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2017 (5) TMI 1363 - AT - Income TaxPenalty U/s 271AAA - assessee has not clarified and not substantiated the manner in which the assessee derived undisclosed income - Held that - . In the statement recorded U/s 132(4) of the Act when the assessee categorically stated that he has derived undisclosed income by way of inflating expenses recorded in the books of account. In view of this, the ld. CIT(A) was not justified in holding that the assessee has not clarified and not substantiated the manner in which the assessee derived undisclosed income. The assessee has categorically stated in answer to questions No. 5 to 7 in the statement recorded U/s 132(5) of the Act - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty under Section 271AAA of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Confirmation of Penalty under Section 271AAA: Background: The appeal concerns the confirmation of a penalty amounting to ?4,05,000/- under Section 271AAA of the Income Tax Act, 1961. The assessee, part of the Mittal group, was subject to a search on 27/8/2008. In response to a notice under Section 153A, the assessee filed a return declaring an income of ?55,44,392/- for AY 2008-09. The assessment was completed at an income of ?70,92,010/- with additions made by the Assessing Officer (AO). Penalty Imposition: The AO imposed a penalty of ?4,05,000/- being 10% of the additional income declared by the assessee. The penalty was confirmed by the CIT(A) on the grounds that the assessee did not substantiate the manner in which the undisclosed income was derived. Assessee’s Arguments: The assessee argued that the undisclosed income was derived by inflating expenses recorded in the books, which was stated under Section 132(4) during the search. The assessee contended that the manner of earning the income was specified and substantiated, meeting the conditions under Section 271AAA(2). The assessee also cited various case laws to support their claim that the penalty should not be imposed as the conditions for immunity under Section 271AAA were satisfied. Relevant Legal Provisions: Section 271AAA stipulates a penalty for undisclosed income found during a search. However, it provides immunity if the assessee: (i) Admits the undisclosed income and specifies the manner in which it was derived. (ii) Substantiates the manner in which the undisclosed income was derived. (iii) Pays the tax and interest on the undisclosed income. Tribunal’s Findings: The Tribunal noted that the assessee had indeed specified and substantiated the manner of earning the undisclosed income during the search, as recorded in the statement under Section 132(4). The Tribunal referenced the decision in the case of Late Smt. Sudha Patni Vs ACIT, where it was held that if the assessee admits the undisclosed income and specifies the manner in which it was derived, and pays the due taxes, the penalty under Section 271AAA should not apply. Case Law References: The Tribunal relied on several decisions, including: - CIT Vs. Mahender C. Shah (Gujarat High Court) - CIT Vs. Radha Kishan Goel (Allahabad High Court) - ITAT Jaipur Bench in the case of Late Smt. Sudha Patni Vs ACIT - ITAT Mumbai in the case of ACIT (OSD) Vs. M/s. Kanakia Spaces Pvt. Ltd. These cases supported the view that if the assessee complies with the conditions under Section 271AAA(2), the penalty should not be imposed. Conclusion: The Tribunal concluded that the assessee had fulfilled the conditions under Section 271AAA(2) by specifying and substantiating the manner of earning the undisclosed income and paying the due taxes. Therefore, the penalty imposed by the AO and confirmed by the CIT(A) was not justified. The Tribunal directed the AO to delete the penalty. Result: The appeal of the assessee was allowed, and the penalty under Section 271AAA was deleted. Order Pronouncement: The order was pronounced in the open court on 12/05/2017.
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