M/S GIRIRAJ ENTERPRISES,PUNE V. DCIT, CC.1(1), PUNE, PUNE

ITA 427/PUN/2025

AI Insights

The case involves cross appeals by Giriraj Enterprises and the Revenue against the order of the CIT(A), Pune, relating to the assessment year 2021-22. The primary issue was the penalty levied under section 271AAB of the Income Tax Act, 1961, following a search and seizure operation. The assessee admitted to unaccounted sales and offered additional income for taxation. The Assessing Officer initiated penalty proceedings, which were contested by the assessee on various grounds including the non-specification of the exact clause in the penalty notice and the inclusion of GST in the undisclosed sales. The CIT(A) partly upheld the penalty, leading to further appeals by both parties before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711833 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: Mohd. Farhan A. Sheikh vs DCIT, Shri R. Elangovan vs DCIT, Shri Krishnappa Gowder Kalyanasundaram vs DCIT, Shri Naveen Goswami vs DCIT, Yogender Mohan Rustagi vs ACIT, Prakash Asphalting & Toll Highways (India) Ltd. vs ACIT, Suresh Kumar vs ACIT, Pr. CIT vs Industrial Safety Products (P) Ltd., Jaina Marketing & Associates vs DCIT, PCIT vs Industrial Safety Products (P) Ltd., Kunhayammed vs State of Kerala
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: NIKHIL S PATHAK
• Keywords: Document seized; Documents seized; Search and seizure; Initiation of penalty proceedings
• Section: 143(3); 271(1)(c); 132; 153A; 139

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.427/PUN/2025 Assessment year : 2021-22 M/s. Giriraj Enterprises 1 Modi Baug, Building A, Shivaji Nagar, Ganesh Khind Road, Pune – 411016 Vs. DCIT, Central Circle 1(1), Pune PAN: AACFG1563G (Appellant) (Respondent) ITA No.553/PUN/2025 Assessment year : 2021-22 ACIT, Central Circle 1(1), Pune Vs. M/s. Giriraj Enterprises 1 Modi Baug, Building A, Shivaji Nagar, Ganesh Khind Road, Pune – 411016 PAN: AACFG1563G (Appellant) (Respondent) Assessee by : Shri Nikhil S Pathak Department by : Shri Amol Khairnar, CIT-DR Date of hearing : 19-06-2025 Date of pronouncement : 24-07-2025 O R D E R PER R.K. PANDA, VP : These are the cross appeals – the first one filed by the assessee and the second one filed by the Revenue and are directed against the order dated 27.12.2024 of the Ld. CIT(A), Pune-11 relating to assessment year 2021-22. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order. Printed from counselvise.com 2 ITA No.427/PUN/2025 ITA No.553/PUN/2025 2. Facts of the case, in brief, are that the assessee is a partnership firm engaged in business of dealership in various FMCG products mainly Tobacco, lime, generation of power from windmill, Bajaj two wheeler and service station etc. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was carried out in the case of Malpani group of cases on 17.02.2021 during which the business premises of the assessee was also covered. During the course of search and seizure action the assessee firm admitted that it has made unaccounted sale of Gai Chap tobacco and other products. In response to the notice u/s 153A of the Act the assessee filed the return of income on 08.03.2022 declaring total income of Rs.81,73,67,960/- on account of unaccounted sale of Gai Chap tobacco and other products admitted at the time of search. The additional income offered to tax for assessment year 2021-22 was worked out as under: a. Total unaccounted sales – Rs.1,26,59,41,430/- b. Gross profit percentage – 64.38% c. Income offered to tax – Rs.81,51,03,640/- 3. The Assessing Officer completed the assessment u/s 153A / 143(3) of the Act wherein no addition regarding the unaccounted sale was made and the only addition made by the Assessing Officer was the disallowance of deduction claimed u/s 80IA(4) of Rs.18,01,430/-. Printed from counselvise.com 3 ITA No.427/PUN/2025 ITA No.553/PUN/2025 4. Subsequently the Assessing Officer initiated penalty proceedings u/s 271AAB of the Act. The assessee submitted that the declaration made during the course of search on account of sale of Gai Chap tobacco and other products was well before the due date for filing the return of income and even the financial year was not ended. It was submitted that the sale was disclosed in the return of income u/s 139(1) of the Act and has been assessed to tax in the order passed u/s 143(3) of the Act, therefore, it cannot be considered as undisclosed income within the meaning defined in section 271AAB of the Act. The assessee further submitted that if by any stretch the penalty u/s 271AAB(1A) is to be applied, the same will be after considering the GST payment made well within same year as the sales made by the assessee were inclusive of GST. Accordingly, as against gross profit of Rs.81,51,03,640/- for assessment year 2021-22 the assessee has paid total GST and interest on GST totaling to Rs.65,24,14,109/- which is pertaining to assessment year 2021-22. So the profit after the GST payment is Rs.16,26,89,531/-. Accordingly it was argued that the penalty is applicable only on this amount. The assessee also challenged the rate of penalty. 5. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. According to him, during the course of search action the assessee firm had admitted the unaccounted sale of Gai Chap tobacco and other products. He referred to the provisions of section 271AAB(1A) of the Act and observed that as per the said provisions ‘undisclosed income’ includes any Printed from counselvise.com 4 ITA No.427/PUN/2025 ITA No.553/PUN/2025 document or transaction found during the course of search action u/s 132 of the Act which has 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. Further, ‘specified previous year’ includes the year 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. Therefore, the contention of the assessee that due date for filing the return of income for assessment year 2021-22 had not been expired at the time of search and the impugned income disclosed in the return cannot be considered as undisclosed income, was rejected. He further noted that during the course of search action and the assessment proceedings the assessee has disclosed income of Rs.81,51,03,640/- which was assessed while passing the order u/s 143(3) of the Act. The penalty proceedings were initiated u/s 271AAB(1A) of the Act on the amount of Rs.81,51,03,640/-. Considering the submissions and the finality of the assessment order, he levied penalty @ 20% on the amount of Rs.81,51,03,640/- and imposed penalty of Rs.24,45,31,092/-. 6. Before the Ld. CIT(A) the assessee made two-fold arguments. It was argued that in the notice issued u/s 274 r.w.s. 271AAB of the Act the exact clause of section 271AAB under which the penalty proceedings were initiated was not Printed from counselvise.com 5 ITA No.427/PUN/2025 ITA No.553/PUN/2025 mentioned. Therefore, the penalty proceedings are not in accordance with law and are void ab initio and therefore, such proceedings should be quashed. 