S.L. Poddar, Adv. for the Assessee. B.K. Gupta, CIT DR for the Revenue.

Both these appeals are the cross appeals filed by the assessee and the Revenue against the order of ld.CIT (A)-4, Jaipur dated 25.04.2019 for the Assessment Year 2014-15 passed under section 271AAB of the Income Tax Act, 1961 on the grounds mentioned hereinbelow. ITA No. 708/JP/2019 – ASSESSEE

‘’1. Under the facts and circumstances of the case the ld. CIT(A) has erred in passing the order u/s 271AAB of the Act which void ab inito deserves to be quashed.

2. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the penalty @ 30% on surrender of cash amounting to Rs. 1.7 crores and on jewellery amounting to Rs. 1.5 crores, thereby sustaining the penalty of Rs. 96,00,000/- against penalty of Rs. 2,41,50,000/- levied by the AO on total surrender.

3. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the penalty on income of Rs. 3.2 crores which was not undisclosed income of the specified year of the assessee.

ITA No. 881/JP/2019 –REVENUE

‘’1. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was right in deleting the penalty of Rs. 1,45,50,000/- imposed by the AO u/s 271AAB of the I.T. Act, 1961 ignoring the fact that had the search not been conducted, the assessee would not have shown this income of Rs. 4.85 crores.

2. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was right in deleting the penalty on undisclosed income of Rs. 4.85 crores on amount of advances.

3. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) is justified in holding that alleged income was found recorded is other documents maintained by the assessee in normal course as per clause (c) of sub-section (1) to explanation of Section 271AAB of the I.T. Act, 1961.’’

2.1 Due to prevailing COVID-19 pandemic condition, the hearing of the appeal is concluded through video conference. First of all, we take up the appeal of the assessee for adjudication as per the grounds of appeal raised hereinabove.

3.1 Brief facts of the case are that the search and seizure operation u/s 132 of the Act was took place on 23-05-2013 at the premises of the assessee and certain documents were seized. The assessee furnished the return of income on 13-09-2014 declaring income of Rs. 9,11,26,750/-. Out of the above income, the assessee declared Rs. 8,05,00,000/-as undisclosed income which was accepted by the Department on the basis of the statement recorded during the course of search u/s 132(4) of the Act.

3.2 Subsequently, the AO initiated the penalty proceedings and imposed penalty of Rs. 2,41,50,000/- @ 30% on total undisclosed income u/s 271AAB(1)( c) of the Act on the following surrenders:-

(i) Advance against land Rs. 4.85 crores

(ii) Cash found Rs. 1.7 crores

(iii) Unexplained jewellery Rs. 1.50 crores

Total Penalty levied on Rs. 8.05 crores @ 30%

3.4 Aggrieved by the order of the AO, the assessee preferred appeal before the ld. CIT(A) who deleted the penalty imposed on Rs. 4.85 crores by holding that surrender of Rs. 4.85 crores do not fall in the definition of ‘’undisclosed income’’ and confirmed the penalty on other two counts.

3.5 Now aggrieved by the order of the ld. CIT(A), both i.e. assessee as well as Revenue preferred respective appeals. At present, we are firstly deciding the appeal of the assessee on the grounds mentioned hereinabove.

3.6 The Ground No. 1 to 3 raised by the assessee relates to challenging the order of the ld. CIT(A) in upholding the penalty imposed by the AO u/s 271AAB of the Act.

3.7 The ld.AR of the assessee appearing on behalf of the assessee reiterated the same arguments as were raised by him before the ld. CIT(A) and he also relied on the written submission. The relevant portion of the same is reproduced below.

‘’Penalty on cash of Rs.1.7 crores for cash found:- In this regard the submission of the assessee is that the cash found was saving of all the family members and last several years saving and was also disclosed by the assessee in the statement recorded under section 132(4) of the Act. It was submitted that the cash found at the residence of the assessee belong to entire family members of the assessee because it was found and seized from the individual rooms of individual members and therefore, without considering the availability of the cash as per the drawings of all the members of the family of more than 20 persons, the same cannot be considered as undisclosed income of the assessee.

