2014 (10) TMI 876 - AT - Income Tax

Penalty levied u/s 271AAA - Held that - Revenue has not asked the assessee to disclose the manner in which such income was earned. In any case once the income is surrendered during the course of search u/s 132(4) it can be safely assumed that during discussion the assessee must have disclosed the manner. In any case we find force in the submissions of the Ld. Counsel for the assessee that if the explanation of the assessee has been accepted for a sum of ₹ 1987500 out of total surrender of ₹ 4 crores then same manner should have been accepted for the whole of the amount. It is not clear from the penalty order how explanation for ₹ 1987500 was accepted. In any case the Ld. CIT(A) has considered all these issues in detail and the D.R. for the Revenue has not referred to any material or decision which can controvert the findings of the CIT(A). In the following cases which have been relied on by the Ld. Counsel for the assessee which was clearly held that penalty is not leviable - Decided in favour of assessee

Summary

Issues:
Appeal against deletion of penalty u/s 271AAA of IT Act without substantiating undisclosed income's manner of derivation.

Analysis:
The appeals were directed against the order of the Ld CIT(A), Gurgaon dated 12.9.20913. The revenue raised grounds questioning the deletion of penalties totaling Rs. 40,00,000 under section 271AAA without sufficient evidence of how the undisclosed income was derived. The assessee argued that the surrendered amounts were reflected in the return, granting immunity from penalties. The issues were found to be similar to previous cases where penalties were not upheld. The definition of undisclosed income under section 271AAA was examined, emphasizing the need for a clear association between income and assets/documents found during the search. It was established that if income was not represented by such assets/documents, it did not qualify as undisclosed income. The requirement to substantiate the manner of earning undisclosed income was discussed, highlighting that the assessee had fulfilled the conditions specified under sub-section (2) of section 271AAA.

Section 271AAA was reviewed, stating that penalties could not be imposed if the assessee admitted undisclosed income during the search, specified its derivation, substantiated it, and paid the due taxes. In this case, the surrendered amount was declared in the return, and taxes were paid, entitling the assessee to immunity. The issue of disclosing the manner of earning income was raised, noting that the Revenue did not specifically request this information. It was argued that once income was surrendered during the search, it implied disclosure of the manner of earning. The Tribunal found merit in the assessee's submissions and concluded that penalties were not justified. Cross objections were withdrawn during the hearing, leading to their dismissal. Consequently, all appeals of the Revenue and cross objections by the assessee were dismissed in the judgment pronounced on 28.10.2014.