Income Tax Act, 1961, Section 271AAB

Penalty under section 271AAB—Leviability—Undisclosed investment found during search operation—No column in return to disclose the investment

Conclusion: Where assessee was not required to maintain any books of account and there was no mechanism to report the investment in the tax return, the said investment could not be held as undisclosed investment and more so, undisclosed income so defined in section 271AAB, therefore, investment so found in purchase of Villa could not be termed as undisclosed income within the meaning of “undisclosed income” and penalty levied thereon was liable to be set aside.

AO imposed penalty under section 271AAB alleging that assessee had some undisclosed investment in the form of purchase of Villa arising out of documents/transactions/evidence found during the course of search and seizure operation under section 132. Held: Assessee was a salaried person who was not required to maintain any books of account and there is no mechanism to report the investment in the tax return, the said investment could not be held as undisclosed investment and more so, undisclosed income so defined in section 271AAB. In light of the same, investment so found in purchase of Villa could not be termed as undisclosed income within the meaning of “undisclosed income” so defined under section 271AAB and penalty levied thereon was liable to be set aside.

Decision: In assessee’s favour.

Referred: National Thermal Power Company Limited v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 342 (SC), M/s. Silver & Art Palace v. The DCIT, Central Circle-4, Jaipur. in (ITA. No. 236/JP/2018, dt. 11-2-2019) : 2019 TaxPub(DT) 2342 (Jp-Trib), Shri Ravi Mathur, v. The Dy. CIT, Central Circle-4, in (ITA No. 969/JP/2017, dt. 13-6-2018) : 2019 TaxPub(DT) 3754 (Jp-Trib), Dy. CIT, Circle-2 (2), Kolkata v. Manish Agarwala in (I.T.A. No. 1479/Kol/2015, dt. 9-2-2018) : 2018 TaxPub(DT) 1460 (Kol-Trib).

 

IN THE ITAT, JAIPUR BENCH

VIJAY PAL RAO, J.M. & VIKRAM SINGH YADAV, A.M.

Gauri Shankar Kandoi v. Dy. CIT

ITA No. 576/JP/2018

21 August, 2019

Assessee by: Rajeev Sogani (CA)

Revenue by: Karni Dan (JCIT)

Vikram Singh Yadav, A.M.

This is an appeal filed by the assessee against the order of learned Commissioner (Appeals)-4, Jaipur, dated 6-3-2018 for assessment year 2013-14 wherein the assessee has taken the following grounds of appeal.

“1. In the facts and circumstances of the case and in law, learned Commissioner (Appeals) has erred in confirming the action of learned assessing officer in imposing penalty of Rs. 2,61,660 under section 271AAB of the Income Tax Act, 1961. The action of the learned Commissioner (Appeals) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the penalty amounting to Rs. 2,61,660 imposed under section 271AAB.”

2. At the outset, the learned Authorised Representative sought the permission of the Bench to raise the following additional ground of appeal :–

“In the facts and circumstances of the case and in law, the learned assessing officer has erred in treating the declared income during the course of search as ‘undisclosed income’ within the meaning as defined in section 271AAB. Action of the learned assessing officer is illegal. Relief may please be granted by quashing the penalty order.”

3. It was submitted by the Authorised Representative that the additional ground is only a legal ground and relevant facts are available on record, no new facts are required to be evaluated nor any further enquiry is needed. The provisions of law are to be applied on the facts already available on record. In support, the reliance was placed on the Hon’ble Supreme High Court decision in case of National Thermal Power Co. Ltd. (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 342 (SC). After hearing both the parties, the additional ground being purely a legal ground, the same is admitted for adjudication.

