2018 (7) TMI 2054 - HC - Income Tax

Penalty u/s 271AAA - assessee did not disclose the source of undisclosed income unearthed at the time of search - HELD THAT - CIT(A) deleted the said penalty levied under Section 271AAA of the Income Tax Act which has been confirmed by the learned Tribunal after following the decision of the Division Bench of this Court in the case of Principal Commissioner of Income Tax Vs. Mukeshbhai Ramalal Prajapati 2017 (7) TMI 966 - GUJARAT HIGH COURT Revenue failed to question the assessee while recording his statement under section 132 (4) of the Act as regards the manner of deriving such income the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of Commissioner of Income Tax vs. Mahendra C.Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT would hold the field even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assesse s this requirement the assessee s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails the question of denying the benefit of no penalty would not arise. No substantial question of law.

Summary

Issues:
Challenge to deletion of penalty under Section 271AAA of the Income Tax Act by the learned Tribunal.

Analysis:
The case involves an appeal against the deletion of a penalty under Section 271AAA of the Income Tax Act by the learned Tribunal. The Assessing Officer imposed the penalty as the assessee did not disclose the source of undisclosed income found during a search. The Assessing Officer believed that for an exception under Section 271AAA, the assessee must admit the undisclosed income during the search and specify the manner in which it was derived. Since the assessee did not disclose this, the penalty was levied.

The learned CIT(A) deleted the penalty, a decision upheld by the learned Tribunal. This decision was based on a previous ruling by the Division Bench in a similar case. The court observed that the requirement to substantiate the manner in which the undisclosed income was derived is consequential to the base requirement of specifying the manner. If the revenue fails to question the assessee during the statement recording stage about the manner of deriving the income, they cannot later demand substantiation. The responsibility to substantiate arises only when the assessee specifies the manner of deriving the income during the statement recording.

In light of the Division Bench's decision and the principles outlined, the High Court found no error in the Tribunal's decision. It was concluded that no substantial question of law arose, and the Tax Appeal was dismissed accordingly.