Short Overview  Where assessee made undisclosed investment in land, which was not recorded in his books of account and he failed to offer any explanation about the source of the same, the AO was justified in levying penalty under section 271AAB.

During course of post search proceedings, assessee admitted an income of Rs. 6,00,000 on account of undisclosed investment in land. Out of admitted undisclosed income of Rs. 6,00,000, the income of Rs. 5,20,000 had been admitted and declared in revised return filed by the assessee. Accordingly, the assessee was asked to furnish justification for not offering balance undisclosed investment of Rs. 80,000. But, no reply was furnished by the assessee, therefore, an addition of Rs. 80,000 under section 69B was made. Subsequently, penalty under section 271AAB was levied. Assessee contended that he had cash in hand of Rs. 80,000 as on 31-3-2013 and the same was utilized in making the investment for purchase of land. Further, he contended that the penalty was levied only in context of income of Rs. 80,000, and not in context of the income of Rs. 5,20,000, accordingly the penalty was liable to be deleted.

It is held that  On perusal of assessment order, it was clearly evident that the penalty had been initiated in respect of Rs. 6,00,000 admitted by assessee pursuant to search. Thus, the contention of the assessee made in that respect was not correct. Further, the assessee also contended that he had cash in hand of Rs. 80,000 as on 31-3-2013 and the same was utilized in making the investment in land. What was required to be seen was the source of investment at the point in time when the investment was made. In the instant case, the sale deed was registered on 5-4-2012, therefore, what was required to be seen was whether the assessee was having sufficient cash in hand on or before 5-4-2012 to make such investment, however, there was nothing on record to substantiate the same. Accordingly, the assessee also failed to justify such contention. Moreover, as the assessee made undisclosed investment in land, which was not recorded in his books of account and he failed to offer any explanation about the source of the same, the AO was justified in levying penalty under section 271AAB.

Decision: Against the assessee.

IN THE ITAT, JAIPUR BENCH

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

Pawan Mundra v. DCIT

ITA No. 1101/JP/2019

24 July, 2020

Assessee by: C. M. Birla (CA)

Revenue by: Chanchal Meena (Addl. Commissioner)

ORDER

Vikram Singh Yadav, A.M.

This is an appeal filed by the assessee against the order of learned Commissioner (Appeals)-2, Udaipur, dated 28-6-2019 wherein the assessee has raised the following revised grounds of appeal :–

“1. That as the Learned assessing officer has not initiated penalty under section 271AAB on income shown suo-motto at Rs. 5,20,000 therefore penalty on it amounting to Rs. 1,56,000 being unsustainable needs deletion.

2. That as source of Rs. 80,000 is well explained during assessment proceedings, penalty under section 271AAB on it amounting to Rs. 24,000 also being not leviable needs deletion.”
3. Regarding Ground No. 1, the learned Authorised Representative drawn our reference to the findings of the Assessing in the assessment order passed under section 143(3) read with 153A, dated 29-1-2016 which read as under :–

“7. Undisclosed income admitted and declared in the return of income–During the course of post search proceedings, the assessee had admitted an income of Rs. 6,00,000 on A/c of undisclosed investment in Land as per documents seized from residence of Shri B.D. Mundra at 524A, Talwandi, Kota and inventorised as Exhibit-13, Page 45-49 of Annexure-AS, which is a copy of registered sale/purchase deed, dated 5-4-2012, regarding industrial land purchased by the assessee. This disclosure was made through a chart furnished by Shri Anil Mundra, brother of the assessee during the course of post search proceeding on 18-11-2013.

7.1 However, the assessee had offered income of Rs. 5,20,000 in the revised return filed on 9-11-2013 for taxation.

7.2 Out of undisclosed income admitted of Rs. 6,00,000 by the assessee, income of Rs. 5.20 Lakh has been admitted and declared in the revised return filed. The assessee was asked to furnish justification for not offer balance undisclosed investment in Land of Rs. 80,000. No reply has been furnished by the assessee on this issue therefore, an addition of Rs. 80,000 under section 69B of the Income Tax Act, 1961 has been made to the total income of the assessee.

