2015 (7) TMI 159 - AT - Income Tax

Penalty levied u/s. 271AAA - assessees have not been able to substantiate the manner in which the undisclosed income has been derived - CIT(A) cancelled penalty levy - Held that - A perusal of questions and answers put to the assessee, show that the undisclosed income and the source of income both were substantiated by the assessee during the course of search. Since, no further query was put to the assessee with respect to undisclosed income the assessee did not elaborate the same. We observe from the impugned orders that the assessees in their submissions before the Commissioner of Income Tax (Appeals) have given the bifurcation and source of income, declared in the hands of various members of the group.It is evident that the total undisclosed income under badla transaction and unaccounted transactions have been offered to tax in the hands of group members. Thus, in our considered view the assessees have been able to substantiate the manner in which undisclosed income has been derived. Since, all the three conditions as laid down in sub-section (2) of section 271AAA are satisfied. The levy of penalty u/s. 271AAA is not warranted. - Decided against revenue.

Summary

Issues Involved:
1. Legality of penalty levied under Section 271AAA of the Income Tax Act, 1961.
2. Satisfaction of conditions for immunity under Section 271AAA(2) of the Act.

Issue-wise Detailed Analysis:

1. Legality of Penalty Levied under Section 271AAA:
The Revenue filed appeals against the orders of the Commissioner of Income Tax (Appeals), Aurangabad, which cancelled the penalty levied under Section 271AAA for the assessment year 2010-11. The penalties were initially imposed by the Assessing Officer on the grounds that the assessees did not substantiate the manner in which the undisclosed income was derived. The penalties were levied following a search under Section 132 and subsequent disclosures by the assessees.

2. Satisfaction of Conditions for Immunity under Section 271AAA(2):
For immunity from penalty under Section 271AAA(2), three conditions must be satisfied:
- The assessee must specify the manner in which the undisclosed income was derived.
- The assessee must substantiate the manner in which the undisclosed income was derived.
- The assessee must pay the tax, together with interest, on the undisclosed income.

The Revenue contended that the assessees satisfied only the first and third conditions but failed to substantiate the manner in which the undisclosed income was derived. The assessees argued that they had indeed substantiated the manner during the search and in subsequent statements recorded under Sections 132(4) and 131 of the Act. They provided detailed explanations and bifurcations of the undisclosed income, which included amounts receivable from hundi/petty loans, unaccounted sales, and badla transactions in land.

Tribunal's Findings:
The Tribunal examined the statements and evidence presented. It was noted that during the search, a specific question was posed to the assessee regarding the availing of benefits under Section 271AAA, to which the assessee responded by disclosing the manner of earning the undisclosed income through various business transactions. The Tribunal found that the assessees had indeed substantiated the manner of deriving the undisclosed income during the search and in subsequent statements. The Tribunal also referred to previous decisions, such as those in the cases of Neerat Singal Vs. ACIT, ACIT Vs. Munish Kumar Goyal, and others, which supported the assessees' position.

Conclusion:
The Tribunal concluded that the assessees had satisfied all three conditions under Section 271AAA(2). Consequently, the levy of penalty under Section 271AAA was not warranted. The appeals by the Revenue were dismissed, and the orders of the Commissioner of Income Tax (Appeals) cancelling the penalties were upheld. The Tribunal emphasized that substantial compliance with the provisions of Section 271AAA(2) had been achieved by the assessees, and no further denial of benefits was justified. The decision was pronounced on June 26, 2015, in Pune.