Penalty u/s 271AAB-Cash advances recorded in diary held not undisclosed Income when assessee was not carrying on any business and declared the surrendered income in return
ABCAUS Case Law Citation:
ABCAUS 2974 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties:
DCIT, Coimbatore Vs. R. Elanyovan
DCIT Vs Manish Agarwal
Silver & Art Palace vs DCIT
DCIT Vs Manish Agarwal (2018) 92 taxmann.com 81 (CLC 1-12 )
The instant appeal was filed by the assessee against the order passed by the CIT(A) in confirming the action of the AO in imposing penalty u/s 271AAB of the Income Tax Act, 1961 (the Act).
The assessee was a salaried person and also having income from other sources. He was Director of a company. A search and seizure operation U/s 132 of the Act were carried out at the various premises of a Group to which the assessee belonged.
During the course of search, a red diary was found from the office wherein certain notings related to cash advances given by the assessee and his father was found recorded. There was total advance of Rs. 4.00 crores. Out of this Rs. 4.00 crores, the assessee surrendered Rs. 2.00 crores in his name and Rs. 2.00 crores in the name of his father (one of the assessee in appeal).
The AO imposed the penalty @ 30% under clause (c) of sub section (1) of section 271AAB holding that the assessee admitted ‘Undisclosed Income’ in its statement u/s 132(4) but could not furnish his return of income on or before the specified date, since return of income was filed after the due date.
The CIT(A) upheld the penalty by observing that the assessee had filed return offering income of Rs. 2.00 crores after specified dates.
Before the Tribunal, the assessee inviting attention to the penalty notice issued u/s 274 read with Section 271AAB of the Act contended that while initiating the penalty proceedings u/s 271AAB, AO was not clear as to under which clause the case of assessee Company would fall. Therefore, it was said that notice was issued by A.O. without prima facie satisfying himself about as to whether assessee had committed default at all or if yes, under which clause.
He further argued that the penalty U/s 271AAB of the Act is not mandatory.
As per the assessee he was not carrying on any business, therefore, he was not required to maintain any regular books of account under the Income Tax Act. Accordingly, there was no question of recording the transaction of cash advances in his books of account.
He further contended that since he was not carrying on any business, his case fell in second limb i.e. “or other documents” as stipulated in explanation-(c) of Section 271AAB of the Act, which describes undisclosed income for the purposes of this section. At the time of search, the transactions were found to be recorded in the ‘Red Diary’, which is ‘other document’, mentioned in above definition of undisclosed income. Accordingly, it was argued that it is not coming in the definition of undisclosed income as provided in Explanation (c) of Section 271AAB of the Act.
Alternatively it was submitted that penalty if at all is upheld u/s 271AAB, it should be @ 10% and not @ 30%. It was submitted that the substantive conditions being admission of undisclosed income u/s 132(4), payment of tax thereon and including the same in the return of income. Once the substantive conditions are found complied with, there is no reason to penalize the assessee by imposing penalty at the rate of 30% instead of minimum penalty of 10%.
During the course of hearing, the assessee raised an additional ground alleging that the AO had erred in treating the declared income during the course of search as ‘Undisclosed Income’ within the meaning as defined in section 271AAB.
The Tribunal opined that the income declared by the assessee is not ‘Undisclosed Income’ in view of the following facts:
(a) assessee is a salaried person. He mainly derives income from salary and other sources. He is not carrying out any business. Therefore, 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 account, there is no question of recording the above transactions relating to cash advance given by the assessee in his books of account.
(b) Since 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 Explanation (c) of section 271AAB which describes undisclosed income for the purposes of this section. At the time of search, the transactions were found to be recorded in the ‘Red Diary’, which is ‘other document’, mentioned in above definition of undisclosed income.
(c) There is no requirement in law to disclose income in respect of the assessment year relevant to previous year in which search is conducted to Chief Commissioner or Commissioner before the date of search.
The Tribunal also opined that the mere fact that assessee is director in many companies does not cast responsibility on the assessee to maintain books of account or any Statement of Affairs. The Tribunal relied upon the decision of the Coordinate Bench wherein it was held that income recorded in ‘other document’ cannot be termed as “Undisclosed Income” as per section 271AAB and no penalty can be levied against the assessee. Further another Bench had held that 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” as per section Explanation (c) to section 271AAB and no penalty can be levied against the assessee.
The Tribunal found that the said cash advances were declared as income in the return of income filed. Besides the said diary, there were no other incriminating document/material was found during the course of search.
The Tribunal opined that as per the definition of undisclosed income u/s 271AAB, the said cash advance could not be stated to be income which is represented by any money, bullion, jewellery or other valuable article or thing. In the definition of undisclosed income, 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”. The cash advance could not be deemed as undisclosed Income in the context of section 271AAB. For this proposition, reliance is placed on the judgment
The Tribunal stated that every additional income declared in the return filed is not per se ‘Undisclosed Income’.
In view of the judicial pronouncements, the Tribunal opined that there was no merit for imposition of penalty in respect of declared income which was not coming in the purview of “undisclosed income” as defined under clause (c) to explanation to Section 271AAB of the Act.