7. So far as the merit of the case is concerned, it was argued that the assessee had paid the GST amount of Rs.65,24,14,109/- in respect of sales declared in the course of search. Accordingly it was argued that the GST so paid should be reduced from the gross profit of Rs.81,51,03,640/- and only on the balance amount, penalty may be levied. It was argued that the assessee had declared additional income on account of sale of Gai Chhap Jarda for assessment year 2021-22 and in the return for assessment year 2021-22 it has considered the sale of Rs.1,26,59,41,430/- and the gross profit thereon has been worked out at Rs.81,51,03,640/-. It was argued that the sales made by the assessee were inclusive of GST. As a result of search action the assessee paid GST amount of Rs.65,24,14,109/- on the sales declared at the time of search which was debited to the Profit & Loss Account for assessment year 2021-22. It was argued that the seized documents indicated that the unaccounted sales were made by the assessee firm and the rate per bag as per the seized papers is almost matching with the rate charged for accounted sales which was inclusive of GST. Accordingly it was argued that the GST paid of Rs.65,24,14,109/- should be reduced and penalty if at all is to be levied on the balance amount of Rs.16,26,89,531/-. 8. Without prejudice to the above, it was argued that at the time of search the concerned financial year has not ended and even the due date for filing the return Printed from counselvise.com 6 ITA No.427/PUN/2025 ITA No.553/PUN/2025 had not expired. The assessee has offered the gross profit on the sales declared at the time of search in the return u/s 139(1) of the Act. Further, in the assessment order the income declared by the assessee pertaining to the sales declared at the time of search has been accepted and no addition has been made. It was argued that since the assessee had offered the income in the return filed u/s 139(1) of the Act, there is no reason to levy penalty on the gross profit of Rs.81,51,03,640/- declared on the sales offered in the course of search action. 9. However, the Ld. CIT(A) was not fully satisfied with the arguments advanced by the assessee. So far as the argument that the exact clause of section 271AAB under which the penalty proceedings were initiated was not mentioned and therefore, such proceedings are to be quashed is concerned, he dismissed the same by observing as under: “8. I have considered the facts of the case and the submissions made by the appellant. It is seen from the assessment order dated 22.04.2022 passed u/s. 143(3) of the Act for AY 2021-22 that the AO has specifically mentioned that the penalty proceedings u/s. 271AAB(1A) of the Act are initiated on the undisclosed income shown on cash sales. The appellant has contended that the AO has not mentioned specific clause of section 271AAB under which the penalty proceedings are initiated. Although, the appellant has not stated so but apparently, the appellant is trying to apply the principle laid down by the Hon'ble Bombay High Court in the case of Mohd. Farhan A. Sheikh vs DCIT 434 ITR 1 (Bombay) wherein the Hon'ble High Court has held that while initiating the penalty proceedings u/s. 271(1)(c) of the Act, the AO is required to strike off the irrelevant limb from the penalty notice. A perusal of the said decision suggests that the same was given in the context of section 271(1)(c) of the Act wherein the Hon. Bombay High Court observed that two limbs prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the Act. Observing this principle, the Hon. Bombay High Court has held that an omnibus penalty notice wherein the Assessing Officer has not struck off the irrelevant limb, shall not be a valid notice. The appellant is trying to apply the said principle in the context of penalty notice issued u/s 271AAB(1A) of the Act. However, a perusal of sec. Printed from counselvise.com 7 ITA No.427/PUN/2025 ITA No.553/PUN/2025 271AAB(1A) of the Act suggests that this section does not have two limbs as against the section 271(1)(c) of the Act. Section 271AAB(1A) simply provides for levy of penalty on undisclosed income of the specified previous year depending upon the situation as prescribed in clause (a) and (b) of sec. 271AAB(1A) of the Act. Therefore, the ratio laid down by the Hon. Bombay High Court in the case of Farhan Sheikh (supra) shall not be applicable to the penalty levied u/s 271AAB of the Act firstly because the said decision was given in the context of sec. 271(1)(c) of the Act and secondly because no two limbs are provided in sec. 271AAB. The appellant has not brought to my notice any judgment specific to sec. 271AAB of the Act wherein by applying the ratio of decision in the case of Farhan Sheikh (supra), penalty notice was held invalid. Accordingly, the technical grounds raised by the appellant with regards to initiation of penalty proceedings are rejected.” 10. So far as the merit of the argument challenging the levy of penalty is concerned, he partly allowed the appeal filed by the assessee by observing as under: “10. I have considered the facts of the case and the submissions made by the appellant. The first issue arises in this appeal is whether in the facts of present case, any penalty u/s 271AAB(1A) is leviable or not. In this connection, it is seen that during the search operation various documents containing the details of undisclosed cash sales were found and seized. These documents were confronted with Shri Rajesh Malpani, partner of the appellant firm wherein he admitted that these documents contain details of unaccounted sales of the appellant firm. The relevant portion of the said statement recorded u/s. 132(4) on 16.04.2021 is as under: Q10. Now I am showing you Page No. 1 & 2 of Loose paper Bundle No.1 found and seized from residential premises of Mr. Manish Malpani during course of P.O. operation at Royal Palms, Shivajinagar, Sangamner- 422605. Mr. Manish Malpani has stated that explanation in respect of these papers shall be provided by you. Kindly go through the same and provide the explanation for the same. Ans. I have gone through these papers. On page no 1 there is no title and on page 2 title is 2019/20. This is summary of sales of Gai Chhap Tobacco and other products prepared by our General Manager Sales Mr. Mahindra Rathod. Sales mentioned in these papers remained to be accounted. He had prepared month wise details of total undisclosed sales for the period for Financial year 2019-2020 and from April 2020 to December 2020. I wish to submit that the practice of generating unaccounted sales in respect of Gai Chhap Tobacco product was started from July, 2019 onwards and hence, no such unaccounted sales are mentioned for the months of April to June 2019 in the said summary. Printed from counselvise.com 8 ITA No.427/PUN/2025 ITA No.553/PUN/2025 Total seen on page no 1 is Rs. 111,57,60,940/- and on page 2 is 126,68,26,449/-. I hereby accept that these are unaccounted sale of Gai Chhap Tobacco and other products. However, total is in fact more than these seized papers and for the period July, 2019 till Feb 2021 is Rs. 253,27,67,879/-. The year-wise break- up is as summarized below- Product FY 2019-20 FY 2020-21 Total Gai Chaap 1,24,90,67,499 1,20,95,17,640 2,45,85,85,139 Other Products 1,77,58,950 5,64,23,790 7,41,82,740 GRAND TOTAL 1,26.68,26,449 1,26,59,41,430 2,53,27,67,879 However, the practice of unaccounted sales was completely stopped after search. I further state that M/s Giriraj Enterprises has further incurred expenditure in cash on purchase of raw tobacco from the farmers, packaging material, lime, labour charges for packing, transportation, loading and unloading and other incidental expenses. I humbly submit that the profit will be computed after considering these expenses. I admit and confirm that we will accordingly work out the profit on these sales which remained to be accounted and offer the same in respective years le. F.Y. 2019-20 and 2020-21 to conclude the matter, buy peace of mind and focus on business. 