2018 (2) TMI 1341 - AT - Income Tax

Levy of penalty u/s. 271AAA - income disclosed u/s. 132(4) - undisclosed income - Held that - It is not necessary to substantiate manner in which income was derived by assessee from undisclosed source in the given facts & circumstances. It is because no prescribed method to find the manner in such income was generated has been prescribed under the statute. Therefore, respectfully following the same, we hold that the penalty levied by AO and upheld by CIT(A) is not sustainable. We are of the view that the penalty u/s 271AAA of the Act is not leviable on the facts of the present case as the assessee s case falls under the sub-clause (2) of Section 271AA of the Act. Accordingly, we cancel the levy of penalty - Decided in favour of assessee.

Summary

Issues:
- Confirmation of penalty u/s. 271AAA of the Income Tax Act, 1961 for Assessment Year 2011-12.

Detailed Analysis:

Issue 1:
The solitary issue raised by the assessee was the confirmation of the penalty levied under section 271AAA of the Act for ?1 lakh by the Commissioner of Income Tax (Appeals) (CIT(A)).

The facts revealed that a search was conducted under section 132 of the Act on the assessee, who was a Director of a company. The assessee declared an undisclosed income of ?10 lakh in a statement recorded under section 132(4) of the Act. The Assessing Officer (AO) initiated penalty proceedings under section 271AAA of the Act based on this undisclosed income. The assessee contended that the income was disclosed in the tax return within the due date under section 139(1) of the Act, fulfilling the conditions for immunity from penalty under section 271AAA. However, the AO imposed a penalty of 10% of the undisclosed income, which was confirmed by the CIT(A).

Issue 1 Analysis:
The CIT(A) upheld the penalty, stating that the appellant failed to substantiate how the undisclosed income was derived, as required under section 271AAA(2)(i) of the Act. The CIT(A) observed discrepancies in the declaration petition filed by the appellant and concluded that the conditions for immunity were not satisfied. The Tribunal, after considering the arguments and case laws presented, held that the penalty was not sustainable. Citing case laws where penalties were canceled due to voluntary disclosure and absence of incriminating evidence, the Tribunal ruled in favor of the assessee, canceling the penalty under section 271AAA of the Act.

Therefore, the Tribunal allowed the assessee's appeal, canceling the penalty imposed under section 271AAA of the Income Tax Act for the Assessment Year 2011-12.