2016 (6) TMI 1319 - AT - Income Tax

Penalty under section 271AAA - assessee has not brought on record any documentary evidences to substantiate the manner of deriving undisclosed income - question regarding manner of earning income - Held that - CIT(Appeals) specifically noted in his finding that revenue has not asked the assessee to disclose the manner in which such income was earned. Therefore, issue was found covered by judgement of Gujrat High Court in the case of CIT Vs Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT . Since no question is asked during the statement recorded under section 132(2) of the Act, then the assessee cannot be expected to further substantiate the manner of earning undisclosed income. The ld. CIT(Appeals), therefore, correctly found that when revenue never asked any question regarding manner of earning the income, therefore, no penalty should be levied against the assessee. - decided in favour of assessee

Summary

Issues:
Challenge to cancellation of penalty under section 271AAA of the Income Tax Act for assessment year 2010-11.

Analysis:
The appeal by the revenue challenged the cancellation of penalty under section 271AAA of the Income Tax Act for the assessment year 2010-11. The Assessing Officer levied the penalty as the assessee surrendered additional income during a search, but failed to provide documentary evidence to substantiate the manner of deriving the undisclosed income. The ld. CIT(Appeals) canceled the penalty after considering the explanation of the assessee and the material on record. The ld. CIT(Appeals) referred to the provisions of section 271AAA and emphasized that the penalty can only be levied if the conditions specified in the sub-section (2) are not satisfied. The ld. CIT(Appeals) found that since the revenue did not ask the assessee to disclose the manner in which the income was earned during the statement recorded, no penalty should be levied. The issue was found to be covered by judicial pronouncements, including a decision of the Gujrat High Court. The Tribunal dismissed the appeal of the revenue, upholding the cancellation of the penalty.

In a similar case before the Hon'ble ITAT Chandigarh Bench, it was held that if no question is asked during the statement recorded under section 132(4), the assessee cannot be expected to further substantiate the manner of earning income. The Tribunal set aside the order of the ld. CIT(A) and deleted the penalty, emphasizing that since taxes were already paid, the penalty could not have been levied. The Tribunal referred to the observations of the Gujrat High Court, highlighting that if no questions are asked during the statement recorded under section 132(4), the assessee cannot be expected to further substantiate the manner of earning income. Following this precedent, the Tribunal decided the issue against the revenue and deleted the penalty.

The provisions of section 271AAA state that if the assessee admits undisclosed income during a search and pays taxes on it, no penalty can be levied. In the case under consideration, the amount surrendered during the search was declared in the return, and taxes were paid accordingly. The Tribunal found that since the revenue did not ask the assessee to disclose the manner in which the income was earned, the penalty could not be justified. The Tribunal held that if the explanation of the assessee was accepted for a portion of the surrendered amount, it should be accepted for the entire amount. The Tribunal found no merit in the revenue's appeal and dismissed it, upholding the cancellation of the penalty.

In conclusion, the Tribunal and the ld. CIT(Appeals) both found that since the revenue did not ask the assessee to disclose the manner of earning the income during the statement recorded, no penalty should be levied. The decisions of the Tribunal and the Gujrat High Court supported this stance, leading to the cancellation of the penalty in the case. The appeal of the revenue was dismissed, affirming the cancellation of the penalty under section 271AAA for the assessment year 2010-11.