IT APPEAL NO. 2839 (DELHI) OF 2013
[ASSESSMENT YEAR 2009-10]

I.C. SUDHIR, JUDICIAL MEMBER 
AND T.S. KAPOOR, ACCOUNTANT MEMBER

ORDER

I.C. Sudhir, Judicial Member - The Revenue has questioned first appellate order on the ground that the Learned CIT (Appeals) has erred in deleting the penalty imposed by the Assessing Officer amounting to Rs. 40,23,870 under sec. 271AAA of the Income-tax Act, 1961.

2. Heard and considered the arguments advanced by the parties and have gone through the orders of the authorities below and the related provisions of the law. The facts in brief are that penalty in question was levied in respect of additional income representing excess stock in trade declared during the action under sec. 133A conducted at the business premises of the assessee's proprietary concern simultaneously with the action under sec. 132 of the Act taken at his residence. The Assessing Officer held that the assessee has satisfied only two of the three conditions mentioned in sub-section (2) of section 271AAA of the Income-tax Act, 1961. He accordingly held that the assessee has failed to specified as well as substantiate the manner in which the undisclosed income was derived. The Learned CIT(Appeals) has, however, deleted the penalty being satisfied with the explanation of the assessee.

3. In support of the ground, the Learned DR has basically placed reliance on the penalty order. The learned AR on the other hand has tried to justify the first appellate order. He reiterated the submissions made before the authorities below. She submitted further that even the penalty in question levied by the Assessing Officer was not maintainable since it is not imposed in a case of survey conducted under sec. 133A of the Act. It was submitted further that the penalty is not leviable in case the assessee disclosed income during search and paid taxes thereupon and accepted by the Assessing Officer. In this regard, she has placed reliance on the decisions of Nagpur Bench of the ITAT in Concrete Developers v. Asstt. CIT [2013] 34 taxmann.com 62 holding that where assessee had disclosed certain amount during the course of search and had paid taxes thereon filed return showing said income as business income and same had been accepted by the Assessing Officer under the head "business income" penalty under sec. 271AAA of the Income-tax Act, 1961 was not leviable.

4. We find from the orders of the authorities below that the assessee's proprietary concern was engaged in the business of export of handicrafts items. It was submitted that they deal with hundreds of articles (raw-material) such as varieties of stones, shells, beads, charms, metal pieces, threads, metal strings etc. It was submitted that these items are of very small size, shape and value and come in different colour, design and makes. The finished goods are produced using different combination of these diverse inputs. The assessee thus has dealt with both raw material and finished goods of thousands of variety which cannot be given any specific nomenclature for record keeping purposes. It was further explained that due to their tiny size and varying numbers, the exercise of counting and keeping track of each and every item is very cumbersome and time consuming. In this back ground, the assessee was not maintaining any stock register as a matter of record for all the years. It was explained that closing stock inventory has been prepared every year on estimated basis without taking the actual physical inventory. These facts were stated by the assessee before the survey party while they recorded the statement on 24.12.2008 (question Nos. 28 & 29). It was submitted that past record also shows that the assessee has been subjected to scrutiny assessments for the years 2001-02 to 2009-10 (both during pre-search and post search assessments) and for all the years, no stock records have been maintained. In view of these facts, at the time of survey operation, the assessee had agreed for a declaration of Rs. 4,02,38,700.

5. Having gone through the provisions laid down under sec. 271-AAA of the Act, we find that penalty there under is levied where search has been initiated under sec. 132 on or after 01.06.2007 but before 01.07.2012 @ 10% of the undisclosed income of the specified previous year. As per sub-section (2) to section 271AAA the penalty is not leviable under the following situation:

6. In the present case, we find that the assessee had agreed to the addition and clearly stated in reply to question Nos. 28 and 29 that stock records are not maintained and stock is considered on estimate basis. None-maintenance of stock records with stock being valued on estimate basis is a fact accepted by the department. The assessee has also paid the tax together with interest in respect of undisclosed income. We thus find that all the above three ingredients have been fulfilled by the assessee in the present case. The assessee has not only admitted the undisclosed income and specified the manner in which such income has been derived in its statement recorded during the course of search but has also substantiated the manner in which the undisclosed income was derived. It is an undisputed fact that the assessee has paid the tax together with interest, if any, in respect of the undisclosed income. Under these circumstances, we are of the view that the Learned CIT(Appeals) has rightly deleted the penalty in question levied by the Assessing Officer. The same is upheld. The ground is accordingly rejected.

7. In result, the appeal is dismissed.