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2016 (8) TMI 685 - AT - Income TaxPenalty levied by the AO u/s 271AAA - Held that - In the present case, it is an admitted fact that excess stock of gold & diamond amounting to ₹ 1,24,40,928/- and excess cash of ₹ 54,81,173/- were found which the assessee offered for taxation during the course of search in the statement recorded u/s 132(4) of the Act. The AO levied the penalty u/s 271AAA of the Act for the reason that the manner in which the undisclosed income was derived was not substantiated. In the present case, it is noticed from the statements of the partner of the assessee firm recorded u/s 132(4) of the Act during the course of search that no specific query was raised relating to the manner in which the undisclosed income was derived by the assessee. On the contrary, the assessee explained that the earning of undisclosed income had been generated from the sale of unaccounted/undisclosed jewellery. The assessee was engaged in bullion trading and gold & diamond jewellery, therefore, the source of the unaccounted excess cash, gold & diamond jewellery was the business activity of the assessee. In the present case, no specific query was raised by the authorized officers during the course of recording of statement u/s 132(4) of the Act about the manner in which the undisclosed income had been derived and about its substantiation. The said query was raised during the course of recording the statement of Sh. Surender Kumar Jain Son of Late Sh. Suraj Parkash Jain partner of the assessee on 21.07.2011, copy of the said statement is placed at page nos. 5 to 7 of the assessee s paper book. In that statement no query was raised relating to the manner in which the undisclosed income was earned. Therefore, in the absence of any such query raised by the authorized person, the AO was not justified in taking the adverse view and imposing the penalty u/s 271AAA of the Act - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty levied under Section 271AAA of the Income Tax Act, 1961. 2. Validity of the assessee's compliance with Section 271AAA(2) criteria. 3. Adequacy of the assessee's disclosure of the manner of deriving undisclosed income. 4. Applicability of immunity from penalty under Section 271AAA. Issue-Wise Detailed Analysis: 1. Confirmation of Penalty Levied Under Section 271AAA: The primary issue in this appeal is the confirmation of the penalty levied by the Assessing Officer (AO) under Section 271AAA of the Income Tax Act, 1961. The AO initiated penalty proceedings on the grounds that the undisclosed income would not have been detected without the search operation. The penalty amounting to ?17,92,210/- was imposed, which was subsequently upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Validity of the Assessee's Compliance with Section 271AAA(2) Criteria: The assessee argued that the conditions for exoneration from penalty under Section 271AAA(2) were satisfied. The conditions include: - Admitting the undisclosed income in a statement under Section 132(4). - Specifying and substantiating the manner in which the income was derived. - Paying the tax along with interest on the undisclosed income. The assessee claimed that these conditions were met as the undisclosed income was declared during the search, and taxes along with interest were duly paid. The CIT(A), however, found that the assessee failed to specify the manner in which the income was derived, which is a critical requirement under Section 271AAA(2). 3. Adequacy of the Assessee's Disclosure of the Manner of Deriving Undisclosed Income: The AO and CIT(A) both emphasized that the assessee did not adequately specify the manner of deriving the undisclosed income. The AO noted that the assessee's statement that the income was from "out of books transactions of sales and purchase of bullion/jewelry" was too vague to meet the statutory requirements. The AO argued that the assessee must at least state the immediate source and transactions that led to the undisclosed income, which was not done in this case. 4. Applicability of Immunity from Penalty Under Section 271AAA: The assessee relied on various judicial precedents to argue that the penalty should not be imposed if the conditions under Section 271AAA(2) are met. The assessee cited cases such as Pradip Kumar Sonthlia vs. Department of Income Tax and others, where penalties were deleted under similar circumstances. However, the CIT(A) referred to the Supreme Court's decision in MAK Data Pvt. Ltd. vs. CIT-II, which held that surrender of income is not voluntary if made in view of detection by the AO. The CIT(A) concluded that the assessee's disclosure was not voluntary and upheld the penalty. Tribunal's Findings: The Tribunal observed that during the course of the search, no specific query was raised regarding the manner in which the undisclosed income was derived. The Tribunal noted that the assessee had stated the income was from unaccounted sales of jewelry, which aligns with the business activities of the assessee. The Tribunal found that the AO did not ask for further substantiation during the search or assessment proceedings. Consequently, the Tribunal held that the AO was not justified in imposing the penalty under Section 271AAA and allowed the appeal, deleting the penalty. Conclusion: The Tribunal concluded that the penalty under Section 271AAA was not justified as the assessee had declared the undisclosed income during the search, paid the due taxes, and the AO did not raise specific queries about the manner of deriving the income. Therefore, the appeal of the assessee was allowed, and the penalty was deleted.
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