4. The learned Authorised Representative submitted that the assessee is a salaried person and is a senior citizen. He is director in K. G. Petrochem Ltd. He is not carrying out any business. Search operations under section 132 were carried out at the residential premise of the assessee on 18-7-2012 and the during the course of search, a document (A-2 page 42) containing a receipt of payment of Rs. 54,00,000 by following cheque/cash towards advance payment to purchase a Villa at Suncity Township, Sikar Road, Jaipur was found which showed that cheque payment of Rs. 36,83,406 and cash payment of Rs. 17,16,594. It was further submitted that during the course of search, cash of Rs. 9 lacs was also found and seized. In the course of statements recorded under section 132(4), assessee surrendered the amount of Rs. 26,16,594 and offered the same for tax, in his income Tax Return, which was filed before due date. It was submitted that the income declared by the assessee is not undisclosed income as per explanation (c) of section 271AAB since assessee is a salaried person and he is not required to maintain any regular books of account under the Income Tax Act, 1961. Since, he is not required to maintain any regular books of accounts, there is no question of recording the above transactions relating to investment made by the assessee in his books of account. It was further submitted that the assessee is not engaged in business or profession, the assessee’s case falls in the second limb i.e. or other documents as stipulated in the Explanation (c) under section 271AAB of the Act. It was submitted that at the time of search, the transactions were found to be recorded in the seized document, which is other document mentioned in above definition of undisclosed income.

Reliance was placed on the Co-ordinate Bench decision in the case of DCIT v. Manish Agarwal (2018) 92 taxmann.com 81 wherein it was held that income recorded in ‘other document’ cannot be termed as ‘undisclosed income as per section 271AAB of the Act. Further, reliance was placed on the Co-ordinate Bench decision in the case of Shri Ravi Mathur v. DCIT (ITA No. 969/JP/2017), dated 13-6-2018 wherein it was held that the once the said income is found as recorded in the other documents maintained in the normal course, the income cannot be termed as undisclosed income. It was further submitted that the investment in purchase of Villa amounting to Rs. 17,16,594 is basically an advance which cannot be deemed as undisclosed income.

In support, the reliance was placed on the Co-ordinate Bench decision in the case of Silver & Art Palace v. DCIT ITA No. 236/JP/2018, dated 11-2-2019 wherein it was held as under :–

“42. Now, coming to surrender made on account of cash advances for land purchases in the statement recorded under section 132(4) of the Act. During the course of search, a diary has been found wherein there are notings relating to advance given to various persons towards purchase of land. Therefore, what has been found during the course of search is certain entries relating to undisclosed investment in purchase of land. Besides the said entries, there are no other documents/material 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 definition of undisclosed income under section 271AAB, the undisclosed investment in so called purchase of land cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Whether it can then be said that such undisclosed investment represents income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132. An investment per se represents an outflow of funds from the assessee’s hand and an income per se represents an inflow of funds in the hands of the assessee. Therefore, once there is an inflow of funds by way of income, there could be subsequent outflow by way of investment. Investment and income thus connotes different meaning and connotation and thus cannot be used interchangeably.

In the definition of undisclosed income, where it talks about “income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132”, what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found recorded by way of any entry in the 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. In light of the same, the undisclosed investment by way of advance for purchase of land can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded under section 132(4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserved to be set-aside.

43. We are also conscious of the fact that there are deeming provisions in terms of section 69, 69A and 69B wherein such investments are deemed to be treated as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under section 69, 69A and section 69B where investments which are found either not recorded or found recorded at a lesser value in the books of accounts, and such investments 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 have been brought on the statue book and not otherwise. In the instant case, the deeming provisions are contained in section 69, 69A 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, though the fact of the matter is that the assessing officer has not even invoked the said deeming provisions in the quantum proceedings in the instant case. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. 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 of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax.

44. In light of above discussions and in the entirety of facts and circumstances of the case, the penalty under section 271AAB is directed to be deleted on amount of surrender made during the course of search in absence of the same qualifying as undisclosed income as so defined under section 271AAB of the Act.”

5. Regarding cash found during the course of search amounting to Rs. 9 lacs, the learned Authorised Representative submitted that undisputedly, the assessee is not required to maintain any books of accounts or other documents in the regular course. Further, the assessee being a senior citizen, is also not required to pay advance tax under section 207. Accordingly the excess cash found was not possible to be recorded anywhere and, therefore, the same is outside the definition of undisclosed income under section 271AAB of the Act. In support, the reliance was placed on the Co-ordinate Bench decision in the case of Pillala Ramakrishna Rao v. ACIT ITA No. 64/Vizag/2017, dated 7-6-2017.

6. The learned Authorised Representative further submitted that penalty under section 271AAB is neither mandatory nor mechanical as the section uses the word “shall”. It was submitted that it is a consistent view of the Bench wherein the penalty under section 271AAB has been held as discretionary in nature. It was further submitted that in the penalty notice, no specific limb mentioned and in view of the same as well, the penalty order deserves to be cancelled.

