2017 (1) TMI 112 - AT - Income Tax

Penalty u/s 271AAA (1) - undisclosed income in a statement under sub-section (4) of Section 132 - assessment completed u/s 153B - Held that - When the assessment in this case was completed u/s 153B(1)(b) of the Act at ₹ 1,74,98,810/- (including surrendered amount of ₹ 1,70,43,170/-) and the assessee has paid tax due with interest which has not been questioned by the AO to substantiate the manner in which the said undisclosed income was derived, the assessee is entitled for to avail of the benefit of the amnesty provisions contained u/s 271AAA (2) read with section 132 (4) of the Act. Consequently, appeal filed by the assessee stands allowed and penalty stands deleted.

Issues involved:
1. Penalty imposed under section 271AAA for undisclosed income during a search and seizure action.
2. Assessment proceedings under section 153B(1)(b) and subsequent penalty proceedings under section 271AAA.
3. Applicability of provisions of section 271AAA and compliance requirements for immunity from penalty.

Analysis:

Issue 1: Penalty under section 271AAA
The appellant, a company, challenged the penalty imposed under section 271AAA for undisclosed income detected during a search and seizure operation. The appellant admitted the undisclosed income during the search and specified the manner in which it was derived. However, the assessing officer imposed a penalty of ?17,04,317 on the grounds that the appellant failed to substantiate the manner in which the income was derived. The Commissioner of Income-tax (Appeals) upheld the penalty, emphasizing the need for the assessee to specify and substantiate the manner of deriving such income to avail of immunity under the Act. The Tribunal noted that the burden on the assessee under section 271AAA is higher than under section 271(1)(c), requiring detailed substantiation of the undisclosed income's derivation. As the appellant failed to meet this burden, the penalty was upheld.

Issue 2: Assessment and penalty proceedings
Following a search and seizure operation, the appellant surrendered undisclosed income, and the assessment was completed under section 153B(1)(b) without any additions. Penalty proceedings under section 271AAA were initiated, leading to the imposition of a penalty. The appellant contended that no income was hidden, and the assessment was completed without additions. However, the assessing officer imposed the penalty, which was affirmed by the Commissioner of Income-tax (Appeals). The Tribunal observed that the appellant had made comprehensive submissions during the penalty proceedings but failed to substantiate the manner in which the undisclosed income was derived, leading to the penalty imposition.

Issue 3: Compliance requirements for immunity under section 271AAA
The provisions of section 271AAA require the assessee to admit the undisclosed income, specify its derivation, substantiate the manner of derivation, and pay the tax along with interest. The Tribunal emphasized that the assessing officer must make the assessee aware of these provisions to substantiate the undisclosed income's derivation adequately. In this case, the assessing officer did not question the assessee under oath to substantiate the income's derivation, relying solely on the disclosure letter. As the appellant provided details supported by seized documents but was not questioned by the assessing officer, the Tribunal held that there was no justification for imposing the penalty under section 271AAA. The Tribunal referred to previous cases where similar issues were decided in favor of the assessee, leading to the allowance of the appeal and deletion of the penalty.

This detailed analysis highlights the key legal aspects and reasoning behind the judgment regarding the penalty under section 271AAA and the compliance requirements for immunity from such penalties.

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