2017 (9) TMI 1754 - AT - Income Tax

Penalty order u/s 271AAA - assessee failed to substantiate the manner in which undisclosed income was derived - Held that - Similar issue arose in Sita Ram Gupta v. Asstt. CIT 2014 (6) TMI 1014 - ITAT DELHI wherein held that Where Assessing Officer having completed assessment, passed a penalty order under section 271AAA for default of not substantiating manner in which undisclosed income was derived, in view of fact that assessee made statement that he had earned undisclosed income for various transactions of sale/purchase of land which did not face any rebuttal and, moreover, assessee had paid due tax on said income, impugned penalty order deserved to be set aside - Decided against revenue.

Summary

Issues:
1. Penalty under section 271AAA of the Income Tax Act, 1961 - Conditions for immunity.
2. Failure to specify the manner of deriving undisclosed income.

Analysis:

Issue 1: Penalty under section 271AAA - Conditions for immunity
The case involved an appeal by the Revenue against the penalty order under section 271AAA of the Income Tax Act, 1961. The AO imposed a penalty on the assessee for failing to substantiate the manner in which undisclosed income was derived. However, the Ld. CIT (A) cancelled the penalty after considering the explanations provided by the assessee. The conditions for immunity under section 271AAA require the assessee to admit undisclosed income, specify the manner in which it was derived, and pay the tax with interest. In this case, it was found that the assessee had disclosed the undisclosed income, explained its source, and paid the necessary taxes and interest, thus meeting the conditions for immunity.

Issue 2: Failure to specify the manner of deriving undisclosed income
The Revenue contended that the assessee failed to specify the manner in which the undisclosed income was derived, justifying the penalty under section 271AAA. However, the Ld. CIT (A) and the appellate tribunal found that the assessee had indeed substantiated the manner in which the undisclosed income was derived. The tribunal referred to precedents where penalties were set aside when taxes and applicable interest were paid on the undisclosed income, and details of the nature and manner of earning were recorded. The tribunal upheld the decision of the Ld. CIT (A) based on the factual matrix and legal principles, dismissing the appeal by the Revenue.

In conclusion, the appellate tribunal upheld the decision of the Ld. CIT (A) to cancel the penalty imposed under section 271AAA, as the assessee had met the conditions for immunity by admitting the undisclosed income, specifying its source, and paying the necessary taxes and interest. The case serves as a reminder of the importance of complying with the legal requirements to avoid penalties under the Income Tax Act.