2018 (3) TMI 214 - AT - Income Tax

Penalty u/s. 271AAB - non maintaining the books of account as per sec. 44AA or sec. 44AA(2) - 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. Therefore, 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 ₹ 2 cr. during search and later returned income of ₹ 2 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. 2 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, ₹ 2 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 of the Act. Since ₹ 2 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

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under Section 271AAB of the Income-tax Act, 1961.
2. Interpretation of the term "undisclosed income" under Section 271AAB.
3. Applicability of Section 44AA regarding the maintenance of books of accounts.

Issue-wise Detailed Analysis:

1. Legitimacy of the Penalty Imposed under Section 271AAB:
The core issue revolves around the penalty imposed under Section 271AAB of the Income-tax Act, 1961, following a search and seizure operation on the Nezone Group of cases. The assessee, part of this group, admitted to an undisclosed income of ?2 crore during the search, which was not reflected in the regular books of account. The Assessing Officer (AO) imposed a penalty, asserting that the income was undisclosed as it was not recorded in the regular books of account. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty, observing that the AO did not provide evidence of the assessee's intention to conceal income. The CIT(A) noted that the failure to record the income in the regular books was a bona fide mistake by the accountant, not an attempt to conceal income, and thus, the imposition of the penalty was unjustified.

2. Interpretation of the Term "Undisclosed Income" under Section 271AAB:
The tribunal examined whether the income in question qualified as "undisclosed income" under Section 271AAB. The term is defined to include income not recorded in the books of account or other documents maintained in the normal course or not disclosed to tax authorities before the search. The tribunal noted that the assessee had recorded the income in "other documents" maintained in the normal course, which were retrieved during the search. Therefore, the income did not fall within the definition of "undisclosed income" as per Section 271AAB. Consequently, the penalty under this section was deemed inapplicable.

3. Applicability of Section 44AA Regarding the Maintenance of Books of Accounts:
The tribunal also addressed whether the assessee was required to maintain books of account under Section 44AA. The assessee, primarily a salaried individual, engaged in speculative commodity trading for the first time in the relevant assessment year, reported this income under "Income from Other Sources." The AO accepted this classification without contesting it during the assessment proceedings. The tribunal held that the requirement to maintain books of account under Section 44AA applies to those engaged in business or profession, not to individuals earning income under "Income from Other Sources." Since the assessee's speculative transactions were recorded in other documents retrieved during the search, the tribunal concluded that the income was not "undisclosed" and did not warrant a penalty under Section 271AAB.

Conclusion:
The tribunal upheld the CIT(A)'s decision to delete the penalty imposed under Section 271AAB, concluding that the income in question was not "undisclosed" as per the statutory definition, and the assessee was not required to maintain books of account under Section 44AA for the speculative transactions. The appeal by the revenue was dismissed.