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2017 (7) TMI 966 - HC - Income TaxPenalty u/s. 271AAA - disclosure as undisclosed income - Held that - In the present case, the Revenue failed to question the assessee while recording his statement under section 132 (4) of the Act as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of Commissioner of Income Tax vs. Mahendra C.Shah (2008 (2) TMI 32 - GUJARAT HIGH COURT ) would hold the field even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assessee s this requirement, the assessee s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise. - Decided against revenue
Issues:
1. Appeal against deletion of penalty under section 271AAA of the Income Tax Act. 2. Interpretation of statutory provisions regarding penalty for undisclosed income. 3. Requirement for the assessee to specify and substantiate the manner of deriving undisclosed income to avoid penalty. Analysis: 1. The appeal was filed by the Revenue against the deletion of a penalty of ?30,54,750 under section 271AAA of the Income Tax Act by the Income Tax Appellate Tribunal. The issue revolved around whether the Tribunal erred in law and on facts in deleting the penalty levied by the Assessing Officer. 2. The case involved a search action under section 132 of the Income Tax Act, where the assessee disclosed undisclosed income of ?3,05,47,400. The Assessing Officer imposed a penalty despite the disclosure, which was later deleted by the CIT (Appeals). The CIT (Appeals) held that the penalty was not justified as the undisclosed income was admitted, offered for taxation, and tax along with interest was duly paid, with no further questions asked by the Department regarding the manner of earning the income. 3. The Tribunal dismissed the Revenue's appeal based on a previous judgment of the High Court. The Tribunal noted that the assessee admitted the undisclosed income during the search, declared it in the return, paid tax and interest, but failed to substantiate the manner of earning the income, leading to the penalty imposition. However, the CIT (Appeals) and the Tribunal found that since no specific question was asked by the department regarding the manner of deriving the income during the statement recording under section 132(4) of the Act, the penalty was unjustified. 4. The High Court discussed the statutory provisions related to penalties for undisclosed income and the requirement for the assessee to specify and substantiate the manner of deriving such income to avoid penalties. The Court emphasized that the onus is on the assessee to disclose and substantiate the manner of deriving undisclosed income to avoid penalties, as per the provisions of section 271AAA. 5. The Court highlighted that the requirement to substantiate the manner of deriving undisclosed income is consequential to the base requirement of specifying the manner, and the failure to question the assessee during the statement recording regarding the manner of deriving income would negate the imposition of penalties. The decision in previous cases regarding the importance of the statement recorded under section 132(4) in disclosing the manner of deriving income was upheld, even in the context of the additional requirement introduced in sub-section (2) of section 271AAA. 6. Ultimately, the Court dismissed the tax appeal, emphasizing that the base requirement of specifying the manner of deriving undisclosed income must be met before the assessee can be expected to substantiate such claims to avoid penalties, and failure to elicit such information during the statement recording process would preclude the imposition of penalties under section 271AAA.
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