2018 (3) TMI 593 - HC - Income Tax

Penalty u/s 271AAA - disclosure of unaccounted income during search - source of income not discolsed - Held that - In the present case, during the course of the statement made by the assessee, during the course of the search on 4 March, 2010, that she had lent ₹ 16 crores in aggregate to three individuals during financial year 2009-2010. This was in response to a query by the revenue officials during the course of search when the basis of Page 81 of Exhibit A-3 was sought to be questioned. - The requirement of the assessee having to (ii) substantiates the manner in which the undisclosed income was derived was satisfied. Although a general statement that the undisclosed income was the source income that was disclosed, no substantiation of the manner of deriving such undisclosed income was revealed. The income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, source of the money etc). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement (u/s 132 (4)) substantiates the manner in which the undisclosed income was derived . Such being the case, this court is of opinion that the lower appellate authorities misdirected themselves in holding that the conditions in Section 271AAA (2) were satisfied by the assessee. - Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of Penalty under Section 271AAA.
2. Interpretation of Section 271AAA requirements.
3. Applicability of precedents and statutory interpretation.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty under Section 271AAA:
The primary issue was whether the ITAT erred in deleting the ?20,000,000 penalty under Section 271AAA of the Income Tax Act. The Bhushan Steel Group was subjected to a search under Section 132, where the assessee declared an undisclosed income of ?20 crores. The AO initiated penalty proceedings under Section 271AAA, claiming the assessee failed to specify and substantiate the manner in which the income was earned. The CIT (A) deleted the penalty, reasoning that the assessee had fulfilled the requirements under Section 271AAA. The ITAT affirmed this decision, referencing similar cases where penalties were not imposed due to lack of specific queries from the authorized officer during the search.

2. Interpretation of Section 271AAA Requirements:
Section 271AAA mandates that the assessee must admit the undisclosed income, specify the manner of derivation, substantiate this manner, and pay the due tax to avoid penalty. The CIT (A) and ITAT found that the assessee's general statement about the undisclosed income sufficed, as no specific queries were raised by the authorized officer during the search. However, the revenue argued that the assessee did not provide adequate details about the income's source or manner of derivation, thus not fulfilling the statutory requirements.

3. Applicability of Precedents and Statutory Interpretation:
The court examined precedents, including the Supreme Court's ruling in Assistant Commissioner of Income Tax v. Gebilal Kanhailal, which outlined the conditions for immunity from penalty under similar provisions. The court emphasized that all three conditions under Section 271AAA(2) must be met. In this case, while the assessee admitted the undisclosed income, she did not substantiate the manner of its derivation with sufficient detail. The court found that the lower appellate authorities misinterpreted the statutory requirements, leading to the erroneous deletion of the penalty.

Conclusion:
The court concluded that the ITAT and CIT (A) erred in their interpretation of Section 271AAA. The assessee did not adequately substantiate the manner in which the undisclosed income was derived, failing to meet the conditions for avoiding the penalty. Consequently, the court allowed the revenue's appeal, reinstating the penalty. The substantial question of law was answered in favor of the revenue, with no costs awarded.