2018 (2) TMI 974 - AT - Income Tax

Penalty u/s 271AAA - assessee offered additional income during search - Held that - Penalty under section 271AAA of the Act can be levied only for the specified previous year which is clearly defined by Explanation (b) to section and is limited to the said assessment years only. In the present case, search on the premises of assessee was carried out on 25.08.2011 and hence, the year of search is assessment year 2012-13. The years which are in appeal before us are relate to assessment years 2006-07 to 2010-11. Admittedly, none of the assessment years are the years of search. Secondly, the second condition of the due date for filing the return of income having not expired under section 139(1) of the Act is not applicable to assessment years 2006-07 to 2010-11 where the assessee was due to file the return of income us 139(1) of the Act much before the date of search. The assessee claims that it had furnished the said returns of income for the respective years before the date of search and the time limit prescribed under section 139(1) of the Act had already expired. Thus we hold that where the assessee though during the course of search had offered additional income, which was declared in the return of income in response to notice under section 153A of the Act; however, in view of specific definition of specified previous year , the rigours of section 271AAA of the Act are not attracted for assessment years 2006-07 to 2010-11. Accordingly, we hold so. Thus, the assessee is not liable for levy of penalty under section 271AAA of the Act for the said assessment years. Accordingly, we uphold the order of CIT(A) in deleting penalty levied under section 271AAA of the Act, though on different grounds. - Decided in favour of assessee. CIT(A) failure to exercise his coterminous powers in not initiating the penalty u/s 271(1)(c) after deleting penalty levied u/s 271AAA - Held that - We find no merit in the plea of Revenue since before initiating penalty proceedings under section 271AAA and / or 271(1)(c) of the Act, clear satisfaction has to be recorded by Assessing Officer as to which section is attracted in the facts of case. Sub-section (3) to section 271AAA of the Act very clearly provides that no penalty under the provisions of section 271(1)(c) of the Act shall be imposed upon assessee, in respect of undisclosed income which is referred to in sub-section (1) to section 271AAA of the Act. Once the Assessing Officer has taken the step of initiating penalty under section 271AAA of the Act in respect of additional income offered consequent to search, then the Assessing Officer or any of the authorities below are precluded by provisions of the Act itself to initiate any action for levy of penalty under section 271(1)(c) of the Act. Accordingly, we hold so. - Decided against revenue

Summary

Issues Involved:
1. Deletion of penalty under section 271AAA of the Income-tax Act, 1961.
2. Non-initiation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
3. Exercise of coterminous powers by CIT(A) with the Assessing Officer.
4. Applicability of section 271AAA to assessment years preceding the year of search.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271AAA:
The Revenue appealed against the CIT(A)'s order which deleted the penalty levied under section 271AAA of the Income-tax Act, 1961. The CIT(A) had deleted the penalty on the grounds that the assessee's total income had been reduced to the returned income after the CIT(A)'s order in the quantum proceedings, and taxes had been paid accordingly. Therefore, the assessee was entitled to immunity from penalty under section 271AAA.

2. Non-initiation of Penalty under Section 271(1)(c):
The Revenue contended that the CIT(A) failed to initiate penalty under section 271(1)(c) for concealment of income. However, the Tribunal noted that sub-section (3) to section 271AAA clearly states that no penalty under section 271(1)(c) shall be imposed in respect of undisclosed income referred to in sub-section (1) of section 271AAA. The Tribunal held that the Assessing Officer must record clear satisfaction regarding which section is applicable before initiating penalty proceedings. Since the AO had already initiated penalty under section 271AAA, initiating penalty under section 271(1)(c) was precluded by the provisions of the Act.

3. Exercise of Coterminous Powers by CIT(A):
The Revenue argued that the CIT(A) should have exercised his coterminous powers with the Assessing Officer to impose the correct penalty. The Tribunal found no merit in this argument, stating that the CIT(A) had rightly deleted the penalty under section 271AAA, and there was no basis for initiating penalty under section 271(1)(c) as the provisions of section 271AAA precluded such action.

4. Applicability of Section 271AAA to Assessment Years Preceding the Year of Search:
The Tribunal analyzed the provisions of section 271AAA, which allows the Assessing Officer to impose a penalty on "undisclosed income" of the "specified previous year." The term "specified previous year" is defined in clause (b) of the Explanation to section 271AAA. The Tribunal concluded that penalty under section 271AAA could only be levied for the "specified previous year," which includes the year of search and the previous year for which the return filing date under section 139(1) had not expired by the date of search. Since the assessment years in question (2006-07 to 2010-11) did not fall within the definition of "specified previous year," the penalty under section 271AAA was not applicable.

Conclusion:
The Tribunal upheld the CIT(A)'s order deleting the penalty under section 271AAA for the assessment years 2006-07 to 2010-11. It also dismissed the Revenue's grounds for initiating penalty under section 271(1)(c), stating that the AO must record clear satisfaction before levying penalties and that the provisions of section 271AAA preclude the imposition of penalty under section 271(1)(c) for the same undisclosed income. The Tribunal's decision applied mutatis mutandis to all related appeals, resulting in the dismissal of all the Revenue's appeals.