The detailed drawings of the various members of the assessee’s family are enclosed herewith and it is clear that for the last 5-6 years i.e. financial years 2009-10 to 2014-15, 6 members of the assessee have declared the income of several crores in each hand. Even the withdrawals as per their Balance Sheets are also in crores of rupees during last five years and it was 9.27 crore rupees.(Details enclosed) Therefore, the cash of Rs. 1,50,00,000/- found at the residence of a family of about 20 members, out of which 13 members are tax payers and declared income of crores of rupees, then the said amount of cash cannot be treated as undisclosed income of the assessee.

The issue is squarely covered by the decision of Shri Gopal Das Sokhiya in ITA No. 306/JP/2018 dated 11.04.2019 wherein it has been held that “the past savings of the family members cannot be ignored while considering said amount of Rs. 12 lacs as undisclosed income of the assessee. Accordingly, in the absence of any clear cut finding about the cash not representing and belonging to the other family members as their past savings, the same cannot be treated as undisclosed income of the assessee for the year under consideration. Hence the penalty levied by the AO in respect of the cash found during the search is deleted.” (page no. 34 of order) Therefore the issue is squarely covered by the above findings of Hon’ble ITAT and deserves to be deleted.

PENALTY OF RS. 1.5 CRORES FOR JEWELLERY FOUND With regard to the jewellery found during the course of search no incriminating material was found during the course of search. No any evidence was found which suggests that jewellery found was purchased by the assessee during the year under consideration out of undisclosed income. The disclosure was taken only on the basis of the valuation of jewellery at current market price instead of the actual cost of acquisition of the jewellery because the jewellery was very old and some of the jewellery was acquired at the time of marriage of the various family members and some jewellery was inherited. Considering the over all facts including status of the assessee’s family and the number of family members, the jwellery found during the course of search is not abnormal and it was acquired in the long back and in duration of last 10-15 years. The jewellery was even not purchased but inherited from the forefathers and in-laws of various family members. Hence the disclosure obtained on account of the jewellery would not constitute undisclosed income of the assessee for the purpose of levy of penalty and penalty levied on Rs. 1.50 crore on unexplained jewellery deserves to be deleted.

This issue is also covered by the decision of Shri Gopal Das Sokhiya in ITA No. 306/JP/2018 dated 11.04.2019 wherein it has been held that “We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other material to establish that the entire jewellery found at the time of search and seizure action was only acquired by the assessee and belong to the assessee alone. We find that in the Indian family most of the jewellery belong to the women of the family. It is also customary in Indian society that the women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted.” (page no. 35 to 37 of order)’’

The facts of the assessee’s case shows that there was no undisclosed income found during the course of search and no incriminating material was found, therefore the penalty levied by the Learned Assessing Officer deserves to be deleted. ‘’

3.8 The ld. DR relied on the order passed by the ld. CIT(A) on these grounds and also relied on the written submission filed by him dated 28-8-2020. It was submitted by the ld. DR that the penalty was rightly levied on account of unexplained cash, unexplained jewellery and unexplained advances found at the premises of the assessee. It was submitted by the ld. DR that the assessee has not been able to substantiate the grounds taken by him and since the assessee could not explain the source of cash of Rs. 1.70 crores found during the course of search, therefore, the same was rightly treated as income of the assessee for the year under consideration and it was also submitted by the ld. DR that since the assessee could not explain the source of jewellery found during the course of search, therefore, in view of the provisions of Section 69A of the Act, the same was rightly treated as income of the assessee for the year under consideration.

