2017 (5) TMI 1654 - AT - Income Tax

Penalty levied u/s 271AAA - assessee makes declaration of the undisclosed income in the statement recorded u/s 132(4) admitting the undisclosed income - assessee has not specified the manner in which such income has been arrived as well as not substantiated the manner of earning such income - Held that - It is not in dispute here that the assessee has admitted in his statement u/s 132(4) of the Act during the course of search and paid due tax thereon. It is also an uncontroverted facts that assessee has never been asked to substantiate the undisclosed income declared. Assessee has categorically denied and that he has been asked to substantiate the manner of earning undisclosed income and unless asked assessee did not have any opportunity to explain it. Revenue also could not explain that specific question was asked and assessee did not furnish the answer. The condition regarding specifying and substantiating the manner in which undisclosed income has been earned is always difficult for the assessee for obvious reason that no records of such income are kept in a meticulous manner. Generally, no person usually keeps the evidences of undisclosed income which has not been recorded in the regular books of account. The Hon ble Gujarat High Court in CIT Vs. Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT has held that assessee having declared the value of diamonds in his statement u/s 132(4) and paid due tax thereon, he was entitled to immunity from penalty according to explanation 5 to section 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271AAA of the Income Tax Act, 1961 for undisclosed income.

Analysis:
1. The assessee surrendered a significant amount of undisclosed income during a search and seizure operation. The undisclosed income was related to renovation, construction work, and cash advances. The Assessing Officer initiated penalty proceedings under section 271AAA for not specifying the manner in which the income was earned.

2. The Assessing Officer and the CIT (A) upheld the penalty, stating that the assessee failed to substantiate the manner of earning the undisclosed income. The CIT (A) confirmed the penalty, leading the assessee to appeal to the ITAT New Delhi.

3. The ITAT considered the provisions of section 271AAA, which require the assessee to admit undisclosed income, specify how it was derived, substantiate the manner of earning, and pay taxes on it to avail immunity from penalty. The ITAT noted that the assessee admitted the undisclosed income and paid due taxes but did not specify or substantiate the manner of earning it.

4. The ITAT observed that the assessee was not asked to substantiate the undisclosed income during the statement recorded under section 132(4) of the Act. The ITAT referred to various legal precedents where immunity from penalty was granted when the assessee declared the undisclosed income, paid taxes, but did not specify the manner of earning it.

5. The ITAT disagreed with the CIT (A) and directed the Assessing Officer to delete the penalty under section 271AAA. The ITAT emphasized that the requirement to specify and substantiate the manner of earning undisclosed income is challenging for the assessee, especially when such income is not maintained in regular books of account.

6. The ITAT distinguished a previous decision cited by the Departmental Representative, highlighting that the cases referred to by the assessee favored immunity from penalty in similar circumstances. The ITAT, based on the facts and legal precedents, allowed the appeal of the assessee and reversed the penalty imposed under section 271AAA.

This detailed analysis of the judgment provides insights into the legal interpretation and application of section 271AAA of the Income Tax Act, emphasizing the importance of complying with the specified requirements to avoid penalties for undisclosed income.