11. Thus, in the statement recorded u/s. 132(4) of the Act, Shri Rajesh Malpani admitted that for the year under consideration, the appellant firm made an unaccounted cash sales amounting to Rs.126,59,41,430/- which was not recorded in the books of accounts maintained for FY 2020-21. He also agreed to offer income on such unaccounted sale of Rs.126,59,41,430/- after considering the cash expenses on purchase of raw tobacco, packaging material, labour charges, transportation, loading and unloading expenses and other incidental expenses. The facts of the case thus suggest that the income corresponding to such unaccounted sale falls in the definition of 'undisclosed income' as provided in clause (c) of Explanation to section 271AAB of the Act. It is further seen that FY 2020-21 being a year of search, is a \"specified previous year\" as per the definition provided in clause (b) of Explanation to section 271AAB of the Act. Thus, penalty u/s. 271AAB(1A) is leviable on the undisclosed income corresponding to such unaccounted sales found during the search. Since, the appellant admitted the undisclosed income in the statement recorded u/s. 132(4) of the Act and also specified the manner in which such undisclosed income was earned, the AO has rightly held that penalty is leviable u/s 271AAB(1A)(a) of the Act. 12. The second issue arises in this appeal is the quantum of undisclosed income on which such penalty u/s. 271AAB(1A) is leviable. The AO has held that the penalty is leviable on the undisclosed income of Rs.81,51,03,640/- being the income corresponding to undisclosed sale. On the other hand, the appellant has contended that Rs.81,51,03,640/- was offered as gross profit on the cash sales of Rs.1,26,59,41,430/- after considering the cash expenses on purchase of raw tobacco, packaging material, labour charges, transportation, loading and unloading expenses, etc and the amount of GST paid on such cash sales was not accounted for while offering gross profit. The appellant has submitted that Printed from counselvise.com 9 ITA No.427/PUN/2025 ITA No.553/PUN/2025 subsequent to the search on 07.02.2021, these unaccounted cash sales were duly disclosed in the GST Returns filed for the month of February and March 2021 and GST plus interest was paid on these cash sales. The appellant has submitted that a total of Rs.65,24,14,109/- was paid as GST and interest which was debited in the P&L Account. Thus, the net profit on the unaccounted cash sales comes to Rs.16,26,89,531/- (81,51,03,640 - 65,24,14,109) and therefore the penalty should be leviable only on such net income earned on the unaccounted cash sales. 13. During the penalty proceedings the appellant had submitted that since the GST of Rs.65,24,14,109/- is directly related to unaccounted cash sales, undisclosed income should be computed after reducing the GST payment from the gross profit on unaccounted cash sales. But the AO did not agree with the appellant and levied the penalty by considering the gross profit of Rs.81,51,03,640/- as undisclosed income. The penalty order suggests that although, the assessing officer did not dispute the claim of the appellant that it had paid an amount of Rs.65,24,14,109/- as GST and interest on the unaccounted cash sales but he did not allow the benefit of same. It is also seen from the penalty order that the AO has not given any specific reason for not allowing the benefit of GST and has simply stated that during the search action, the appellant has disclosed an amount of Rs.81,51,03,640/- as income on unaccounted cash sales. 14.1 During the appellate proceedings, the appellant has submitted that while recording sales in the books of accounts, it is not passing the GST payments through the P&L Account. In this regard, the AR of the appellant has drawn my attention to the Revenue Recognition Policy of the firm which is mentioned in Note 6(h) of Significant Accounting Policies (Schedule 25 of the Audited Accounts for FY 2020-21). The said clause reads as under: h. Revenue from sale of goods is recognized on transfer of all significant risk and rewards of ownership of goods to buyer. The amount recognized as sale is exclusive of GST, interest and Dharmada, if any, charged in invoice Sales are net of VAT/GST. Sale is net of goods returns, if any. 14.2 The above accounting policy followed by the appellant regarding the recognition of revenue clearly suggests that GST on the revenue recognized in the P&L Account is not being passed through P&L Account. 14.3 The appellant has further submitted that for AY 2021-22, cash sales of Rs.126,59,41,430/- were found recorded in the seized documents which was considered as gross sale receipts inclusive of GST and after the search operation conducted on 17.02 2021, the unaccounted sales for the year under consideration were duly disclosed in the GST returns filed in the month of February 2021 and March 2021 and GST amount of Rs.59,51,19,109/- and interest thereon amounting to Rs.5,72,95,000/- was paid by it. The AR of the appellant has however stated that the cash sales amounting to Rs.126,59,41,430/- for the year under consideration was not routed through the P&L Account as it was not possible to route the corresponding cash expenses in the P&L account. Therefore, gross profit corresponding to such sales were offered in the computation of income and since Printed from counselvise.com 10 ITA No.427/PUN/2025 ITA No.553/PUN/2025 GST was paid on such cash sales, same was debited in the P&L account, as there was no other way of accounting the GST paid. 15.1 As mentioned earlier in this order, although the AO did not dispute the claim of the appellant that it had paid GST plus interest amounting to Rs.65,24,14,109/- on the unaccounted cash sales of Rs.126,59,41,430/-, however, in the interest of cross-verification, the AR of the appellant was requested to demonstrate the same and to file a reconciliation along with copies of GST returns. In response, the appellant has submitted the following reconciliation regarding the sales declared in the GST returns for February, 2021 and March, 2021: Amount paid through monthly GSTR3B return Feb-2021 Amount paid through monthly GSTR3B return March-2021 Printed from counselvise.com 11 ITA No.427/PUN/2025 ITA No.553/PUN/2025 15.2 The appellant has also filed the copies of GST returns for above two months and it is seen that the total taxable value shown as Rs.113,82,29,147/- and Rs.63,79,88,659/- for the months of February and March, 2021 respectively. It has been further submitted that the cash sales were considered as inclusive of GST and accordingly net sales amounting to Rs.67,08,22,321/- was declared in the GST returns for February and March, 2021. 