UNDISCLOSED INCOME SO DEFINED U/ S 271AAB OF THE ACT. HENCE, PENALTY LEVIED THEREON IS LIABLE TO BE SET-ASIDE. 41. REGARDING SURRENDER OF CASH OF RS 5 LACS FOUND FROM THE RESIDENCE OF THE PARTNERS AND WHICH HAS BEEN ADMITT ED AS BELONGING TO THE ASSESSEE FIRM IN STATEMENT RECORDED U/S 132(4) AND NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS AT THE TIME OF SE ARCH, THERE CANNOT BE ANY DISPUTE THAT THE SAME REPRESENTS UNDISCLOSED INCOME AND LIABLE FOR PENALTY U/S 271AAB OF THE ACT WHICH IS HEREBY C ONFIRMED. ITA NO.991/JP/2017 M/S RAMBHAJOS VS. ACIT 55 42. IN LIGHT OF ABOVE DISCUSSIONS AND IN THE ENTIRE TY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY U/S 271AAB I S SUSTAINED TO THE EXTENT OF CASH FOUND DURING THE COURSE OF SEARCH AN D PENALTY IS HEREBY DIRECTED TO BE DELETED ON REST ALL ITEMS OF SURREND ER MADE DURING THE COURSE OF SEARCH IN ABSENCE OF THE SAME QUALIFYING AS UNDISCLOSED INCOME AS SO DEFINED UNDER SECTION 271AAB OF THE AC T. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/01/2019. SD/- S D/- 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:- 11/01/2019. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RAMBHAJOS, 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. 991/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR