2017 (4) TMI 1291 - AT - Income Tax

Penalty u/s 271AAA - whether the assessee has disclosed manner and substantiate that manner? - Held that - In order to evaluate circumstances pertained to this condition, we find that reply to question 15 would show that group had different projects which have constructed building, thereafter, they have excluded certain amounts on a net basis from these projects, which were not accounted in the books. On account of search and seizure of the incriminating material, this net income was offered for taxation. The manner was disclosed as out of various housing projects constructed by the group. Apart from these questions, no other question relating to manner and substantiate earning of such income was asked from the assessee during the course of assessment proceedings. Similarly, we have extracted relevant part of the assessment order. The AO has nowhere asked the assessee to demonstrate the manner or substantiate that manner. Thus, taking into consideration facts and circumstances, we are of the view that the CIT(A) has rightly deleted the penalty - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271AAA of the Income Tax Act, 1961.

Analysis:
The Revenue appealed against the deletion of a penalty of ?66,50,000 imposed by the Assessing Officer (AO) under section 271AAA of the Income Tax Act, 1961 for the Assessment Year 2011-12. The case involved a search operation under section 132 of the Act where a diary containing undisclosed income details was found. The main partner admitted to undisclosed income, leading to penalty initiation. The AO imposed the penalty as the assessee failed to disclose the manner of earning the additional income. However, the ld.CIT(A) deleted the penalty after re-evaluating the facts and observing that the conditions for immunity under section 271AAA(2) were fulfilled by the assessee.

The relevant section, 271AAA, allows the AO to levy a penalty of 10% of undisclosed income unless certain conditions are met. Sub-section (2) outlines three conditions for immunity from penalty, including admitting the undisclosed income, specifying the earning manner, substantiating it, and paying the tax with interest. In this case, the assessee admitted to undisclosed income in a statement under section 132(4) and fulfilled the tax payment requirement. The dispute centered on whether the assessee disclosed and substantiated the earning manner. The statement provided details of various projects and excluded amounts, offering the net income for taxation. The assessment order did not specifically ask for substantiation of the earning manner. Considering these facts, the Tribunal upheld the ld.CIT(A)'s decision to delete the penalty, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty under section 271AAA. The decision was based on the assessee fulfilling the conditions for immunity outlined in the Act and the lack of specific requests for substantiation of the earning manner in the assessment proceedings.