16.1 It is seen from the P&L Account that an amount of Rs.142,03,78,121/-is debited under the head 'Rates and taxes’ as against the claim of Rs.65,24,14,109/-. The AR of the appellant was accordingly requested to reconcile the same. In this connection, the appellant has submitted the following reconciliation: Giriraj Enterprises GST paid on cash sales which remained to be accounted Particulars Amount 2019-20 60,30,88,325 2020-21 59,51,19,109 Earlier period 19,02,794 Total 1,20,01,10,228 Regular GST demand other than cash sales (search) 1,03,88,562 Total GST paid 1,21,04,98,790 As per P&L for the year 2020-21 Rent rates taxes Particulars Amount GST paid 1,21,04,98,790 Interest paid on GST delay payment 19,26,11,312 Taxes other than GST and interest above 1,72,68,019 Total 1,42,03,78,121 Giriraj Enterprises Date of payment 2020-22 30-03-2021 GSTR-3B Feb-2021 58,28,24,563 20-04-2021 GSTR-3B Mar-2021 1,22,94,546 Total 59,51,19,109 16.2 From the above reconciliation, it is seen that the GST paid on cash sales for the year under consideration is Rs.59,51,19,109/- only. 17. The above discussion suggests that subsequent to the search, the appellant has declared the unaccounted cash sales, in its GST Returns for the month of Printed from counselvise.com 12 ITA No.427/PUN/2025 ITA No.553/PUN/2025 February and March, 2021. It had also paid GST amounting to Rs.59,51,19,109/- on the unaccounted cash sales and an interest of Rs.5,72,95,000/- was paid. While the amount of GST of Rs.59,51,19,109/- is directly related to cash sales found recorded in the seized material, the interest of Rs.5,72,95,000/- cannot be said to be directly related to these cash sales. 18. To sum up, the facts of the present case suggest that undisclosed cash sales of Rs.126,59,41,430/- was found recorded in the seized document. In the statement recorded u/s. 132(4) of the Act, the partner of the appellant firm accepted the same and agreed to offer income after considering expenses. A perusal of reply to question no. 10 of the statement u/s. 132(4) recorded on 16.04.2021 suggests that the undisclosed income on such cash sales was not quantified at that time. Subsequently, the appellant applied a gross profit rate of 64.38% on such sales and the resulting amount of Rs.81,51,03,640/- was directly offered in the computation of income. The facts of the case further suggest that subsequent to search operation, such cash sales were disclosed in the GST returns by considering the cash sales inclusive of GST and the GST payment of Rs.59,51,19,109/- (corresponding to unaccounted cash sales) was debited in the P&L Account. Since, the said GST amount is directly related to the unaccounted cash sales, the undisclosed income corresponding to unaccounted sale is required to be computed after considering said GST payment. In this manner, in the return of income, the appellant has actually offered net income of Rs.21,99,84,531/- (81,51,03,640-59,51,19,109) on undisclosed cash sales. While completing the assessment, the AO has accepted the same without making any addition on this account. Thus, the assessed undisclosed income on the unaccounted cash sales comes to Rs.21,99,84,531/-. 19. A perusal of definition of 'undisclosed income as provided in Explanation to section 271AAB of the Act broadly means an income which has not been recorded in the books of accounts before the date of search and found during the search. As discussed above, the undisclosed income on the unaccounted cash sales comes to Rs.21,99,84,531/- and therefore the said amount is required to be considered for the purpose of levying penalty u/s. 271AAB(1A)(a) of the Act. The AO is accordingly directed to recompute the quantum of penalty on such undisclosed income. The grounds no. 3 to 6 are disposed accordingly. 20. To conclude, the appeal of the appellant for A.Y. 2021-22 is PARTLY ALLOWED.” 11. Aggrieved with such part relief granted by the Ld. CIT(A), the assessee as well as the Revenue are in appeal before the Tribunal by raising the following grounds: Printed from counselvise.com 13 ITA No.427/PUN/2025 ITA No.553/PUN/2025 Grounds raised by the assessee in ITA No.427/PUN/2025 1] The learned CIT(A) erred in confirming the levy of penalty u/s 271AAB on an amount of Rs.21,99,84,531/- without appreciating that no such penalty was leviable on the facts of the case. 2] The learned CIT(A) erred in not appreciating that the penalty order passed u/s 271AAB was null and void since the notice issued u/s 274 r.w.s. 271AAB was bad in law. 3] The learned CIT(A) failed to appreciate that in the notice issued u/s 274 r.w.s. 271AAB, the learned A.O. had not specified the exact clause of section 271AAB under which the penalty proceedings were initiated and therefore, the said notice was invalid in law and the penalty order passed u/s 271AAB was null and void. 4] The learned CIT(A) erred in confirming the levy of penalty on the undisclosed income of Rs.21,99,84,531/- in respect of the unaccounted cash sales without appreciating that there was no reason to levy any penalty on the said amount and hence, the entire penalty levied u/s 271AAB ought to have been deleted. 5] The learned CIT(A) erred in not appreciating that the due date for filing the income for the year under consideration had not expired and accordingly, there was no reason to hold that the income of Rs.21,99,84,531/- constituted the undisclosed income of the assessee and therefore, the penalty levied should have been deleted. 6] The learned CIT(A) erred in not appreciating that if the GST paid on the undisclosed sales declared for A.Y. 2020-21 is taken into account, there would be no undisclosed income for the year under consideration and hence, the penalty levied u/s 271AAB was not justified and the same may kindly be deleted. 7] The learned CIT(A) further erred in excluding the interest paid of Rs.5,72,95,000/- on late payment of GST while computing the undisclosed income for the purpose of levy of penalty u/s 271AAB without appreciating that the said interest paid should have been taken into account and the penalty if at all, should have been worked out on the balance undisclosed income. 