2015 (3) TMI 264 - AT - Income Tax

Penalty u/s 271AAA - Held that - Penalty u/s 271AAA is not leviable if an assessee, in his statement recorded during the search u/s 132 of the Act, admits the undisclosed income, specifies and substantiates the manner in which it has been derived and pays the taxes due thereon, together with interest. Here, undisputedly, the assessee has paid due tax on the admitted undisclosed income. The question of specifying the manner in which the undisclosed income was derived, stood duly answered by the assessee before the authorities. The same was accepted by the AO, without variation, this fact itself evidencing the assessee having passed the test of Section 271AAA of the Act. Then, there is no specific format/procedure prescribed in the Act for specifying and substantiating an undisclosed income. The statement of the assessee, specifying the manner in which the undisclosed income was derived and substantiated, did not face any rebuttal or rejection at the hands of the AO. As there is no factual dispute, we uphold the contention of the assessee and deleted the penalty imposed u/s 271AAA on the item of income of ₹ 1,86,01,810/-. Thus the entire penalty levied u/s 271AAA, as confirmed by the Ld.CIT(A) is hereby deleted. - Decided in favour of assessee.

Issues Involved:

1. Legality of penalty under Section 271AAA.
2. Definition and treatment of undisclosed income.
3. Procedural compliance and initiation of penalty proceedings.
4. Specificity and substantiation of the manner in which undisclosed income was derived.
5. Satisfaction and initiation of penalty by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Section 271AAA:

The assessee challenged the penalty imposed under Section 271AAA of the Income Tax Act, 1961, arguing that the penalty was unwarranted. The Tribunal noted that Section 271AAA was introduced to reduce the rigor of penalties where undisclosed income is declared, provided the conditions in subsection (2) are met. The Tribunal emphasized that the penalty is at a flat rate of 10% of the taxes on undisclosed income, unlike the 100% to 300% range under Section 271(1)(c).

2. Definition and Treatment of Undisclosed Income:

The Tribunal examined whether the sum of Rs. 15,00,00,000 included in the return of income and offered in the statement was "undisclosed income" as defined in Explanation 1 to Section 271AAA. The assessee argued that the amount was not undisclosed since it was included in the return and offered for assessment. The Tribunal noted that the Assessing Officer (AO) had initiated penalty proceedings only for specific additions, not the entire amount of Rs. 15,00,00,000.

3. Procedural Compliance and Initiation of Penalty Proceedings:

The Tribunal scrutinized whether the AO had properly initiated penalty proceedings under Section 271AAA. It was observed that the AO had specifically mentioned the initiation of penalty proceedings for two additions: Rs. 1,86,01,810 (based on document A-163) and Rs. 30,00,000 (treated as "concealed income"). The Tribunal found that the penalty proceedings were initiated only for these two items and not for the entire undisclosed income of Rs. 15,30,00,000.

4. Specificity and Substantiation of the Manner in Which Undisclosed Income Was Derived:

The Tribunal evaluated whether the assessee had specified and substantiated the manner in which the undisclosed income was derived, as required under Section 271AAA(2). The Tribunal referred to multiple case laws, including CIT vs. Radha Kishan Goel and CIT vs. Mahendra C. Shah, which held that if the AO does not ask specific questions regarding the manner of earning the undisclosed income, the assessee cannot be penalized for not providing such details. The Tribunal found that no specific questions were asked by the revenue officials to the assessee regarding the manner of earning the undisclosed income.

5. Satisfaction and Initiation of Penalty by the Assessing Officer:

The Tribunal examined the AO's satisfaction and initiation of penalty proceedings. It was noted that the AO had not recorded satisfaction or initiated penalty proceedings for the entire undisclosed income but only for specific additions. The Tribunal cited case laws, including CIT vs. Triveni Engineering and Industries Ltd. and CIT vs. Lotus Construction, which emphasized the need for clear and specific directions for initiating penalty proceedings. The Tribunal concluded that the penalty could not be sustained for items on which no penalty proceedings were initiated.

Conclusion:

The Tribunal held that the penalty under Section 271AAA could not be sustained for the entire undisclosed income of Rs. 15,30,00,000 as the AO had only initiated penalty proceedings for specific additions. The penalty for the addition of Rs. 30,00,000 was deleted as the Tribunal had already deleted the addition in quantum proceedings. The penalty for the addition of Rs. 1,86,01,810 was also deleted as the AO had not asked specific questions regarding the manner of earning the undisclosed income. The appeal of the assessee was allowed, and the penalty under Section 271AAA was deleted.

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