2016 (4) TMI 711 - AT - Income Tax

Penalty u/s 271AAA - Held that - There should be some undisclosed income in the form of money, bullion etc or any entry in the books of account or other documents and the same should be found in the course of search. It is undisputed that nothing incriminating was found during the course of search by the search party with regard to the aspect of share capital and loans which were ultimately offered to tax by the assessee in the sum of ₹ 1.75 crores. Hence it goes to prove beyond doubt that the offer of undisclosed income of ₹ 1.75 crores was made voluntarily by the assessee without any detection by the department and accordingly the argument of the Learned DR that but for the search, this income would not have been offered does not hold any water and deserves to be dismissed. It is already well settled that though the income is not disclosed in the return filed u/s 139(1) of the Act, but duly disclosed in the petition filed u/s 132(4) of the Act followed by the filing of return in response to section 153A of the Act and taxes paid thereon, then the assessee would not be invited with the levy of penalty. We find that if the argument of the Learned DR that since the assessee had not offered the said income in return filed u/s 139(1) of the Act thereby levy of penalty is in order is to be accepted, then it would make the immunity provisions contemplated u/s 271AAA(2) of the Act redundant. The legislature in its wisdom had given a thoughtful consideration on the facts and circumstances under which the assessee would not be invited with the levy of penalty pursuant to the search subject to fulfillment of certain conditions stipulated in the said section . Hence in view of the above, we hold that the levy of penalty is not automatic and assessee is clearly entitled for immunity from levy of penalty. - Decided in favour of assessee

Issues Involved:
1. Levy of penalty under Section 271AAA of the Income Tax Act, 1961.
2. Qualification of additional income disclosed under Section 132(4) as undisclosed income.
3. Fulfillment of conditions under Clause (ii) of Sub-section (2) of Section 271AAA by the assessee.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271AAA:
The primary issue was whether the penalty under Section 271AAA could be levied on the assessee. A search and seizure operation was conducted on the assessee’s business premises, leading to the discovery of various books, documents, and cash. The assessee subsequently filed a return of income in response to a notice issued under Section 153A, disclosing additional income of ?1,75,00,000 for the assessment year 2009-10. The Assessing Officer (AO) initiated penalty proceedings under Section 271AAA, arguing that the additional disclosure was not included in the return filed under Section 139(1) but only in the return filed under Section 153A. The AO contended that the additional income disclosure was a result of the search and not a voluntary act by the assessee.

2. Qualification of Additional Income as Undisclosed Income:
The AO argued that the additional income disclosed by the assessee did not qualify as undisclosed income within the meaning of Section 271AAA. The assessee countered that the disclosure was made to avoid long litigation and to buy peace, as they could not produce all relevant documentation immediately. It was further argued that the additional income disclosed did not represent any undisclosed asset or unrecorded entry in the books of accounts, thus falling outside the scope of "undisclosed income" as defined in Section 271AAA.

3. Fulfillment of Conditions under Clause (ii) of Sub-section (2) of Section 271AAA:
The assessee contended that they had met all the conditions stipulated in Section 271AAA(2) for immunity from penalty. Specifically, they argued that the disclosure was made voluntarily, the additional income was included in the return filed under Section 153A, and taxes were paid thereon. The AO, however, argued that the assessee had not substantiated the manner in which the undisclosed income was derived, which is a condition for immunity under Section 271AAA(2).

Tribunal's Findings:
1. Levy of Penalty under Section 271AAA: The Tribunal agreed with the assessee that the return under Section 139(1) was filed before the date of the disclosure petition under Section 132(4). Therefore, the assessee could not be expected to include the additional income in the return filed under Section 139(1). The Tribunal noted that the additional income was disclosed in the return filed under Section 153A and taxes were paid thereon.

2. Qualification of Additional Income as Undisclosed Income: The Tribunal found that the additional income pertained to the amalgamating company, and it was unfair to expect the amalgamated company to substantiate the manner in which the undisclosed income was derived. The Tribunal held that the additional income did not fall within the definition of "undisclosed income" as it was not found during the course of the search but was voluntarily disclosed by the assessee.

3. Fulfillment of Conditions under Clause (ii) of Sub-section (2) of Section 271AAA: The Tribunal concluded that the assessee met all the conditions for immunity from penalty under Section 271AAA(2). The additional income was disclosed voluntarily, included in the return filed under Section 153A, and taxes were paid. The Tribunal emphasized that the disclosure was not based on any incriminating materials found during the search.

Conclusion:
The Tribunal upheld the decision of the CIT(A) to delete the penalty imposed under Section 271AAA, concluding that the assessee fulfilled all the conditions for immunity from penalty. The appeal by the revenue was dismissed.

Order:
The appeal of the revenue is dismissed. Order pronounced in the open court on 15-4-2016.

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