8] The assessee submits that on similar set of facts, no penalty was levied for A.Y. 2020-21 by the learned A.O. and therefore, the assessee submits that for this year also there was no reason to levy the penalty since the facts were identical for both the years. Printed from counselvise.com 14 ITA No.427/PUN/2025 ITA No.553/PUN/2025 9] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. Grounds raised by the Revenue in ITA No.553/PUN/2025 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in giving benefit of GST and restricting the undisclosed income to Rs.21,99,84,531/- as against undisclosed income of Rs.81,51,03,640/- without appreciating the fact that the assessee has admitted the undisclosed income of Rs.81,51,03,640/- without any claim of reduction on account of payment of GST in the statement recorded u/s 132(4) of the Act and disclosed the same in the return of income after paying taxes on the undisclosed income of Rs.81,51,03,640/- and thus provisions of section 271AAB (14)(a) of the Act are squarely applicable in the case of the assessee on the total amount of Rs.81,51,03,640/-. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that in the assessment order u/s 143(3) dated 22.04.2022, the AO has held that in the return of income filed by the assessee, it has shown profit of Rs.81,51,03,640/- on unaccounted cash sales of Rs.126,59,41,430/- and the assessee has not filed any appeal against the said assessment order. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that the profit of Rs.81,51,03,640/- offered was inclusive of GST was not contended by the assessee before the AO during assessment the proceedings and no remand report was called for from the AO to validate the submissions filed by the assessee during the appellate proceedings. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that search u/s 132 of the Act was conducted in the case of the assessee on 17.02.2021 and the assessee filed its return of income on 08.03.2022 after taking considerable time and getting its books of accounts audited and based on the same, the assessee offered Rs.81,51,03,640/- as its undisclosed income other than regular income which is not included in profit & loss account. 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in giving benefit of GST by holding that the same was debited to its profit & loss account under \"rates and taxes\", without appreciating the fact that the undisclosed sales were not offered in profit & loss account, but offered as any other income not included in profit and loss account. 6. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that the liability of the assessee w.r.t Printed from counselvise.com 15 ITA No.427/PUN/2025 ITA No.553/PUN/2025 GST is to collect GST from its customers & deposit the same with the government account whereas in this case, the Ld.CIT(A) has allowed the assessee to reduce the GST liability on unaccounted sales from the undisclosed profit which is liable to tax, thereby reducing the undisclosed profit and quantum of penalty on that amount. 7. The appellant craves to add, amend, alter or delete any of the above ground(s) of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 12. The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) partly confirming the penalty levied by the Assessing Officer u/s 271AAB of the Act. So far as ground Nos.2 and 3 are concerned, he submitted that the penalty order passed by the Assessing Officer is invalid in law. Referring to page 132 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the notice issued by the Assessing Officer u/s 274 r.w.s. 271AAB of the Act and submitted that the Assessing Officer in the said notice has not mentioned the exact clause of section 271AAB under which the penalty proceedings have been initiated. Referring to the order of the Ld. CIT(A), he submitted that he has stated that the Assessing Officer has specifically mentioned in the order that the penalty proceedings u/s 271AAB(1A) of the Act are initiated. Further, according to him, section 271AAB does not have two limbs whereas in section 271(1)(c) of the Act there are two limbs and therefore, he rejected the claim of the assesse challenging the validity of the penalty proceedings by distinguishing the decision of Hon’ble Bombay High Court in the case of Mohd. Farhan A. Sheikh vs DCIT reported in 434 ITR 1 (Bom). Printed from counselvise.com 16 ITA No.427/PUN/2025 ITA No.553/PUN/2025 13. The Ld. Counsel for the assessee referring to the provisions of section 271AAB of the Act submitted that as per the said sub-section the penalty is either leviable under clause (a) or clause (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, there are two different sections in section 271AAB(1A) under which penalty can be levied. Since the Assessing Officer in the instant case has only mentioned that a search was conducted and the assessee was found to have undisclosed income and has not specified the exact clause i.e. (a) or (b) under which he wants to levy the penalty, therefore, such penalty notice issued by the Assessing Officer is invalid. 14. So far as the decision distinguished by the Ld. CIT(A) in case of Mohd. Farhan A. Sheikh vs DCIT (supra) is concerned, he submitted that although the same is in the context of 271(1)(c) of the Act, however, the ratio laid down in the said decision is applicable to the facts of the present case. Relying on the following decisions, he submitted that since the Assessing Officer in the instant case has not specified the correct clause under which the penalty is being levied, therefore, such notice issued by the Assessing Officer being not in accordance with law, the penalty levied by him and partly sustained by the Ld. CIT(A) has to be deleted: Printed from counselvise.com 17 ITA No.427/PUN/2025 ITA No.553/PUN/2025 a. Shri R. Elangovan [ITA No. 770 & 771 of 2018 (Madras High Court] b. Shri Krishnappa Gowder Kalyanasundaram v. DCIT [1678/Chay/2004) c. Shri Naveen Goswami v DCIT [10/Del/2023] d. Yogender Mohan Rustagi vs. ACIT (ITA No.461/Del/2024] e. Prakash Asphalting & Toll Highways (India) Ltd. v. ACIT [720/Ind/2024] f. Suresh Kumar v. ACIT [1880/Del/2023] g. Pr. CIT v. Industrial Safety Products (P) Ltd. [154 taxmann.com 433 (Cal)] h. Jaina Marketing & Associates vs. DCIT 162 taxmann.com 439 (Delhi- Trib.) i. PCIT vs. Industrial Safety Products (P) Ltd. 154 taxmann.com 433 (Cal) j. Kunhayammed vs. State of Kerala 113 Taxman 470 (SC) 15. So far as the merit of the case is concerned, the Ld. Counsel for the assessee submitted that the assessee in the return filed for assessment year 2021-22 has considered the sale of Rs.1,26,59,41,430/- on which the gross profit of Rs.81,51,03,640/- has been worked out. He submitted that the sales made by the assessee were inclusive of GST. As a result of the search action the assessee paid GST amount of Rs.65,24,14,109/- on the sales declared at the time of search which has been debited to the Profit & Loss Account for assessment year 2021-22. Referring to some of the sample copies of the relevant seized material, he submitted that there are notings on the seized papers containing the total number of bags sold and the total sale amount for a particular month etc. and a perusal of the seized documents would show that the rate per bag as per the seized papers is almost matching with the rate charged for the accounted sales which were Printed from counselvise.com 18 ITA No.427/PUN/2025 ITA No.553/PUN/2025 including the GST. Thus, the unaccounted sales noted on the seized papers are including the GST amount. Further, the assessee had almost charged the same rate for the unaccounted sales which was including the GST amount as compared to the rate charged for the accounted sales which include the GST amount. 