2016 (8) TMI 864 - AT - Income Tax

Penalty levied u/s 271AAA - income of the assessee treated as Unaccounted investment - Held that - Since the penalty u/s 271AAA has been levied on identical set of facts in both the cases, we prefer to dispose both the appeals instead of sending the appeal of Mrs. Peidade Perinchery to the file of the Ld CIT(A). According to the Ld CIT(A), these assesses have not satisfied the conditions specified in sec. 271AAA with regard to the payment of taxes, i.e, the above said section specifies that the assessee should pay the tax together with interest, if any, in respect of undisclosed income. The facts of the case would show that the undisclosed income declared by the assessee consisted of investment in shares, mutual funds and Government securities. The cash and bank balances available with the assessee were not sufficient to pay the taxes on undisclosed income. Hence the assessee has filed an application with the AO, requesting him to encash the Kisan Vikas Patras and to adjust the proceeds thereof against the tax payable by the assessee on the disclosed income. It is a settled proposition of law that a person cannot be forced to do impossibility. Since the assessee was not having liquid funds to pay the taxes, he had no other option, but to encash the securities. Accordingly, he has requested the AO. In our view, the request so made by the assessee and subsequent encashment of the securities satisfies the conditions prescribed in sec. 271AAA of the Act for payment of tax. Accordingly, we modify the order of Ld CIT(A) and hold that the assessees have satisfied the condition relating to payment of tax also. Accordingly we direct the AO to delete the penalty levied u/s 271AAA of the Act in both the cases under consideration. - Decided against revenue.

Summary

Issues Involved:
1. Addition of ?67.46 lakhs as "Unaccounted investment."
2. Exclusion of Kisan Vikas Patra (KVP) interest and LIC refund from total income.
3. Penalty levied under Section 271AAA of the Income Tax Act.

Detailed Analysis:

1. Addition of ?67.46 lakhs as "Unaccounted investment":
The assessees were subjected to a search under Section 132 of the Income Tax Act on 18.12.2008, revealing large-scale investments totaling ?7.55 crores. The assessee, Shri Samson Perinchery, agreed to offer this amount as income. However, the returns filed under Section 153A declared only ?6.88 crores, resulting in a deficit of ?67.46 lakhs. The assessee contended that the income declared in the returns should cover the total investments, including the additional income declared for AY 2002-03 and AY 2008-09. The AO was not convinced and assessed the difference as "Unaccounted investment." Upon appeal, the CIT(A) deleted this addition, observing that the income declared under Section 153A includes the income originally filed under Section 139(1). The Tribunal upheld the CIT(A)'s decision, stating that the aggregate income disclosed in the returns should be compared with the investments found during the search. The AO should give credit for the income already declared, and only unexplained investments should be added.

2. Exclusion of Kisan Vikas Patra (KVP) interest and LIC refund from total income:
The assessee argued that the interest income from KVP had been offered on an estimated basis and exceeded the actual amount, and the LIC refund, a capital receipt, was wrongly offered as income. The Tribunal noted that tax should be collected only on real income and capital receipts cannot be taxed without legal authority. These contentions were raised for the first time before the Tribunal, which restored the issues to the AO for examination and appropriate decision.

3. Penalty levied under Section 271AAA of the Income Tax Act:
The AO levied penalties on the grounds that the assessees did not specify the manner of generating undisclosed income and failed to pay taxes on the additional income. The CIT(A) found that the assessee had stated his sources of income as brokerage and commission, satisfying one condition. However, the payment of taxes condition was not met as the assessee requested the AO to encash KVPs, which was insufficient. The Tribunal noted that the assessees did not have liquid funds to pay the taxes and had requested the AO to encash securities. The Tribunal held that this request and subsequent encashment satisfied the conditions for payment of tax under Section 271AAA, and directed the AO to delete the penalties.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeals, upholding the deletion of the addition of ?67.46 lakhs, restoring the issues of KVP interest and LIC refund to the AO, and directing the deletion of penalties under Section 271AAA.