3.9 We have heard the ld. counsels for both the parties and we have also perused the materials placed on record, deliberated upon the judgements cited by the parties as well as the orders of the Revenue authorities. From the records, we noticed that the cash found during the course of search, according to the assessee was savings of all the family members for the last several years. The said fact was also disclosed by the assessee in the statement recorded u/s 132(4) of the Act. It was categorically submitted by the assessee that cash found at the residence belongs to the entire family members and it was found and seized from the individual rooms of the individual members. In this respect, the assessee also placed on record the drawings of all the members of the family of 20 persons. From the records, we also noticed that for the last 5/6 years i.e. F.Y. 2009-10 to 2014-15, 06 members of the assessee had declared the income of severalcrores in each hand. Even the withdrawal as per balance sheet are also in crores of rupees during the last five years regarding which the assessee had already placed on records the documents which contains in the paper book pages 1 to 70. Out of the 20 family members, 13 members are taxpayers and has declared income of crores of rupees. The ld.AR of the assessee had also relied on the decision in the case of Shri Gopal Das Sokhiya in ITA No. 306/JP/2018 dated 11.04.2019 wherein it has been held that “the past savings of the family members cannot be ignored while considering said amount of Rs. 12 lacs as undisclosed income of the assessee. Accordingly, in the absence of any clear cut finding about the cash not representing and belonging to the other family members as their past savings, the same cannot be treated as undisclosed income of the assessee for the year under consideration. Hence the penalty levied by the AO in respect of the cash found during the search is deleted.” (page no. 34 of order) and submitted that the issue is squarely covered by the above findings of Hon’ble ITAT and deserves to be deleted..

3.10 As far as the jewellery found during the course of search is concerned, we found that no incriminating material was found during the course of search and there was no evidence which suggest that jewellery found was purchased by the assessee during the year under consideration out of undisclosed income. Although disclosure was taken on the basis of the valuation of jewellery at current market price instead of actual cost of acquisition of the jewellery and as per the assessee jewellery was very old and some of the jewellery was acquired at the time of marriage of various family members and some of the jewellery was inherited. The ld.AR of the assessee relied on the decision of ITAT Jaipur Bench in the case of Shri Gopal Das Sokhiya (ITA No. 306/JP/2018 dated 11-04- 2019) wherein the bench has observed as under:-

“We have considered the rival submissions as well as the relevant material on record. There is no dispute that what is found is the jewellery belong to the family members of the assessee and it is not disputed by the department that the jewellery do not belong to assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded under section 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the fact or any other material to establish that the entire jewellery found at the time of search and seizure action was only acquired by the assessee and belong to the assessee alone. We find that in the Indian family most of the jewellery belong to the women of the family. It is also customary in Indian society that the women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The department has not made any effort to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year.

The jewellery belong to the family members of the assessee and found at the residence was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible. Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income. Hence the penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded under section 132(4) itself would not either constitute an incriminating material or undisclosed income in the absence of any corresponding asset or entry in the seized document representing the undisclosed income. Accordingly, the penalty levied by the AO under section 271AAB of the Act is deleted.”

3.11 After meticulously going through the facts of the case and while applying the principles laid down by the Coordinate Bench of ITAT in the case of Shri Gopal Das Sokhiya (supra), we are also of the opinion that past savings of the family members cannot be ignored while considering the said amount of Rs. 1.70 crores as ‘’undisclosed income’’ of the assessee and in the absence of any clear cut findings about the cash not representing and belonging to other family members as their past savings, the same cannot be treated as’’ undisclosed income’’ of the assessee for the year under consideration.

3.12 There is no dispute that what is found during the course of search, is the jewellery belong to the family members of the assessee and it is not disputed by the Department that the jewellery do not belong to the assessee alone. Therefore, merely because the assessee has declared the income in the statement recorded u/s 132(4), it would not ipso facto be regarded as undisclosed income of the assessee in the absence of the facts or any other material to establish that entire jewellery found at the time of search and seizure action was only acquired by the assessee and belongs to the assessee alone. We are also of the view that in Indian in family most of the jewellery belong to the women of the family and it is also customary in the Indian society that women and particularly the married women used to receive the jewellery from the relatives and friends on various occasions including marriage, birth of child as well as other auspicious occasions like anniversaries etc. The Department has not made any efforts to find out the fact whether the jewellery was acquired during the year under consideration or it is old jewellery. Therefore, once the jewellery was not found to be purchased during the year under consideration then the same cannot be treated as undisclosed income of the assessee for the year under consideration which is specified previous year. The jewellery belong to the family members of the assessee and found at the residence was old jewellery and therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible.