16. Referring to the order of the Ld. CIT(A), he submitted that the Ld. CIT(A) in the said order has held that subsequent to the search action the assessee has disclosed the cash sales by considering the cash sales inclusive of GST. He has also stated that the GST amount is directly related to the unaccounted sales and the undisclosed income is required to be computed after considering the GST payment. He accordingly held that the GST amount of Rs.59,51,19,109/- relating to assessment year 2021-22 (excluding the interest paid) should be reduced from the amount of Rs.81,51,03,640/- and penalty is leviable on the income of Rs.21,99,84,531/-. 17. Referring to the provisions of section 271AAB(1A), he submitted that as per the said provision where search is conducted on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 received the assent of the President, the assessee shall be liable to pay penalty @ 30% of the undisclosed income. He drew the attention of the Bench to the definition of the term ‘undisclosed income’ and submitted that the ‘undisclosed income’ means any income of the specified previous year which has not been recorded on or before the Printed from counselvise.com 19 ITA No.427/PUN/2025 ITA No.553/PUN/2025 date of search in the books of accounts or other documents maintained in the normal course relating such previous year. He submitted that the assessee in the present case has admitted the gross profit at the time of search which was not recorded in the books. Further, the GST on such sales was also not recorded in the books of accounts. It is only after the search action that the assessee has offered the gross profit on sales and the GST thereon has been paid. Therefore, the undisclosed income in the present case is the gross profit earned on the said sales as reduced by the GST paid by the assessee on such declared sales at the time of search action. Therefore, the GST amount of Rs.65,24,14,109/- should be reduced from the gross profit of Rs.81,51,03,640/- and penalty, if at all, has to be levied on the balance amount of Rs.21,99,84,531/-. 18. He submitted that during the course of search action the department found that there was some suppression of sale for assessment years 2020-21 and 2021-22. Accordingly, the assessee in the returns filed for the assessment year 2020-21 had offered income of Rs.82.01 crore in respect of unaccounted sales. On the said unaccounted sales the assessee paid GST of Rs.60,30,88,325/- in financial year 2020-21 relevant to assessment year 2021-22, the details of which are given at page 40 of the paper book. He submitted that the GST for assessment year 2020- 21 paid during the assessment year 2021-22 should also be reduced from the gross profit since the same is directly related to the unaccounted sales and therefore, the Printed from counselvise.com 20 ITA No.427/PUN/2025 ITA No.553/PUN/2025 said amount also should be reduced from the gross profit for the impugned assessment year and if it is so done, no penalty is leviable at all. 19. The Ld. Counsel for the assessee submitted that the Assessing Officer for assessment year 2020-21 has not levied the penalty in respect of income offered to tax after the search action. He submitted that when on the same sets of facts no penalty has been levied by the Assessing Officer for assessment year 2020-21, he is not justified in levying the penalty for assessment year 2021-22. For the above proposition he relied on the decision of the Delhi Bench of the Tribunal in the case of Arvind Gupta vs. ITO (2015) 54 taxmann.com 291 (Delhi-Trib.) and the decision of the Mumbai Bench of the Tribunal in the case of Orient Press Ltd. Vs. JCIT (2008) 21 SOT 25 (Mumbai). He submitted that for assessment year 2021-22 the assessee has paid the GST amount of Rs.59,51,19,109/- and interest thereon of Rs.5,72,95,000/-. The Ld. CIT(A) has allowed the GST paid but has not allowed the interest paid on delayed payment of GST of Rs.5,72,95,000/-. He submitted that since the payment made to the GST department on account of delay is compensatory in nature, therefore, the same should also be allowed while computing the penalty. 20. The Ld. DR on the other hand heavily relied on the order of the Assessing Officer. He submitted that the Ld. CIT(A) should not have given the benefit of GST and restricting the undisclosed income to Rs.21,99,84,531/- as against the Printed from counselvise.com 21 ITA No.427/PUN/2025 ITA No.553/PUN/2025 undisclosed income of Rs.81,51,03,640/- which the assessee had admitted as undisclosed income during the course of search and without any claim of reduction on account of payment of GST in the statement recorded u/s 132(4) of the Act. Further the assessee has accepted the order passed by the Assessing Officer determining the profit declared by the assessee of Rs.81,51,03,640/-. Therefore, the Ld. CIT(A) was not justified in holding that the said profit was inclusive of GST since the assessee has never contended before the Assessing Officer during the assessment proceedings nor any remand report was called for. He accordingly submitted that the penalty levied by the Assessing Officer should be confirmed in its entirety. Accordingly he submitted that the appeal filed by the Revenue be allowed and the appeal filed by the assessee be dismissed. 21. So far as the order of the Ld. CIT(A) dismissing the grounds challenging the argument that the Assessing Officer had not specified the exact clause of section 271AAB is concerned, he heavily relied on the order of the Ld. CIT(A). 22. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case levied the penalty of Rs.24,45,31,092/- u/s 271AAB of the Act on the ground that the assessee during the course of search had admitted the undisclosed sales in respect of Gai Chhap Printed from counselvise.com 22 ITA No.427/PUN/2025 ITA No.553/PUN/2025 tobacco and other products of Rs.1,26,59,41,430/- on which the assessee has offered income of Rs.81,51,03,640/-. He accordingly levied penalty u/s 271AAB on the undisclosed income of Rs.81,51,03,640/-. We find in appeal, the Ld. CIT(A) held that since the assesse, subsequent to the search action, has disclosed cash sales by considering such sales as inclusive of GST and has paid the GST of Rs.59,51,19,109/- relating to assessment year 2021-22, therefore, the same should be reduced from the amount of Rs.81,51,03,640/- and penalty is leviable on the balance income of Rs.21,99,84,531/-. 