7.3 It is worthwhile to mention here that the addition made of Rs. 80,000 covered under the provision of section 69B of the Income Tax Act, 1961 as these represents undisclosed investment which are not recorded in the books of account and assessee has failed to offer any explanation about the source of the same therefore as per section 115BBE(1)(a) the income of Rs. 80,000 liable for tax @ 30%. Penalty proceedings under section 271AAB is initiated separately by way of issue of notice under section 274 read with section 271AAB of the Act.”

3. It was submitted by the learned Authorised Representative that on perusal of the aforesaid findings of the assessing officer, it is clear that the penalty proceedings have only been initiated in the context of income of Rs. 80,000 brought to tax under section 69B of the Act and as far as the income of Rs. 5.20 lakh offered by the assessee in the revised return e-filed on 9-11-2013, the penalty proceedings were not initiated. It was accordingly submitted that the penalty so levied by the assessing officer under section 271AAB therefore deserves to be deleted.
4. Regarding the penalty levied by the assessing officer on addition of Rs. 80,000 made under section 69B of the Act, our reference was drawn to the working of investment in the Industrial Land as per revised return of income as under :–

Cash available as on 31-3-2013	Rs. 82,561
Add: Undisclosed income	Rs. 5,20,000
	Rs. 6,02,561
Less : Investment in Industrial Land	Rs. 6,00,000
Revised Cash in hand on 31-3-2013	Rs. 2,561

5. It was submitted by the learned Authorised Representative that the assessing officer has not disputed the amount of investment for purchase of Industrial Land amounting to Rs. 6,00,000 appearing in the revised balance-sheet. The assessing officer has also not disputed the fact that available cash in hand and additional income shown of Rs. 5.2 lakh is sufficient to meet cost of investment of 6,00,000. His only grievance is that out of Rs. 6,00,000, the assessee has shown undisclosed income of Rs. 5,20,000 only and has used cash in hand of Rs. 80,000. It was submitted that where the assessee has cash in hand of Rs. 80,000 which is not disputed by the learned assessing officer, the assessee cannot be deprived to use it. Though the addition of Rs. 80,000 is made by learned assessing officer which is sustained by learned Commissioner (Appeals) and the same has not been challenged in second appeal before the Tribunal given the quantum of addition, however, such controversial addition is not justifiable as per provisions of section 69B of the Act and therefore, does not justify levy of penalty under section 271AAB of the Act.
6. Per contra, the learned Departmental Representative again drawn our reference to Para 7 of the assessment order and submitted that the additional income of Rs. 5.20 lakh was offered subsequent to the date of search conducted on 13-8-2013 and even though the assessee has filed revised return of income on 9-11-2013 given that such undisclosed income was pursuant to search conduct on 13-8-2013, the assessee is liable for penalty under section 271AAB of the Act. It was further submitted that given that the assessee has originally admitted undisclosed income of Rs. 6,00,000, only additional of Rs. 5.20 lakh was offered in the revised return, balance addition of Rs. 80,000 was made during the course of assessment proceedings. It was accordingly submitted that the penalty proceedings under section 271AAB were initiated for the whole of the undisclosed income of Rs. 6,00,000 and it is incorrect on the part of the learned Authorised Representative to state that the penalty has been initiated only in relation to the additional income of Rs. 80,000 brought to tax by the assessing officer. Further, our reference was drawn to the findings of the learned Commissioner (Appeals) which read as under :–

“6.3 The income of Rs. 6,00,000 being unexplained investment in land, in respect of which penalty has been levied, was detected because a copy of registered sale/purchase deed, dated 5-4-2012, regarding purchase of industrial land by the assessee for Rs. 6,00,000 was found during search. The investment was not recorded in the books of account on or before the date of search. Therefore the income of Rs. 6,00,000 falls within the definition of ‘undiclosed income’ as given in clause (c) of Explanation to section 271AAB (reproduced in the preceding para).

Accordingly, it is held that penalty under section 271AAB is leviable on the income of Rs. 6,00,000. The issue whether penalty is leviable at 10% or 30% of undisclosed income is discussed separately in the succeeding paras.

6.4 Three different rates for levy of penalty are provided in section 271AAB, 10% of ‘undisclosed income’ in cases falling under clause (a), 20% of ‘undisclosed income’ in cases falling under clause (b), and 30% of ‘undisclosed income’ in cases not falling under clause (a) or (b).

