Cash Payments itself not undisclosed income of assessee in the absence of corresponding asset found at the time of search. ITAT deleted penalty u/s 271AAB.
ABCAUS Case Law Citation:
ABCAUS 3035 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
NTPC vs. CIT 229 ITR 383
M/s Rambhajo’s vs. ACIT
The instant appeal was filed by the assessee company against the order of the CIT(A) in confirming the penalty under section 271AAB of the Income Tax Act, 1961 (the Act) as imposed by the Assessing Officer (AO).
The assessee also raised an additional ground challenging the treating the declared income during the course of search as ‘undisclosed income’ within the meaning as defined in section 271AAB.
There was a search and seizure action U/s 132(1) of the Act at various premises of a business group to which the assessee company belonged. Thus, the assessee company was also covered by the search and seizure action and statement of a director of the assessee company was recorded U/s 132(4) of the Act.
In those statements he disclosed/surrendered a sum of Rs. 2 crore on his behalf and equal amount of Rs. 2 crore on behalf of his son. Thereafter he also surrendered a sum on behalf of the assessee company on account of cash purchase of raw material.
The assessee company filed a revised return of income declaring the undisclosed income as surrendered. The AO completed the assessment on the revised return of income accepting the surrender income.
Subsequently, the AO initiated the proceedings u/s 271AAB of the Act by issuing show cause notice. The assessee objected to the proposed levy of penalty u/s 271AAB of the Act.
However, the AO passed the order imposing the impugned penalty @ 30% of undisclosed income. The assessee challenged the action of the AO before the CIT(A) but could not succeed.
The assessee submitted that during the course of search a paper was found and seized containing the details of payment made in cash for purchase of raw material. It was submitted that the said paper contained the date of payment for purchase of iron ore in cash however, at the time of search the stock found was duly recorded in the accounts. Therefore, there was no discrepancy found in the stock of the assessee at the time of search and hence the payment made in cash for purchase of raw material itself could not be regarded as undisclosed income of the assessee.
It was further contended that as per the definition of undisclosed income given in explanation to Section 271AAB of the Act the purchase of raw material could not be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. Only the investments which are found not recorded cannot be deemed as undisclosed income in the context of Section 271AAB of the Act.
The Tribunal observed that the details as recorded in the seized document was only purchase made by the assessee but at the same time the investigating team had inventoried the stock of the assessee and found no discrepancy as far as the physical stock and the stock recorded in the books of accounts. Therefore, there was no irregularity found in the books of accounts so far as the stock of raw material was concerned.
The Tribunal opined that hence, even if the some purchases were made in cash if the said stock was duly recorded in the books of accounts as it was evident from the inventory made by the investigating team itself then it would not be held as undisclosed income.
The Tribunal was of the view that the said paper containing the details of purchase of raw material in itself did not disclose or constitute any undisclosed income when there was no excess stock or discrepancy in the physical stock with the stock recorded in the books of account found at the time of search. This fact was recognized by the investigating team when no such question was raised at the time of statement recorded U/s 132(4) of the Act.
The Tribunal noted that the Revenue also did not dispute that at the time of statement recorded U/s 132(4) of the Act the Department had not suspected or raised any question about any undisclosed income with respect to the purchase of raw material as recorded in the seized document. Therefore, the department was satisfied about the stock found at the time of search which was duly inventoried based on the physical stock and was compared with the books of accounts and no discrepancy was found.
The Tribunal opined that once, no question was raised or asked about the undisclosed income for purchase of iron ore as recorded at the time of search then the disclosure made by the assessee on account of the cash purchases could not be considered as undisclosed income for the purpose of levy of penalty U/s 271AAB of the Act. Neither the investigating team nor the AO during the assessment proceedings detected any excess stock or discrepancy in the stock as recorded in the books of accounts by the assessee in comparison to the stock which was found at the time of search and seizure action.
It was noted that the coordinate bench of the Tribunal in a similar case had deleted the penalty u/s 271AAB holding that the undisclosed investment by way of advance for purchase of land could be subject matter of addition in the quantum proceedings, however the same could not be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto.
In view of the above the Tribunal opined that even if there was payment for purchase of raw material the said outgo of money itself could not be treated as undisclosed income of the assessee in the absence of corresponding asset found at the time of search. When there was no discrepancy found in the physical stock as well as stock recorded in the books of account despite the physical verification and inventory carried out of investigating team at the time of search then the mere details of payment for purchases in cash would not constitute undisclosed income as per the definition provided in explanation to Section 271AAB of the Act.
Accordingly, the Tribunal deleted the penalty levied u/s 271AAB of the Act as not sustainable