23. We find the provisions of section 271AAB(1A) read as under: “271AAB(1)…. (1A) The Assessing Officer [or the Commissioner (Appeals)] may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a).” Printed from counselvise.com 23 ITA No.427/PUN/2025 ITA No.553/PUN/2025 24. We find the notice issued u/s 274 r.w.s. 271AAB of the Act dated 22.04.2022, copy of which is placed at page 132 of the paper book reads as under: 25. A perusal of the same would show that the Assessing Officer has not mentioned the specific limb of section 271AAB(1A) which was applicable to the case of the assessee. Therefore, the question that arises is as to whether in absence of mentioning the specific limb for levy of penalty u/s 271AAB(1A), such penalty Printed from counselvise.com 24 ITA No.427/PUN/2025 ITA No.553/PUN/2025 notice is invalid and the subsequent proceedings are also invalid? We find an identical issue had come up before the Hon’ble Madras High Court in the case of PCIT vs. Shri R. Elangovan vide Tax Case Appeal Nos.770 & 771 of 2018 & CMP No.18581 of 2018, order dated 31.03.2021. The relevant observations of the Hon’ble High Court read as under: “14. In our considered view, the Tribunal is fully right in vacating the penalty on the ground that the notice was defective. The provisions of the Act have clearly laid down the procedure to be followed and adhered to while imposing the penalty. The proposal for such penalty proceedings was separately initiated upon completion of assessment and there may be cases where the assessee would not even contest the order of assessment. But, that would not preclude the assessee from challenging the penalty proceedings, as penalty proceedings are independent and the procedure required to be followed cannot be dispensed with. 15. As rightly pointed out by the learned counsel appearing for the assessee, Section 271AAB of the Act, which deals with penalty consists of three contingencies. Therefore, the Assessing Officer should point out to the assessee as to under which of the three clauses, he chooses to proceed against the assessee so as to enable the assessee to give an effective reply. Since the same has not been mentioned, the assessee has been denied reasonable opportunity to put forth their submissions. The Tribunal, in paragraph 5 of the impugned order, has verbatim reproduced the penalty notice and we find that the notice is absolutely vague and none of the irrelevant portions had been struck off nor the relevant portions had been marked or indicated. Hence, the Tribunal is right in observing that the penalty could not have been levied based on such defective notice and more particularly, when the assessee has been strenuously canvassing the jurisdictional issue from the inception. 16. In so far as the decision of the Allahabad High Court in the case of Sandeep Chandak is concerned, the factual position is slightly different. This decision is for the principle that where the assessee, in the course of search, makes a statement, in which, he admits the undisclosed income and specifies the manner, in which, such income has been derived, then the provisions of Section 271AAB of the Act would automatically get attracted. There can be no quarrel over this proposition. But, once the provisions get attracted, it is incumbent on the part of the Assessing Officer to specify as to under which clause in Section 271AAB(1) of the Act, he intends to proceed against the assessee. In the instant case, in the absence of such material in the penalty notice, it has to be held that the notice is defective. 17. The decisions of the Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory and SSA's Emerald Meadows and the decision of this Printed from counselvise.com 25 ITA No.427/PUN/2025 ITA No.553/PUN/2025 Court in the case of Babuji Jacob clearly support our above conclusion. For all the above reasons, we find no grounds to interfere with the common order passed by the Tribunal. 18. Accordingly, the above tax case appeals are dismissed confirming the common impugned order passed by the Tribunal. No costs. Consequently, the connected CMP is also dismissed.” 26. We find following the above decision, the Chennai Bench of the Tribunal in the case of Shri Krishnappa Gowder Kalyanasundaram v. DCIT (supra) has quashed the penalty proceedings on account of such defective notice. 27. We find the Delhi Bench of the Tribunal in the case of Shri Naveen Goswami v DCIT (supra) has also quashed the penalty proceedings initiated u/s 271AAB of the Act on the ground that the failure on the part of the Assessing Officer in not pinpointing the relevant limb of section 271AAB(a) to (c) vitiates the entire proceedings. Therefore, in absence of non-mentioning of the relevant limb u/s 271AAB(a) to (c), the penalty proceedings initiated by the Assessing Officer are not in accordance with law and therefore, the same are liable to be quashed. 28. So far as the order of the Ld. CIT(A) upholding the penalty notice by distinguishing the decision in the case of Mohd. Farhan A. Sheikh vs DCIT (supra) is concerned, we are of the considered opinion that the Ld. CIT(A) is not justified in doing so. Even though the said decision was in context of section 271(1)(c) of the Act, however, the Hon’ble Bombay High Court has observed that the two limbs Printed from counselvise.com 26 ITA No.427/PUN/2025 ITA No.553/PUN/2025 prescribed u/s 271(1)(c) carry different connotations and therefore, it is important for the Assessing Officer to convey the specific charge while issuing notice u/s 271(1)(c) of the Act. We find the provisions of section 271AAB(1A) have also got two parts. As per the said sub-section, the penalty is either leviable under clause (a) or (b). Under clause (a) the penalty is leviable @ 30% of the undisclosed income and under clause (b) the penalty is leviable @ 60% of the undisclosed income. Further, under clause (a), there are certain conditions which are required to be fulfilled and in case the said conditions are not met, in that event, penalty is leviable under clause (b). Therefore, the Ld. CIT(A) in our opinion was not justified in distinguishing the decision of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Sheikh vs DCIT (supra). Even otherwise also, since the Hon’ble Madras High Court has taken a view directly on this issue and no contrary decision of any other Hon’ble High Court was brought to our notice, therefore, the decision of the Hon’ble Madras High Court will be binding on the Revenue. We, therefore, hold that the failure on the part of the Assessing Officer to mention the specific limb which is applicable to the case of the assessee for levy of penalty u/s 271AAB(1A) vitiates the entire proceedings. We, therefore, quash the penalty proceedings initiated by the Assessing Officer and partly sustained by the Ld. CIT(A). 