2017 (11) TMI 1760 - AT - Income Tax

Levy of penalty u/s 271AAB - undisclosed income disclosed during the search - non specifying the manner in which such undisclosed income has been derived and substantiates the manner in which the undisclosed income was derived - nature of penalty provisions as contained in section 271AAB(1)(a) and 271AAB(1)(c) - whether these provisions provide for levy of penalty on account of separate and independent charges or these provision provide for levy of penalty for the same charge under section 271AAB? - Held that - The provisions of Section 271AAB(1)(a) are pari materia to Section 271AAA(2) so far as it relates to satisfaction of condition whereby it requires specifying the manner of earning of undisclosed income as well as to substantiate the manner in which the undisclosed income was derived. The legal proposition so laid down in context of section 271AAA(2) thus equally applies in context of section 271AAB(1)(a) of the Act. On review and examination of above statement of the assessee recorded u/s 132(4) of the Act, we find that no specific question(s) were raised to the assessee drawing his attention to the provisions of section 271AAB which require the assessee to specify the manner of earning of undisclosed income as well as to substantiate the manner in which the undisclosed income was derived. In absence of a specific query raised during the course of search drawing assessee s attention to the provisions of section 271AAB where the statement of the assessee was recorded u/s 132(4) about the manner in which the undisclosed income has been derived and its substantiation thereof, the AO was not justified in invoking the residuary provisions of clause (c) of section 271AAB(1) instead of clause (a) of section 271AAB(1) of the Act. The assessee having satisfied the other conditions specified in section 271AAB(1)(a), which remain undisputed, in terms of admission of undisclosed income in the statement recorded u/s 132(4), payment of taxes together with interest, if any in respect of undisclosed income on or before the specified date and declaring the undisclosed income in the return of income for the specified previous year on or before the specified date, we are of the view that the ld CIT(A) has rightly varied the levy of penalty and confirm the levy of penalty @ 10% in terms of section 271AAB(1)(a) of the Act. In the result, we affirm the order of the ld CIT(A) and dismiss the appeal of the assessee as well as the revenue.

Issues Involved:
1. Legality of the penalty order under section 271AAB.
2. Appropriateness of the penalty rate applied under section 271AAB(1)(a) versus 271AAB(1)(c).
3. Jurisdiction and powers of the CIT(A) in modifying the penalty under section 271AAB.
4. Compliance with the conditions specified under section 271AAB(1)(a).

Detailed Analysis:

1. Legality of the Penalty Order under Section 271AAB:
The assessee argued that the penalty order under section 271AAB was "bad in law as well as on facts." The Assessing Officer (AO) levied a penalty of 30% under section 271AAB(1)(c) on the grounds that the assessee failed to substantiate the manner in which the undisclosed income was derived. The CIT(A) modified this to a 10% penalty under section 271AAB(1)(a), acknowledging the assessee's compliance with the conditions specified in section 271AAB(1)(a), such as admitting the undisclosed income in the statement recorded under section 132(4), paying taxes, and filing the return.

2. Appropriateness of the Penalty Rate Applied:
The AO imposed a 30% penalty under section 271AAB(1)(c), arguing that the disclosure was not voluntary but based on seized documents. The CIT(A) reduced this to 10% under section 271AAB(1)(a), noting that the assessee had admitted the undisclosed income during the search, specified the manner of earning such income, and paid the due taxes. The Tribunal upheld the CIT(A)'s decision, agreeing that the conditions for a 10% penalty under section 271AAB(1)(a) were met.

3. Jurisdiction and Powers of the CIT(A) in Modifying the Penalty:
The CIT(A) has the power under section 251 to confirm, reduce, enhance, or annul the penalty. The Tribunal noted that the CIT(A) acted within his jurisdiction by varying the penalty from 30% under section 271AAB(1)(c) to 10% under section 271AAB(1)(a), as both clauses fall under the same section 271AAB, which deals with penalties in search cases. The CIT(A) was found to have correctly applied his co-terminus powers to invoke the appropriate provisions for the levy of penalty.

4. Compliance with the Conditions Specified under Section 271AAB(1)(a):
The Tribunal examined whether the assessee met the conditions under section 271AAB(1)(a), which include admitting the undisclosed income during the search, specifying and substantiating the manner in which such income was derived, and paying the taxes along with filing the return. The Tribunal found that the AO did not ask specific questions about the manner of earning the income during the search, and the assessee had complied with other conditions such as paying taxes and filing the return. Thus, the Tribunal upheld the CIT(A)'s decision to apply a 10% penalty under section 271AAB(1)(a).

Conclusion:
The Tribunal upheld the CIT(A)'s decision to reduce the penalty from 30% to 10% under section 271AAB(1)(a), finding that the assessee met the necessary conditions. The Tribunal also confirmed the CIT(A)'s jurisdiction to modify the penalty under section 271AAB, emphasizing that the provisions of section 271AAB(1)(a) and 271AAB(1)(c) pertain to the same charge but differ in the quantum of penalty based on specific conditions. The Tribunal dismissed the appeals of both the revenue and the assessee, affirming the CIT(A)'s order.

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