2016 (2) TMI 1186 - AT - Income Tax

Penalty u/s 271AAA on account of undisclosed income - Assessee covered u/s 132 i.e. search conducted on the Assessee OR survey u/s 133A - Held that - As the assessee offered the disclosed income and paid taxes. That issue on quantum reached the finality. When comes to the penalty proceedings, we find that the AO initiated the penalty proceedings u/s 271AAA of the Act when the present assessee is not covered u/s 132 i.e. search conducted on the Assessee. The assessee is covered only by survey u/s 133A of the Act as such initiation of penalty proceeding u/s 271AAA is not legally tenable so AO erred initiating action under section 271AAA of the Act. Further, on perusal of the order of the CIT (A), we find that the finding of the CIT (A) in this regard is legally right and so upheld. Therefore, the impugned order does not call for any interference and so upheld. Accordingly, grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Deletion of penalty levied on undisclosed income.

Analysis:
The appeal was filed by the revenue against the order of CIT (Appeals) for the assessment year 2011, specifically challenging the deletion of a penalty amounting to Rs. 12,50,000 on account of undisclosed income. The assessee, a firm developing a housing project, offered a lump-sum amount of Rs. 1,25,00,000 as income for the year under consideration during a search and seizure operation. The AO completed the assessment under section 143(3) r.w.s. 153C based on this amount. Subsequently, a penalty was imposed under section 271AAA, which the assessee contested before the CIT (A).

The CIT (A) deleted the penalty by emphasizing that section 271AAA applies only when a search is conducted under section 132 of the Income-tax Act. Since in this case, there was a survey under section 133A and not a search under section 132, the penalty was deemed inapplicable. The CIT (A) found that the AO's reliance on section 271AAA was misplaced and that the penalty could not be confirmed. Therefore, the penalty of Rs. 12,50,000 was deleted by the CIT (A).

During the appeal, the revenue argued for the restoration of the AO's order, contending that the penalty should be upheld. However, the assessee reiterated that the penalty was unsustainable under section 271AAA due to the absence of a search under section 132. The Tribunal examined the provisions of section 271AAA and concluded that since the assessee was covered only by a survey under section 133A and not a search under section 132, the initiation of penalty proceedings under section 271AAA was legally incorrect. Consequently, the Tribunal upheld the CIT (A)'s decision to delete the penalty, dismissing the grounds raised by the revenue.

In conclusion, the Tribunal dismissed the appeal of the revenue, affirming the deletion of the penalty levied on the undisclosed income. The order was pronounced on February 5, 2016.