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2019 (2) TMI 1651 - AT - Income TaxPenalty u/s 271AAB - disclosure of income in his statement u/s 132(4) - as per revenue levy of penalty as mandatory and automatic - HELD THAT - For saying so we note that if the intention of the Legislature to levy the penalty was mandatory and automatic then the right of appeal u/s 246A would not have been provided for by the Legislature against the order of penalty passed u/s 271AAB. The choice of the expression may and not shall in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the AO but the AO was given discretion in the matter of levy of penalty. Our foregoing view finds support in the decision of the coordinate Bench of the Tribunal at Vishakhapatnam in the case of ACIT Vs Marvel Associates 2018 (3) TMI 946 - ITAT VISAKHAPATNAM which inturn relied on Hon ble Andhra Pradesh High Court ratio in Radha Krishna Vihar 2018 (2) TMI 1595 - TELANGANA AND ANDHRA PRADESH HIGH COURT We further note that the penalty leviable u/s 271AAB must have necessary and proximate nexus with discovery of undisclosed income in the course or as a result of search. The expression undisclosed income for the purposes of levy of penalty u/s 271AAB has a definite and specific meaning and the said word or expression does not have any loose or colloquial meaning. Unless and until income offered to tax by an assessee comes within the mischief of undisclosed income and that too of the specified previous year it is not open for the AO to invoke provisions of Section 271AAB - Decided in favour of assessee.
Issues Involved:
1. Legality of the penalty levied under Section 271AAB of the Income-tax Act, 1961. 2. Definition and scope of "undisclosed income" under Section 271AAB. 3. Discretionary vs. mandatory nature of penalty under Section 271AAB. 4. Adequacy of evidence for imposing penalty under Section 271AAB. 5. Judicial precedents and their applicability to the case. Issue-Wise Analysis: 1. Legality of the Penalty Levied under Section 271AAB: The Revenue challenged the order of the CIT(A) that deleted the penalty levied by the AO under Section 271AAB of the Income-tax Act, 1961. The AO had imposed a penalty of ?6,90,00,000/- on the additional income of ?69,00,00,000/- disclosed by the assessee during the search operation. The CIT(A) deleted the penalty, observing that the income was declared voluntarily by the assessee without any incriminating evidence being found during the search. 2. Definition and Scope of "Undisclosed Income" under Section 271AAB: The term "undisclosed income" is defined in Explanation (c) to Section 271AAB. The CIT(A) found that the income declared by the assessee did not qualify as "undisclosed income" as it was not represented by any assets, documents, or papers found during the search. The Tribunal upheld this view, noting that the income offered did not fall within the specified sub-clauses of the definition of "undisclosed income." 3. Discretionary vs. Mandatory Nature of Penalty under Section 271AAB: The AO argued that the provisions of Section 271AAB were mandatory and automatic, meaning that once an income was disclosed under Section 132(4), the penalty had to be levied. The CIT(A) and the Tribunal disagreed, emphasizing that the word "may" in Section 271AAB indicates discretion rather than compulsion. The Tribunal cited several judicial precedents, including the decisions of the ITAT in Marvel Associates and the Hon'ble Andhra Pradesh High Court in Radha Krishna Vihar, to support the view that the levy of penalty under Section 271AAB is discretionary. 4. Adequacy of Evidence for Imposing Penalty under Section 271AAB: The AO contended that the income of ?69 crores was related to seized documents identified as RASHMI/1 to RASHMI/5 and RCPL/1 to RCPL/7. However, the CIT(A) and the Tribunal found that there was no incriminating evidence or documents linking the disclosed income to these seized materials. The Tribunal noted that the AO had not demonstrated that the income was represented by any assets or entries found during the search, which is a prerequisite for the application of Section 271AAB. 5. Judicial Precedents and Their Applicability: The Tribunal referred to multiple judicial precedents to support its decision. It cited the Supreme Court's ruling in Sudarshan Silk & Sarees, which held that penalty cannot be levied solely based on an assessee's statement without corroborating evidence. The Tribunal also referred to the ITAT's decisions in Marvel Associates and Kanwar Sain Gupta, which held that the penalty under Section 271AAB is not automatic and must be based on concrete evidence of undisclosed income. The Tribunal distinguished the facts of the present case from the Allahabad High Court's decision in Sandeep Chandak, noting that in the latter case, the assessee had specified the manner of deriving the income, which was not the situation here. Conclusion: The Tribunal upheld the CIT(A)'s order deleting the penalty levied under Section 271AAB, concluding that the income disclosed by the assessee did not qualify as "undisclosed income" and that the penalty provisions under Section 271AAB are discretionary rather than mandatory. The Tribunal emphasized the need for concrete evidence linking the disclosed income to assets or entries found during the search to justify the imposition of penalty under Section 271AAB.
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