2016 (12) TMI 1352 - AT - Income Tax

Levy penalty u/s 271AAA - undisclosed income as represented by the seized papers was duly admitted in the statements recorded u/s 132(4) by assessee - Held that - In respect of undisclosed income of ₹ 1,16,30,103/- admitted by the appellant and offered to tax in the return of income, the appellant is eligible for immunity from penalty in terms of section 271AAA(2) of the Act as he has fulfilled all the conditions stated therein. In respect of penalty imposed qua the addition of ₹ 3,00,000/-, the said addition has been deleted except for an amount of ₹ 50,000 on an estimated basis by the Coordinate Bench in the quantum proceedings. The penalty which thus survives relates to estimated addition of ₹ 50,000 which has rightly been deleted by the ld CIT(A). We do not see any reason to interfere with the order of ld. CIT(A), which is hereby upheld. - Decided against revenue

Issues Involved:

1. Deletion of penalty under section 271AAA of the Income Tax Act, 1961.
2. Substantiation of the manner in which undisclosed income was derived.
3. Penalty on additional undisclosed income declared by the assessee.
4. Penalty on unexplained investment in furniture and fixtures.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271AAA:

The primary issue is whether the CIT(A) was justified in deleting the penalty of ?11,93,110 imposed under section 271AAA. The Revenue argued that the assessee failed to specify the manner in which the undisclosed income of ?1,19,31,102 was derived. However, the CIT(A) and ITAT found that the assessee had admitted the additional income, explained the mode and manner of its derivation, and paid the due taxes, thus fulfilling the conditions laid down in section 271AAA(2). The ITAT upheld the CIT(A)'s order, stating that the penalty could not be levied as the assessee had met all the necessary conditions for immunity under section 271AAA.

2. Substantiation of the Manner in Which Undisclosed Income Was Derived:

The Revenue contended that the assessee did not substantiate the manner in which the undisclosed income was earned. The AO noted discrepancies in the return filed by the assessee, such as the absence of a profit and loss account. However, the assessee argued that the statements recorded under section 132(4) during the search provided a detailed explanation of the mode and manner of the income's derivation. The ITAT agreed with the assessee, noting that the statements of the assessee and his son, recorded during the search, sufficiently explained the manner of earning the undisclosed income. The ITAT concluded that the AO's observations were incorrect and that the assessee had indeed substantiated the manner of earning the income.

3. Penalty on Additional Undisclosed Income Declared by the Assessee:

The assessee declared additional undisclosed income of ?1,16,31,103 in the return filed and paid the due taxes. The AO imposed a penalty, arguing that the assessee failed to specify and substantiate the manner of earning this income. However, the ITAT found that the assessee had admitted the income during the search and provided a detailed explanation of its derivation. The ITAT noted that the AO's requirement for documentary evidence was not mandated by section 271AAA(2), which only required the assessee to admit the income and explain its derivation in the statements recorded under section 132(4). As the assessee had fulfilled these conditions, the ITAT upheld the CIT(A)'s decision to delete the penalty.

4. Penalty on Unexplained Investment in Furniture and Fixtures:

The AO made an estimated addition of ?5,00,000 for unexplained investment in furniture and fixtures, which was reduced to ?50,000 by the ITAT. The ITAT found that the addition was made on an ad hoc basis without proper valuation. The ITAT noted that the assessee had made sufficient withdrawals in preceding years and had included ?1.00 crore as investment in various items in the fund flow statement. The ITAT concluded that the penalty could not be imposed on an estimated addition, especially when the assessee had already disclosed significant investments. The CIT(A) and ITAT both held that the penalty under section 271AAA was not justified for this estimated addition.

Conclusion:

The ITAT upheld the CIT(A)'s order, deleting the penalty of ?11,93,110 imposed under section 271AAA. The ITAT found that the assessee had fulfilled all conditions for immunity under section 271AAA(2) by admitting the undisclosed income, explaining its derivation, and paying the due taxes. The ITAT also found that the penalty could not be imposed on the estimated addition for unexplained investment in furniture and fixtures. The appeal filed by the Revenue was dismissed.

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