2016 (9) TMI 643 - AT - Income Tax

Penalty u/s 271AAA - Department has accepted the quantum of surrender made by the assessee in his statement recorded u/s 132(4) of the Act. The taxes due thereon have also been paid - Held that - On having gone through the queries raised while recording the statement of the assessee u/s 132(4) of the Act, it is evident that nowhere has the Authorized Officer asked a specific question with regard to the manner in which the undisclosed income has been derived. Thus in absence of query raised by the Authorized Officer during the course of recording of a statement u/s 132(4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted with a very minor variation of ₹ 49,250/- and also the due tax thereon has been paid by the assessee. As the case of DCIT vs. Pioneer Marbles & Interiors (P) Ltd. (2012 (2) TMI 261 - ITAT, KOLKATA ) for confirming the penalty is misplaced as in this case the coordinate Kolkata Bench has held that where the entire tax and interest has been duly paid well within the time-limit for payment of notice of demand u/s 156 and well before the penalty proceedings were concluded, the assessee could not be denied immunity u/s 271AAA(2) only because the entire tax, along with interest, was not paid before filing of income tax return or, for that purpose, before concluding the assessment proceedings. We, thus, set aside the order of the ld. CIT (Appeals) and direct the AO to delete the penalty - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalty imposed under Section 271AAA of the Income Tax Act, 1961.
2. Compliance with conditions under Section 271AAA(2) for immunity from penalty.
3. Assessment of the manner in which undisclosed income was derived and substantiated.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty Imposed under Section 271AAA:
The appeal concerns the penalty of ?5,804,925/- imposed under Section 271AAA of the Income Tax Act, 1961, confirmed by the Commissioner of Income Tax (Appeals). The penalty was related to undisclosed income surrendered by the assessee during a search operation conducted on March 5-6, 2009. The assessee's return declared an income of ?66,359,720/-, with a minor addition of ?49,250/- due to an arithmetical error. The penalty proceedings were initiated for undisclosed income related to advances for land and share capital.

2. Compliance with Conditions under Section 271AAA(2) for Immunity from Penalty:
The assessee argued that he had fulfilled all conditions under Section 271AAA(2), including surrendering undisclosed income, specifying the manner of derivation, substantiating the manner, and paying the taxes. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) held that the assessee failed to substantiate the manner in which the undisclosed income was derived, as required by Section 271AAA(2)(ii). The AO imposed penalties of ?45.50 lacs and ?1,254,925/- for advances and share capital, respectively, due to the lack of documentary evidence.

3. Assessment of the Manner in which Undisclosed Income was Derived and Substantiated:
The Tribunal examined the assessee's statement recorded under Section 132(4), where he surrendered the undisclosed income and explained the entries related to share applications and advances for land. The Tribunal noted that the Authorized Officer did not ask specific questions regarding the manner of derivation during the statement recording. The Tribunal referenced similar cases and legal precedents, including decisions by the Hon'ble Supreme Court and High Courts, which emphasized that if the Authorized Officer does not raise specific queries, the assessee's general statements should suffice for compliance.

Conclusion:
The Tribunal found that the Department accepted the quantum of surrendered income and the taxes paid. In the absence of specific queries by the Authorized Officer regarding the manner of derivation, the Tribunal held that the AO was not justified in imposing the penalty. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the AO to delete the penalty of ?5,804,925/- imposed under Section 271AAA.

Final Judgment:
The assessee's appeal was allowed, and the penalty imposed under Section 271AAA was deleted. The order was pronounced in the open court on August 5, 2016.