Therefore, when the Department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the ‘’undisclosed income’’ as defined in explanation to Section 271AAB of the Act. We find that the order of the AO u/s 271AAB of the Act. We find that the order of the AO u/s 271AAB as well as the order of the ld. CIT(A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and the family members acquired in the past and some part of which was also inherited, will not fall in the ambit of ‘’undisclosed income’’. Therefore, while applying the principles as laid down by the Coordinate Bench of ITAT in the case of Shri Gopal Das Sokhiya (supra), wherein the facts were similar, we are of the considered view that penalty levied by the AO against such disclosure is not sustainable. It may be pertinent to mention that the statement recorded u/s 132(4) of the Act itself would not either constitute an incriminating material or ‘’undisclosed income’’ in the absence of any corresponding asset or entry in the seized documents representing the ‘’undisclosed income’’ . Accordingly, the penalty levied by the AO on account of cash found and on account of unexplained jewellery stand deleted. Thus the appeal of the assessee is allowed.

4.1 Now we proceed to decide the appeal filed by the Revenue in ITA

No.881/JP/2019. The ground Nos. 1 to 3 raised by the Revenue are inter- related and inter-connected and relates to challenging the order of the ld. CIT(A) in deleting the penalty imposed by the AO u/s 271AAB(1)(c) of the Act on account of advances paid by the assessee. Therefore, we thought it fit to dispose off these grounds through a consolidated order.

4.2 We have heard ld. counsels for both the parties and we have also deliberated upon the judgements cited by the parties as well as the orders passed by the Revenue authorities. Before, we decide the merit of these grounds raised by the Revenue, it is necessary to evaluate the order passed by the ld. CIT(A). While deciding these grounds, the ld. CIT(A) has dealt with these grounds in para 3 to 6 of his order. However, the relevant portion is contained in para no 5.5 to 6.3 which is reproduced below.

‘’5.5 The appellant was subjected to search and seizure on 23-05-2013. During the course of search certain loose paper were found and seized marked annexure AS 1, Exhibit 1 & 2, which contained list of advances given for land purchased totaling to 4.85 Crores. These pages are filed before me in paper book pager 43-46. The appellant owned these advance given as his undisclosed income u/s 132(4) of the act and paid taxed there in the returned filed on 31-01-2015. The nature of these transactions was described by the appellant in the statement u/s 132(4) of the Act as advance given for the purchase of land in Q/A 21 & 22 of the statement. Same was accepted as such by the AO in the assessment order. The AO imposed penalty on 8.05 Crores.

5.6 I have carefully perused the order relied upon. The relevant para 21 of Rajendra Kumar Gupta Vs. DCIT ITA 359/JP/2017 reads as under

“21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances 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 cash advances 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. A cash advance 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 can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter- changeably. 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 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 and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation.

In our view, the deeming fiction so envisaged under Section 69 and Section 69B 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 contained in section 69 and section 69B 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 AO has not even invoked the said deeming provisions in the quantum proceedings.

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. In light of the same, the undisclosed investment by way of advances 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 u/s 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.”

Careful perusal of the order shows that so far as advances are concerned the appellant case is covered by the said decision of Hon'ble ITAT Jaipur order.

5.7 Further during the course of appellate proceedings the Ld A/R was specifically asked about applicability of the decision in the case of Sandeep Chandak Vs. CIT 93 Taxmann.com 405, in which case the SLP filed by the appellant in that case was dismissed by Hon'ble Supreme court.

