2016 (10) TMI 1071 - AT - Income Tax

Penalty u/s 271AAA - surrender of unexplained/ undisclosed income found during the search conducted u/s 132 - manner of undisclosed income derived - Held that - Department had not raised any specific query regarding the manner in which the undisclosed income had been derived. In absence of query about the manner in which the undisclosed income was derived and about its substantiation it is our considered view that the AO was not justified in imposing penalty u/ s 271AAA specially when the offered undisclosed income was accepted by the AO and the tax due thereon had been paid by the assessee. We draw our strength from the decision in the case of Neeraj Singal vs. ACIT 2013 (6) TMI 762 - ITAT DELHI which is identical to the present case. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty u/s 271AAA for undisclosed income.

Analysis:
The appeal was filed by the Department against the deletion of a penalty imposed under section 271AAA of the Income Tax Act, 1961 by the Ld. CIT (A) for the assessment year 2010-11. The penalty was imposed due to the surrender of unexplained/undisclosed income of ?6,45,00,000 found during a search conducted under section 132 of the Income Tax Act, 1961. The key contention of the assessee was that they had met the conditions to be immune from the penalty under section 271AAA by admitting the undisclosed income, substantiating its derivation, and paying tax along with interest. However, the AO believed that the assessee had not disclosed or substantiated the manner in which the undisclosed income was derived.

The First Appellate Authority deleted the penalty, leading to the Department filing an appeal before the ITAT. The grounds of appeal raised by the Department included challenging the correctness of the CIT (A)'s order and the deletion of the penalty imposed under section 271AAA. During the proceedings, the Department argued for the restoration of the penalty, emphasizing the legal and factual appropriateness of its imposition.

On the other hand, the assessee's representative contended that the additional income offered during the search was accepted by the AO, who did not dispute the quantum or the manner in which it was disclosed. It was highlighted that the AO did not question the source or nature of the income during the search or assessment proceedings. The representative cited relevant case laws to support the argument that the penalty should not be imposed in the absence of specific queries regarding the derivation of undisclosed income.

Upon considering the submissions and perusing the records, the ITAT upheld the CIT (A)'s order. It was noted that the Department had not raised any specific queries regarding the manner in which the undisclosed income was derived, and since the offered income was accepted and tax was paid, the penalty under section 271AAA was deemed unjustified. The decision was supported by a precedent from the ITAT Delhi Bench, leading to the dismissal of the Department's appeal.

In conclusion, the ITAT dismissed the appeal filed by the Department, upholding the deletion of the penalty under section 271AAA for undisclosed income.