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2018 (2) TMI 972 - AT - Income TaxPenalty imposed u/s. 271AAB - income from commodity profit has been found during search u/s. 132 of the Act which is not reflected in the regular books of account - AO has accepted that during search the assessee has admitted u/s. 132(4) the income from speculative trading - Held that - Since the assessee is not engaged in business or profession, he does not require to maintain the books of account as per sec. 44AA or sec. 44AA(2) of the Act, therefore, the assessee s case falls in the second limb i.e. or other documents as stipulated u/s. 271AAB Explanation (c) (supra) which describes undisclosed income for the purposes of this section which is very important to adjudicate this issue. The question is when the search took place, the assessee s transactions (in this case, the speculative transaction) has been found to be recorded in the other documents which is (retrieved from the assessee s accountant s drawer) and based on that the assessee declared ₹ 3 cr. during search and later returned income of ₹ 3 cr. as income under the head Income from Other Sources which was accepted by the AO in toto. We note that since the income under question (Rs. 3 cr.) was in fact entered in the other documents maintained in the normal course relating to the AY 2013-14, which document was retrieved during search, hence, the amount of ₹ 3 cr. offered by the assessee does not fall in the ken of undisclosed income defined in Sec. 271AAB of the Act. So, ₹ 3 cr. which was commodity profit recorded in the other document maintained by the assessee which was retrieved during search cannot be termed as undisclosed Income in the definition given u/s. 271AAB. Since ₹ 3 cr. cannot be termed as Undisclosed Income as per sec. 271AAB of the Act, no penalty can be levied against the assessee - Decided against revenue.
Issues Involved:
1. Legitimacy of penalty imposed under Section 271AAB of the Income-tax Act, 1961. 2. Interpretation of "undisclosed income" under Section 271AAB. 3. Applicability of Section 44AA regarding maintenance of books of accounts. 4. Discretionary nature of penalty under Section 271AAB. Issue-wise Detailed Analysis: 1. Legitimacy of Penalty Imposed Under Section 271AAB: The Appellate Tribunal ITAT Kolkata reviewed the penalty imposed by the Assessing Officer (AO) under Section 271AAB of the Income-tax Act, 1961. The AO imposed a penalty on the ground that the income from commodity profit found during the search was not reflected in the regular books of account. The AO noted that the assessee admitted an undisclosed income of ?3,00,00,000/- during the search and filed a return declaring a total income of ?3,44,65,120/-. The AO levied a penalty of ten percent on the ?3 crore undisclosed income. However, the CIT(A) deleted the penalty, observing that the AO did not bring any evidence to prove the intention of the assessee to conceal the income. The CIT(A) noted that the non-recording of the income in the regular books of accounts was a bona fide mistake by the accountant and did not indicate a guilty mind or intention to conceal income. 2. Interpretation of "Undisclosed Income" Under Section 271AAB: The Tribunal examined the definition of "undisclosed income" under Section 271AAB, which includes income not recorded in the books of account or other documents maintained in the normal course before the date of the search. The Tribunal noted that the transactions yielding the income were recorded in "other documents" maintained by the assessee, which were retrieved during the search. Therefore, the income of ?3 crore could not be termed as "undisclosed income" as per the definition in Section 271AAB. Since the income was recorded in other documents, it did not fall within the scope of "undisclosed income," and thus, no penalty could be levied under Section 271AAB. 3. Applicability of Section 44AA Regarding Maintenance of Books of Accounts: The Tribunal considered whether the assessee was required to maintain books of account under Section 44AA. The assessee, being an individual with salary income, was not engaged in any business or profession that mandated the maintenance of books of account under Section 44AA. The Tribunal noted that the assessee's income from speculative trading was offered under the head "Income from Other Sources" and was accepted by the AO. Since the assessee was not engaged in business or profession, the requirement to maintain books of account under Section 44AA did not apply. The Tribunal emphasized that the AO's observation in the assessment order regarding the nature of income was flawed and based on a misinterpretation of the income and expenditure account. 4. Discretionary Nature of Penalty Under Section 271AAB: The Tribunal addressed the argument that the penalty under Section 271AAB is discretionary and not mandatory. The Tribunal agreed with the assessee's contention that the use of the word "may" in Section 271AAB indicates discretion on the part of the AO to levy the penalty. The Tribunal referred to a similar issue adjudicated by ITAT Lucknow, which held that the provisions of Section 271AAB are not mandatory and that the AO has the discretion to levy or not levy the penalty. The Tribunal concluded that the penalty under Section 271AAB is not mandatory and is subject to the AO's discretion. Conclusion: The Tribunal upheld the order of the CIT(A) deleting the penalty imposed under Section 271AAB, concluding that the income of ?3 crore was not "undisclosed income" as per the definition in Section 271AAB. The Tribunal emphasized that the assessee was not required to maintain books of account under Section 44AA and that the penalty provisions under Section 271AAB are discretionary. The appeal of the revenue was dismissed.
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