The Ld. A/R submitted as under:

1. That the case Shri Sandeep Chandak in ITA No. 122 of 2017 decided by Hon'ble Allahabad High Court is totally different from the facts of the facts of the assessee's case.

In the case of Shri Sandeep Chandak the issue of initiation of penalty and satisfaction of the AO was primary issue which has been challenged by the assessee. The Hon'ble ITAT Lucknow Bench has given relief to the assessee. At the end the Tribunal has held that since the provisions of Section 271AAB are not andatory therefore, levy of penalty in each and every case where ever the assessee has made default is unjustified."

6. I have carefully perused the submissions made and the judgment too. I am in agreement with the Ld. A/R that in Sandeep Chandak case the adjudication was made in reference to the notice issued u/s 274 r.w.s. 271 by the Department. The grounds in the case of Sandeep Chandak are as under:-

2. Following questions of law have been framed by the assessee:

"(A) Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not appreciating the facts that the notice was issued for imposition of penalty u/s 271AAB and not for imposition of penalty u/s 271(1)(c) of the Act ?

(B) Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not appreciating the facts that the specific charge 'have in a statement under sub section 4 of section 132 during the course of search and seizure operation admitted undisclosed income' was mentioned in the notice ?

Whether the benefit of Section 292BB was correctly denied to the AO/appellant by the ITAT?"

6.2 Clearly the issue of what constitute the 'undisclosed income within the definition provided in the section u/s 271AAB was never a subject matter before the Hon'ble High Court of Allahabad. Even otherwise this aspect is discussed elaborately in the order of Niraj Mathur delivered by Hon'ble ITAT Jaipur. Thus, following the decision of the Hon'ble ITAT Jaipur Bench discussed supra, the penalty levied by the AO on the advances of 4.85 Crores is untenable. The various other cases of ITAT Jaipur bench referred by the Ld. AR also support his case.

6.3 Thus following the decision of the Hon’ble ITAT Jaipur Bench discussed supra, the penalty levied by the AO on the advances of Rs. 4.85 Crores is untenable. The various other cases of ITAT Jaipur Bench referred by the Ld. AR also support his case. ‘’ After having gone through the submissions made by both the parties and facts of the present case, we noticed that the ld. CIT(A) has decided these grounds by relying upon the decision of Coordinate Bench of ITAT Jaipur in the case of Rajender Kumar Gupta vs DCIT (ITA No. 359/JP/2017 and in the case of Raja Ram Maheshwari vs DCIT (ITA No.992/JP/2017 dated 10-01-2019). As per the facts, assessee was subjected to search and seizure on 23-05-2013. During the course of search, certain loose papers were found and seized marked Annexure AS- 1, Exhibit 1 &2 which contained list of advances given for land purchased totaling to Rs. 4.85 crores . Copies of these papers have also been filed before the ld. CIT(A) and also before us in the paper book. Although, the assessee owned these advances given as his undisclosed income u/s 132(4) of the Act and paid tax there, in the return filed on 31-01-2015 and the nature of these transactions was described by the assessee in the statement u/s 132(4) of the Act as according to the assessee, the advances were given for purchase of land. The said statement was accepted by the AO in the order of assessment and consequently penalty was imposed. We have also considered the decision in the case of Rajender Kumar Gupta vs DCIT (supra) which reads as under:-

‘’21. During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132(4), ld CIT(A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances 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 cash advances 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. A cash advance 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 can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. 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 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 and not vice-versa.

We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B 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 contained in section 69 and section 69B 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 AO has not even invoked the said deeming provisions in the quantum proceedings. 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. In light of the same, the undisclosed investment by way of advances 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 u/s 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.’’

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 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 and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. No new facts or circumstances have been brought before us by the Revenue in order to controvert or rebut the lawful findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere with the order of the ld. CIT(A). Thus the appeal of the Revenue is dismissed.

5.0 In the result, the appeal filed by the assessee is allowed and that of the Revenue is dismissed with no order as to cost.

Order pronounced in the open court on 14 /09/2020.