2018 (12) TMI 1762 - AT - Income Tax

Penalty u/s 271AAAB - undisclosed income - income surrendered at the time of search - HELD THAT - In this case there was an existing tax liability on the assessee to pay the taxes and, therefore, the AO should have adjusted the tax from the seized assets, hence, it cannot be said that the assessee has not complied the aforesaid requirement of provisions of section 271AAAB. Even otherwise, the assessee has also explained that it was not possessed of sufficient funds and the moment it got possessed of funds, it filed the revised return on 12.2.2014 and paid due taxes. So far as the contention of the assessee that the aforesaid surrender can not / does not fall within the definition of the undisclosed income, as defined under the provisions of section 271AAB is concerned, we do not agree with the above submissions. The assessee has duly made a statement that the aforesaid disclosure was on account of unrecorded transactions / discrepancies in the accounts and on account of certain loose papers found during the search action. Disclosure, in our view, falls within the scope of undisclosed income as provided under Explanation (C) to section 271AAB. We hold that the case of the assessee does not fall under the provisions of section 271AAB(3) but under the provisions of section 271AAB(1) and minimum penalty@ 10% of the undisclosed income is leviable - Appeal of the assessee is treated as partly allowed.

Summary

Issues:
Levy of penalty under section 271AAB of the Income Tax Act on the assessee for undisclosed income surrendered during a search action.

Detailed Analysis:

1. Background of the Issue:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) confirming the penalty levied by the Assessing Officer under section 271AAB of the Income Tax Act. The assessee had surrendered an amount of ?4 crores during a search action under section 132 of the Act due to discrepancies in accounts and unrecorded business transactions.

2. Assessee's Contentions:
The assessee argued that the surrendered income was to address discrepancies and was duly declared in the original return of income. The assessee requested the tax liability to be adjusted from seized assets as it lacked funds initially. The revised return was filed within the specified time, and taxes were paid. The assessee contended that the penalty should be levied at 10% of the undisclosed income under section 271AAB(1) instead of 30% under section 271AAB(3).

3. Revenue's Stand:
The Revenue relied on the findings of the lower authorities supporting the penalty levied under section 271AAB(3) at 30%.

4. Tribunal's Decision:
The Tribunal analyzed the case and noted that the surrendered income was related to unrecorded business income and discrepancies. The provisions of section 271AAB were examined, which specify penalties based on the manner of disclosure and payment of taxes. The Tribunal found the case to fall under section 271AAB(1) rather than section 271AAB(3) and imposed a penalty of 10% of the undisclosed income. The Tribunal held that the assessee had complied with the requirements of the Act regarding disclosure and payment of taxes.

5. Conclusion:
The Tribunal partially allowed the appeal, ruling in favor of the assessee and reducing the penalty to 10% of the undisclosed income. The judgment clarified the application of section 271AAB and emphasized the importance of timely disclosure and payment of taxes to avoid higher penalties.