2018 (11) TMI 1619 - AT - Income Tax

Penalty u/s 271AAB - Search u/s 132 - voluntarily disclosure by assessee - assessee has declared income in question to the tune of Rs. 75, 55, 392/- towards his shares on the basis of the statement recorded u/s 132(4) of the Act made by the family/ business head - whether no incriminating material on which the AO has shown his satisfaction for the purpose of imposition of penalty? - HELD THAT - In the absence of any reference to tangible material mere act of acquiesce of ad-hoc income u/s 132(4) of the Act cannot be described as undisclosed income for the purpose of imposition of penalty u/s 271AAA of the Act. The penalty herein was imposed in the amended provision u/s 271AAB of the Act. Needless to mention that the definition of undisclosed income under erstwhile Section 271AAA and Section 271AAB are identical. In that view of the matter the penalty imposed by AO confirmed by the first appellate authority without being supported by any incriminating material is devoid of any merit and the penalty is thus hereby deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of penalty levied under Section 271AAB of the Income Tax Act.
2. Definition and applicability of "undisclosed income" under Section 271AAB.
3. Procedural correctness in initiating penalty proceedings under Section 271AAB instead of Section 271AAA.
4. Validity of penalty based on ad-hoc income declaration without incriminating material.

Detailed Analysis:

1. Legality of Penalty Levied under Section 271AAB:
The appeals were filed by the assessee against the order confirming the penalty of Rs. 7,55,539/- levied under Section 271AAB of the Income Tax Act for the Assessment Year 2013-14. The penalty was upheld by the Commissioner of Income Tax (Appeals)-11, Ahmedabad, arising from the order passed by the Assistant Commissioner of Income Tax, Central Circle1, Rajkot. The penalty was imposed as 10% of the undisclosed income of Rs. 75,55,392/-.

2. Definition and Applicability of "Undisclosed Income" under Section 271AAB:
The core issue was whether the income declared by the assessee could be considered "undisclosed income" as per Section 271AAB. The assessee argued that the additional income of Rs. 75,55,392/- declared was on an ad-hoc basis to cover any discrepancies in the books of account and to avoid prolonged litigation. The income declared was not represented by any money, bullion, jewellery, or other valuable articles or things found during the search, nor was it based on any false entries in the books of account.

3. Procedural Correctness in Initiating Penalty Proceedings:
Initially, penalty proceedings were initiated under Section 271AAA, but later a corrigendum was issued to initiate proceedings under Section 271AAB. The assessee contended that no unaccounted money, asset, investment, or expenditure was recovered during the search, and the additional income was declared voluntarily by the family/business head to buy peace of mind.

4. Validity of Penalty Based on Ad-Hoc Income Declaration:
The Tribunal examined whether the penalty under Section 271AAB was justifiable. The Tribunal noted that the income declared by the assessee was accepted without any modification, and no incriminating material was found during the search. The Tribunal referred to a similar case decided by the Co-ordinate Bench, where it was held that in the absence of any reference to tangible material, mere acquiescence of ad-hoc income under Section 132(4) cannot be considered "undisclosed income" for the purpose of imposing a penalty under Section 271AAA or 271AAB.

Conclusion:
The Tribunal concluded that the penalty imposed was not justifiable as there was no incriminating material found during the search, and the income declared by the assessee was on an ad-hoc basis. The penalty of Rs. 7,55,539/- was deleted, and the appeals were allowed. The Tribunal emphasized that the imposition of penalty should not be an automatic consequence and must be based on proper application of mind and reference to tangible material.