2017 (4) TMI 453 - AT - Income Tax

Penalty u/s 271AAA - Whether the assessee has disclosed manner and substantiate that manner? - Held that - The assessee has admitted additional income of ₹ 23 crores whose break up has been given in the statement itself. Name of the assessee is available at serial no6. This statement is based on the noting found in the diary. Deponent has duly explained that amounts mentioned against each entity was in coded word viz. instead of ₹ 5 lakhs it should be read as 5 crores two Os are to be added. He further disclosed that this is the net taxable income written in this diary. Thus, he has offered an income of ₹ 1.14 crores. The assessee has paid taxes as well as interest. The dispute between the assessee and Revenue pertained to condition no.2 that is whether the assessee has disclosed manner and substantiate that manner. In order to evaluate circumstances pertained to this condition, we find that reply to question 15 would show that group had different projects which have constructed building, thereafter, they have excluded certain amounts on a net basis from these projects, which were not accounted in the books. On account of search and seizure of the incriminating material, this net income was offered for taxation. The manner was disclosed as out of various housing projects constructed by the group. Apart from these questions, no other question relating to manner and substantiate earning of such income was asked from the assessee during the course of assessment proceedings. The AO has nowhere asked the assessee to demonstrate the manner or substantiate that manner. Thus, we are of the view that the ld.CIT(A) has rightly deleted the penalty - Decided in favour of assessee

Summary

Issues involved:
Appeal against deletion of penalty under section 271AAA of the Income Tax Act, 1961 for undisclosed income admitted during search operation.

Detailed Analysis:

Issue 1: Deletion of penalty under section 271AAA
The Revenue appealed against the deletion of penalty amounting to ?11,40,000 imposed by the Assessing Officer (AO) under section 271AAA of the Income Tax Act, 1961. The case involved a search operation under section 132 of the Act where a diary containing coded entries of undisclosed income was found. The main partner admitted to undisclosed income, and the assessee later offered ?1.14 crores as undisclosed income. The AO imposed the penalty due to the failure of the assessee to disclose the manner of earning the additional income. The ld.CIT(A) deleted the penalty after finding that the assessee fulfilled the conditions under section 271AAA(2) and thus could not be penalized. The key contention was whether the assessee substantiated the manner in which the income was earned, a crucial condition under the penalty provision.

Issue 2: Interpretation of section 271AAA
Section 271AAA of the Income Tax Act provides for penalties in cases where a search has been initiated. Sub-section (1) empowers the AO to levy a penalty of 10% of the undisclosed income. Sub-section (2) outlines conditions for the assessee to avoid the penalty, including admitting the undisclosed income, specifying the manner of earning it, substantiating the manner, and paying the tax with interest. In this case, the assessee admitted the undisclosed income, paid taxes, but the dispute arose regarding substantiating the manner of earning the income. The Tribunal analyzed the conditions under section 271AAA and concluded that the ld.CIT(A) correctly deleted the penalty as the assessee fulfilled the necessary conditions.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty under section 271AAA. It was determined that the assessee met the conditions specified in the penalty provision, including admitting the undisclosed income and paying taxes, thereby absolving them from the penalty. The judgment highlighted the importance of complying with the statutory requirements to avoid penalties under the Income Tax Act.