7. Per contra, the learned Departmental Representative submitted that the search was conducted on 18-7-2012 and as per the clause (a) to explanation to section 271AAB, the year under consideration falls within the definition of “specified year”. It was further submitted that in the return filed by the assessee on 19-7-2013 for the impugned assessment year, the assessee has included undisclosed income of Rs. 26,16,594 on account of undisclosed investment in purchase of property and unaccounted cash found during the course of search, hence the same is clearly within the definition of “undisclosed income” in respect of which the penalty has rightly been levied by the assessing officer. It was further submitted that the penalty proceedings under section 271AAB were initiated in respect of undisclosed income by issuance of notice under section 274 read with section 271AAB of the Act. Further, it was submitted that unlike section 271AAA, levy of penalty under section 271AAB is mandatory nature and which has rightly been upheld by the learned Commissioner (Appeals). He accordingly supported the order of the lower authorities.

8. Heard both the parties and perused the material available on record. In this case, the search was conducted on 18-7-2012 in case of Kandoi Group, Jaipur to which the assessee belongs. During the course of search, a document was found and seized which states that the assessee has made payment of Rs. 36,83,406 vide cheque, dated 13-7-2012 and Rs. 17,16,594 towards fully and final payment of a Villa at Suncity Township, Sikar Road, Jaipur. Further, copy of cheque No. 0014, dated 13-7-2012 for an amount of Rs. 36,83,406 issued by the assessee from his saving bank account maintained with Bank of Baroda was also found, besides physical cash of Rs. 9 lacs. Therefore, it is an admitted position that the the assessee has made total payment of Rs. 54 lacs towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and as far as the cheque payment is concerned, the same has not been disputed by the Revenue and has been taken as disclosed investment by the assessee. However, as far as the cash payment of Rs. 17,16,594 and cash of Rs. 9 lacs which was found during the course of search, the same has been taken as undisclosed income by the assessee. During the course of search, in his statement recorded under section 132(4), the assessee has surrendered the said amount and subsequently, offered the same in his return of income. The question that arises for consideration is whether the cash payment towards purchase of Villa at Suncity Township at Sikar Road, Jaipur and cash of Rs. 9 lacs found in possession of the assessee can be termed as undisclosed income within the meaning as defined in section 271AAB as undisclosed income under explanation (c) of section 271AAB of the Act. In this regard, we refer to the Co-ordinate Bench decision in the case of Silver & Art Palace v. DCIT (supra) wherein it was held that the undisclosed investment by way of purchase of land can be subject matter of addition in the quantum proceedings but the same does not fall strictly within the meaning of undisclosed income as so defined in section 271AAB of the Act and deeming fiction under section 69B cannot be extended and applied automatically in the context of section 271AAB of the Act. Further, the fact that the transaction so found recorded in a document has not been disputed by the Revenue. Given that the assessee is a salaried person who is not required to maintain any books of accounts and there is no mechanism to report the investment in the tax return, the said investment cannot be held as undisclosed investment and more so, undisclosed income so defined in section 271AAB of the Act. In light of the same, the investment of Rs. 17,16,594 so found in purchase of Villa at Suncity Township at Sikar Road, Jaipur cannot be termed as undisclosed income within the meaning of “undisclosed income” as so defined under section 271 AAB of the Act and penalty levied thereon is liable to be set aside.

9. In respect of cash of Rs. 9 lacs, it is not in dispute that the said cash has been physically found in possession of the assessee, however the question remains is where the assessee is a salaried person who is not required to maintain books of accounts, merely having cash in hand of Rs. 9 lacs, can it be held that the same represents his undisclosed income. In the present case, it is true that the assessee is not required to maintain books of accounts and there is no mechanism to report cash in hand in the tax return or otherwise to the Revenue authorities.

At the same time, the factum of the matter is that there is no explanation which has been advanced by the assessee in terms of source of such cash physically found in his possession at the time of search in terms of past savings or cash withdrawals from his bank account. In absence thereof, there can be no dispute that the same falls in the definition of undisclosed income and the penalty levied thereon is sustained.

In the result, appeal of the assessee is partly allowed.