6.5 For a case to fall under clause (a), the following conditions must be met–

(i) The assessee admits the ‘undisclosed income’ in a statement under section 132(4) during search and specified the manner in which such income has been derived

(ii) Substantiates the manner in which the undisclosed income was derived

(iii) The assessee 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.

6.6 The assessee has laid much stress on the fact that out of the income of Rs. 6,00,000 in respect of which penalty under section 271AAB has been levied, income of Rs. 5,20,000 was offered to tax in the return of income filed before issue of notice under section 153A. There is no dispute about this fact, and therefore in respect of the income of Rs. 5,20,000, which was declared in the ROI filed before issue of notice under section 153A, the assessee satisfies the condition “(iii)” above. However, at no stage, including in the present appellate proceedings, has the assessee specified the manner in which the income of Rs. 5,20,000 was derived, much less substantiate such manner. Therefore conditions (ii) and (ii) above, also required to be met for levy of penalty at the lower rate of 10%, under clause (a) of section 271AAB(1), are not satisfied in the assessee’s case. Accordingly, it is held that in respect of the income of Rs. 5,20,000 penalty is leviable at 30% under clause (a) of section 271AAB(1).

6.7 As regards income of Rs. 80,000 in addition to the fact that at no stage, including in the present appellate proceedings, has the assessee specified the manner in which the income of Rs. 80,000 was derived, much less substantiate such manner, this income was not offered to tax in the return of income filed under section 153A. Therefore, none of the conditions for levy of penalty at the lower rate of 10%, under clause (a) of section 271AAB (1), are satisfied. Accordingly, it is held that in respect of the income of Rs. 80,000 penalty is leviable at 30% under clause (a) of section 271AAB(1).

6.8 In view of the above discussion penalty of Rs. 1,80,000, levied by the assessing officer under section 271AAB(1)(c), is hereby confirmed. “

7. We have heard the rival submissions and perused the material available on record. Regarding the first contention of the learned Authorised Representative that the penalty under section 271AAB has been initiated only in respect of Rs. 80,000, we have carefully gone through the assessment order and are unable to agree to the contention so advanced by the learned Authorised Representative. The sum and substance of para 7 of the assessment order where read in totality will show clearly that the penalty has been initiated in respect of Rs. 6,00,000 admitted by the assessee pursuant to search conducted on 13-8-2013. Given that the assessee had only disclosed a sum of Rs. 5.2 lacs in the revised return filed on 9-11-2013, subsequent to date of search and thereafter, in the return filed on 16-2-2015 in response to notice under section 153A, the Assessing officer has brought the balance amount of Rs. 80,000 to tax during the course of assessment proceedings. However, as far as initiation of penalty proceedings under section 271AAB is concerned, the same has been initiated on the whole of the sum of Rs. 6 lacs admitted by the assessee pursuant to search.
8. Regarding the second contention of the learned Authorised Representative that the assessee had cash in hand of Rs. 80,000 as on 31-3-2013 and the same has been utilized in making the investment for purchase of land. In our view, what needs to be seen is the source of investment at the point in time when the investment was made. In the instant case, the sale deed has been registered on 5-4-2012, therefore, what needs to be seen is whether the assessee was having sufficient cash in hand on or before 5-4-2012 reflected in its books of accounts to make such investment, however, there is nothing on record to substantiate the same.

Therefore, we are unable to agree to the contention so raised by the learned Authorised Representative and confirm the following findings of the learned Commissioner (Appeals) which reads as under :–

“As regards income of Rs. 80,000 in addition to the fact that at no stage, including in the present appellate proceedings, has the assessee specified the manner in which the income of Rs. 80,000 was derived, much less substantiate such manner, this income was not offered to tax in the return of income filed under section 153A. Therefore, none of the conditions for levy of penalty at the lower rate of 10%, under clause (a) of section 271AAB (1), are satisfied. Accordingly, it is held that in respect of the income of Rs. 80,000 penalty is leviable at 30% under clause (a) of section 271AAB(1).”

In the result, both the grounds taken by the assessee are dismissed and the matter is decided in favour of the Revenue and against the assessee. The appeal of the assessee is accordingly dismissed.