2019 (11) TMI 1606 - AT - Income Tax

Penalty u/s 271AAB - Investigating Officers had found loose documents which contained entries with regard to the commodity dealings of the appellant - HELD THAT - In the relevant previous year the appellant had conducted non-systematic trades in commodities and therefore the income derived from such transactions was offered to tax in his return of income under the head Income from Other Sources . AO has also accepted that such income was assessable under the head Other Sources and assessed it accordingly. In the circumstances when the assessee did not carry on business or profession and was therefore not required to maintain such books of accounts then he was required to draw up his statement of income with reference to other documents maintained by him in regular course. The transactions which yielded income was maintained in the documents records which was found seized by the Investigating Officer and it is from these documents only the AO was able to deduce the true income and expenditure of the assessee. In The documents with reference to which income was assessed in the appellant s hands could not be said to be incriminating in nature. The case of the appellant fell within in the second limb i.e. or other documents maintained in the normal course relating to the AY 2013-14 as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section. In my considered view therefore the income offered by the appellant not fall in the ambit of undisclosed income as defined in Sec. 271AAB. Thus sufficient merit in the contention of the Ld. AR that the entries with reference as found in a regular document maintained in normal course of business and in that view of the matter the Sum of Rs.l, 99, 54, l12/- does not come within the meaning of undisclosed income as mentioned in Section 271AAB of the Act. The penalty of 59, 86, 234/- levied by the Ld. AO u/s 271AAB is hence cancelled. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of penalty under Section 271AAB of the Income Tax Act, 1961.
2. Definition and scope of "undisclosed income" under Section 271AAB.
3. Validity of the penalty proceedings and the manner of deriving the income.

Issue-wise Detailed Analysis:

1. Applicability of Penalty under Section 271AAB:
The Revenue's appeals sought to reverse the CIT(A)'s decision to delete penalties imposed under Section 271AAB amounting to ?59,86,235/- and ?57,00,364/- for the assessment years 2013-14 and 2014-15, respectively. The penalties were imposed by the Assessing Officer (AO) based on the income disclosed by the assessee during a search operation, which the AO considered as "undisclosed income."

2. Definition and Scope of "Undisclosed Income" under Section 271AAB:
The CIT(A) examined the term "undisclosed income" as defined in Explanation (c) to Section 271AAB. The definition includes income represented by money, bullion, jewellery, or other valuable articles not recorded in the books of account or other documents maintained in the normal course of business. The CIT(A) found that the income of ?1,99,54,112/- did not represent any unexplained money, bullion, jewellery, or other valuable articles. It was derived from commodity dealings and recorded in documents maintained in the normal course of business.

The CIT(A) emphasized that the term "undisclosed income" is specifically defined for the purposes of Section 271AAB and is not borrowed from other sections of the Act. The case of the assessee fell within the second limb of the definition, i.e., "other documents" maintained in the normal course of business. The CIT(A) concluded that the income disclosed by the assessee did not fall within the ambit of "undisclosed income" as defined in Section 271AAB.

3. Validity of the Penalty Proceedings and the Manner of Deriving the Income:
The CIT(A) noted that the AO did not provide proper notice in the prescribed manner for initiating penalty proceedings. Furthermore, the CIT(A) observed that the AO accepted the income disclosed by the assessee under the head "Income from Other Sources" and assessed it accordingly. The CIT(A) found that the documents seized during the search were not "incriminating" in nature and were maintained in the normal course of business. Therefore, the penalty imposed by the AO was not justified.

The CIT(A) also referred to the jurisdictional ITAT, Kolkata's decision in the case of DCIT vs. Pradeep Kumar Agarwal, where it was held that income recorded in "other documents" maintained in the normal course of business does not fall under "undisclosed income" as defined in Section 271AAB. Hence, no penalty could be levied against the assessee.

Conclusion:
The CIT(A)'s detailed discussion concluded that the assessee's income was duly recorded in the books of account maintained in the normal course of business. Therefore, the AO's penal action did not satisfy the threshold requirement of "undisclosed income." The CIT(A) rightly deleted the penalties for both assessment years. Consequently, the Revenue's appeals were dismissed.

Order:
The appeals filed by the Revenue were dismissed, and the order was pronounced in the open court on 15/11/2019.