2015 (10) TMI 1454 - AT - Income Tax

Penalty under sec. 271AAA - CIT(A) deleted the penalty - Held that - The assessee had agreed to the addition and clearly stated in reply to question Nos. 28 and 29 that stock records are not maintained and stock is considered on estimate basis. None-maintenance of stock records with stock being valued on estimate basis is a fact accepted by the department. The assessee has also paid the tax together with interest in respect of undisclosed income. We thus find that all the above three ingredients have been fulfilled by the assessee in the present case. The assessee has not only admitted the undisclosed income and specified the manner in which such income has been derived in its statement recorded during the course of search but has also substantiated the manner in which the undisclosed income was derived. It is an undisputed fact that the assessee has paid the tax together with interest, if any, in respect of the undisclosed income. Under these circumstances, we are of the view that the Learned CIT(Appeals) has rightly deleted the penalty in question levied by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under sec. 271AAA of the Income-tax Act, 1961.

Analysis:
The Revenue challenged the deletion of penalty by the Learned CIT(Appeals) under sec. 271AAA of the Income-tax Act, 1961. The penalty was imposed by the Assessing Officer amounting to Rs. 40,23,870 for additional income representing excess stock in trade declared during a search operation. The Assessing Officer found that the assessee failed to specify and substantiate the manner in which the undisclosed income was derived. However, the Learned CIT(Appeals) deleted the penalty based on the explanation provided by the assessee.

The Learned DR relied on the penalty order, arguing that the penalty should not have been deleted. On the other hand, the Learned AR supported the first appellate order, contending that the penalty was not maintainable as the assessee disclosed income during search, paid taxes, and it was accepted by the Assessing Officer. Citing a decision of the Nagpur Bench of the ITAT, it was argued that penalty under sec. 271AAA was not leviable under such circumstances.

The assessee, engaged in the export of handicrafts, explained the challenges in maintaining stock records due to dealing with a variety of small-sized raw materials. The stock inventory was prepared on an estimated basis without physical counting. The assessee had a history of not maintaining stock records during scrutiny assessments for several years. During the survey operation, the assessee declared additional income based on estimates.

Considering the provisions of sec. 271AAA, the Tribunal found that the assessee fulfilled all conditions for penalty non-leviability. The assessee admitted the undisclosed income, specified the manner of derivation, and paid taxes with interest. The Tribunal noted that the non-maintenance of stock records and valuation on an estimated basis were accepted by the department. Consequently, the Tribunal upheld the decision of the Learned CIT(Appeals) in deleting the penalty, as the assessee met all requirements under sec. 271AAA. The appeal was dismissed, affirming the deletion of the penalty.

In conclusion, the Tribunal upheld the deletion of the penalty under sec. 271AAA of the Income-tax Act, 1961, as the assessee had fulfilled all conditions for penalty non-leviability, including admitting undisclosed income, specifying its derivation, and paying taxes with interest.