29. We further find under the same set of facts the Assessing Officer for assessment year 2020-21 has not levied any penalty u/s 271AAB of the Act. Printed from counselvise.com 27 ITA No.427/PUN/2025 ITA No.553/PUN/2025 Although the principles of res judicata do not apply to the tax proceedings, however, the Courts are consistently holding that when the Assessing Officer has dropped the penalty proceedings for one assessment year on same set of facts for some lapse, the Assessing Officer could not take a different stand for another year. We find the Mumbai Bench of the Tribunal in the case of Orient Press Ltd. Vs. JCIT (supra) has held that the Assessing Officer cannot take different stand for 2 different years under same set of facts. The relevant paras of the Tribunal read as under: “3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 4. It is difficult to understand as to how can revenue defend imposition of penalties for assessment year 1993-94 and 1994-95, when, on the materially similar set of facts, no penalty is imposed for the assessment year 1995-96. The dropping of penalty proceedings for the assessment year 1995-96 is a conscious act by the Assessing Officer as evident from the specific order dropping the penalty proceedings for that year. During the course of hearing before us, we did ask the Departmental Representative to explain this contradiction in the stand but he was not able to explain the same and he made a vague statement to the effect that the facts of that year may be different. This is unacceptable. In any case, the material facts, as evident from the documents before us, were clearly the same so far as the question of declaration was concerned. On one set of facts, in one year, the penalty is dropped, and for the remaining years, the penalties are imposed. Once this happens and no distinguishing features, for the years for which penalties are imposed, are pointed out, for this reason alone, penalties imposed are not sustainable in law, in any event, the imposition of penalties is based on the surrender made during the course of survey, but then mere surrender of income during the survey is not even a sound basis for addition to the returned Income. The fact of surrender per se cannot, lead to the conclusion that there was a concealment of income. The factual a surrounding the surrender of income also, in our considered view, do not establish that there was a concealment of income. In fact, all along the assessee has taken a stand that at the time of survey, relevant records could not be located and that there was no justification for this additional income on merits, but these explanations have been simply brushed aside by the authorities below. This kind of an approach cannot be sustainable in law. Keeping in view all these factors, as also entirety of the case, we deem it fit and proper to delete the impugned penalties of Rs.2,63,925 for 1993-94 and of Rs.4,65,750 for the assessment year 1994-95. The assessee gets the relief accordingly.” Printed from counselvise.com 28 ITA No.427/PUN/2025 ITA No.553/PUN/2025 30. We find following the above decision, the Delhi Bench of the Tribunal in the case of Arvind Gupta vs. ITO (supra) has held that where the Assessing Officer had dropped the penalty proceedings for one assessment year on same set of facts, the Assessing Officer could not take a different stand for the subsequent year on the same set of facts. We therefore, hold that since the Assessing Officer for assessment year 2020-21 has dropped the penalty proceedings and not levied the penalty on the undisclosed income, therefore, he is not justified in levying penalty u/s 271AAB(1A) for the impugned assessment year. 31. Even otherwise on merit also, we find force in the argument of the Ld. Counsel for the assessee that no penalty is leviable. It is an admitted fact that the assessee has declared undisclosed sale of Rs.1,26,59,41,430/- and offered income thereon at Rs.81,51,03,640/-. A perusal of the sample invoices filed by the assessee shows that the notings in the seized papers contain the total number of bags sold, total sale amount for a particular month, rate per bag etc. Copy of the sample invoice would show that the rate per bag as per the seized papers is almost matching with the rate charged for the accounted sales which was including the GST. Therefore, we find merit in the argument of the Ld. Counsel for the assessee that the unaccounted sales noted on the seized papers are cum duty i.e. including the GST amount. Therefore, once the assessee pays the GST amount of Rs.59,51,19,109/- relating to the impugned assessment year which is not in dispute, the same should be deducted from the amount of Rs.81,51,03,640/- which Printed from counselvise.com 29 ITA No.427/PUN/2025 ITA No.553/PUN/2025 is the gross profit. Further, the assessee during the impugned assessment year i.e. A.Y. 2021-22 has also paid an amount of Rs.60,30,88,325/- towards GST for the assessment year 2020-21. Admittedly, the said GST was not deducted from the gross profit for assessment year 2020-21, therefore, we find merit in the argument of the Ld. Counsel for the assessee that the same should also be deducted from the gross profit of the impugned assessment year. 32. So far as the grievance of the Revenue that the assessee has never made any such claim during the assessment proceedings and has admitted such undisclosed income without any claim of deduction on account of payment of GST in the statement recorded u/s 132(4) of the Act is concerned, we are of the considered opinion that the same is without any force. It is the settled proposition of law that the assessment proceedings and penalty proceedings are distinct and separate. An assessee can always make fresh argument during the penalty proceedings which was not taken during the assessment proceedings. It is also the settled proposition of law that the addition made during assessment proceedings do not automatically attract the levy of penalty. Since the sale price as per the seized documents which is inclusive of GST almost tallies with the invoices as per the accounted sales and the gross profit rate declared by the assessee on account of such accounted sales also matches with the unaccounted sales, therefore, the GST paid during the year in our opinion has to be allowed as deduction from the gross profit while computing the penalty. Further, it is also pertinent to mention here that when the search took Printed from counselvise.com 30 ITA No.427/PUN/2025 ITA No.553/PUN/2025 place the accounts of the assessee were not closed and the return was also not due. The assessee filed the return of income and the same was accepted without any further addition / disallowance. Under these circumstances, if the GST for the impugned assessment year as well as the GST for the preceding assessment year which was not claimed from the undisclosed profit of assessment year 2020-21 but paid during the assessment year 2021-22 is excluded, then no undisclosed income remains with the assessee for levy of penalty. We, therefore, hold that the Ld. CIT(A) should have deleted the entire penalty levied by the Assessing Officer instead of giving part relief. In this view of the matter, the grounds raised by the Revenue are dismissed and the grounds raised by the assessee are allowed. 33. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 24th July, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 24th July, 2025 GCVSR Printed from counselvise.com 31 ITA No.427/PUN/2025 ITA No.553/PUN/2025 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 16.07.2025 Sr. PS/PS 2 Draft placed before author 17.07.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order Printed from counselvise.com "