2016 (9) TMI 913 - AT - Income Tax

Penalty 271AAA(2) - disclosure of undisclosed income - money found during search u/s 132 - Held that - As per the provision to avoid penalty assessee had to admit the undisclosed income and specify the manner in which income was derived he has to substantiate the manner in which income was derived and pay tax together with interest in respect of the undisclosed income. In the present case the assessee had disclosed the income and specified as well as disclosed the manner in which the undisclosed income was arrived and also paid the tax with interest. The cash was very much with the department as can be seen from the assessment order. He has fulfilled the requirement as per section 271AAA(2) of the Act. Even though in the Lok Adalat order there is no mention about the details of the compromise the circumstantial evidence points to the claim of the assessee we have to consider the submissions of the assessee in this case. Accordingly we are of the view that the assessee has fulfilled the requirement of sub-section (2) of section 271AAA. Hence the penalty levied u/s 271AAA is accordingly deleted. - Decided in favour of assessee

Summary

Issues:
Penalty under section 271AAA for undisclosed income derived from a compromise agreement.

Analysis:
The case involved the imposition of a penalty under section 271AAA of the Income Tax Act on the assessee for undisclosed income derived from a compromise agreement. The assessee was apprehended with cash by the police, which was later requisitioned by the Income Tax Department. The Assessing Officer (AO) initiated penalty proceedings as the assessee failed to substantiate the source of the undisclosed income. The AO charged a penalty of 10% on the undisclosed income, which was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee appealed the decision before the Appellate Tribunal.

The Appellate Tribunal considered the submissions of both parties and examined the provisions of section 271AAA(2) of the Act. The Tribunal noted that the assessee had admitted the undisclosed income, specified the manner in which it was derived, and paid the tax with interest as required by the section. The Tribunal found that the assessee had fulfilled the conditions laid down in section 271AAA(2) and had substantiated the manner in which the income was derived. Even though the Lok Adalat order did not provide details of the compromise, the Tribunal considered the circumstantial evidence and accepted the assessee's claim. Consequently, the Tribunal concluded that the penalty levied under section 271AAA was unwarranted and deleted the penalty.

In summary, the Appellate Tribunal allowed the appeal of the assessee, overturning the penalty imposed under section 271AAA for undisclosed income derived from a compromise agreement. The Tribunal found that the assessee had met the conditions specified in the Act by admitting the income, specifying its source, and paying the necessary tax and interest. The Tribunal emphasized the importance of substantiating the manner in which undisclosed income is derived to avoid penalties under the relevant provisions of the Income Tax Act.