2014 (11) TMI 974 - AT - Income Tax

Penalty u/s 271AAA - Held that - As relying on case of CIT v. Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT it becomes clear that if no question is asked during the statement recorded under section 132(4) the assessee cannot be expected to further substantiate the manner of earning of income. Since taxes have already been paid therefore in our opinion penalty could not have been levied. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the penalty. - Decided in favour of assesse.

Issues Involved:
1. Confirmation of penalty under section 271AAA of the Income-tax Act for the assessment years 2009-10 and 2010-11.
2. Whether the assessee substantiated the manner of earning the income and whether the penalty was justified.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271AAA:
The primary issue in these appeals was whether the penalty of Rs. 8,50,000 for the assessment year 2009-10 and Rs. 50,000 for the assessment year 2010-11, confirmed by the Commissioner of Income-tax (Appeals), was justified under section 271AAA of the Income-tax Act. The assessee argued that the penalty was erroneously confirmed without proper consideration of their submissions.

2. Substantiation of Manner of Earning Income:
The case involved a search operation where a total surrender of Rs. 6.5 crores was made, with Rs. 90 lakhs attributed to the assessee. The penalty proceedings under section 271AAA were initiated based on this surrendered income. The assessee contended that the income was from commissions earned in the real estate business, which were not declared earlier. The Assessing Officer, however, found that the assessee did not substantiate the manner in which the income was earned, nor provided details of the transactions or properties involved. Consequently, a penalty of 10% amounting to Rs. 8,50,000 was levied.

Appeal and Submissions:
During the appeal, the assessee reiterated the submissions made before the Assessing Officer and cited case laws to support their stance. The Commissioner of Income-tax (Appeals) upheld the penalty, finding no merit in the assessee's arguments.

Tribunal's Consideration and Judgment:
The Tribunal considered the rival submissions and referred to the Gujarat High Court's decision in CIT v. Mahendra C. Shah, which emphasized that the authorized officer must fully explain the provisions of Explanation 5 to the assessee during the statement recording. The Tribunal noted that if no questions were asked regarding the manner of earning the income, the assessee could not be expected to substantiate it further. The Tribunal also referred to similar decisions from the Chandigarh and Cuttack Benches, which supported the assessee's case.

The Tribunal observed that the Revenue did not ask the assessee to disclose the manner of earning the income during the search. It was noted that once the income is surrendered under section 132(4), it is assumed that the manner of earning has been discussed. The Tribunal found that the Revenue accepted the explanation for a part of the surrendered amount, and therefore, the same rationale should apply to the entire amount.

Conclusion:
The Tribunal concluded that since the taxes on the surrendered income were already paid and no specific questions were asked about the manner of earning the income, the penalty under section 271AAA was not justified. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and deleted the penalty, allowing the assessee's appeals.

Result:
Both appeals of the assessee were allowed, and the penalty under section 271AAA was deleted. The judgment was pronounced in the open court on November 18, 2014.

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