2016 (6) TMI 1303 - AT - Income Tax

Penalty u/s. 271AAA - assessee not specified the manner in which the undisclosed income was earned - Held that - In present case, income as discussed was trade advance, therefore, by virtue of the words Trade Advance it is apparent that it is unaccounted business income. The appellant has paid taxes on such undisclosed income, the Assessing Officer has assessed such income as business income without making any additions, therefore, the mannered to earn undisclosed income was there in the statement U/S 132(4). It is not disputed that there was disclosure U/S 132(4) of I.T. Act. and the Assessee has honoured the disclosure and paid tax thereon and filed return to that affect. The aforesaid order passed by the Ld. CIT(A) on the issue in dispute as well as the orders of the Tribunal and the Hon ble High Courts relied upon by the Ld. CIT(A) while deleting the penalty in dispute, we are of the view that the Ld. First Appellate Authority has passed a well reasoned order which does not need any interfere on our part. - Decided against revenue

Summary

Issues:
1. Cancelling penalty under section 271AAA without appreciating the nature of "Trade Advances" as income source.
2. Failure to substantiate the manner of deriving income during assessment proceedings.
3. Tenability of the CIT(A)'s order.
4. Applicability of various judicial pronouncements on penalty imposition under section 271AAA.

Analysis:
1. The case involved the Revenue appealing against the cancellation of a penalty of ?16,00,000 levied under section 271AAA of the Income Tax Act, 1961. The Revenue contended that the CIT(A) erred in canceling the penalty without understanding that "Trade Advances" constitute income. The AO initiated penalty proceedings after a search and seizure action, where the Chairman of the group surrendered an amount to the assessee. The AO issued show cause notices, but the assessee failed to specify the manner of income derivation. The CIT(A) deleted the penalty, emphasizing the disclosure of income as business income and payment of taxes thereon.

2. The second issue revolved around the failure of the assessee to substantiate the manner of deriving income during assessment proceedings. The AO imposed the penalty as the assessee did not specify how the undisclosed income was earned. The CIT(A) considered the statement under section 132(4) and upheld the deletion of the penalty based on the disclosure of unaccounted trade advances as business income, which was assessed by the AO without additions.

3. The third issue questioned the tenability of the CIT(A)'s order. The Revenue contended that the CIT(A) erred in holding the penalty deletion as the AO had not asked the assessee to substantiate the income derivation manner during the statement under section 132(4). The CIT(A) based the penalty deletion on various judicial pronouncements, emphasizing the disclosure and assessment of unaccounted business income.

4. The final issue involved the applicability of judicial pronouncements on penalty imposition under section 271AAA. The CIT(A) referred to decisions by ITAT and High Courts where penalties were deleted due to procedural lapses in recording statements under section 132(4). The Tribunal upheld the CIT(A)'s order, citing precedents and dismissing the Revenue's appeal, thereby canceling the penalty under section 271AAA.

Overall, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the penalty under section 271AAA based on the disclosure and assessment of unaccounted business income without procedural shortcomings during the assessment proceedings.