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2018 (3) TMI 950 - AT - Income TaxPenalty u/s.271AAA - undisclosed income addition - assessee s failure in specifying the manner of having derived the above undisclosed income as well as substantiation thereof during the course of search as well as assessment proceedings - CIT-A deleted the addition - Held that - fails to rebut the CIT(A) s clinching finding that no such query of manner of deriving the impugned undisclosed income had been put to the assessee by the authorized officer whilst recording the search statement in question. We notice in this backdrop that in recent judgment in PCIT vs. Mukeshbhai Ramanlal Prajapati 2017 (7) TMI 966 - GUJARAT HIGH COURT holds that it is incumbent for the authorized officer to question the assessee about the relevant manner of having derived the undisclosed income in question and then only the onus shifts on the tax payer to substantiate the same. The field even in the context of sub-section (2) of section 271AAA of the Act. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assessee s this requirement, the assessee s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise. - Decided against revenue
Issues Involved:
1. Legality of the penalty imposed under Section 271AAA of the Income Tax Act, 1961. Detailed Analysis: Legality of the Penalty Imposed under Section 271AAA of the Income Tax Act, 1961: The Revenue's appeal challenges the CIT(A)'s decision to reverse the Assessing Officer's action of levying a penalty of ?19,83,000/- at 10% of the assessee's undisclosed income of ?1,98,30,000/- under Section 271AAA of the Income Tax Act, 1961. The CIT(A) provided an elaborate discussion on the sole penalty issue, considering the facts and circumstances of the case, the observations of the Assessing Officer, the submissions of the assessee, the material available on record, and judicial pronouncements on the subject. The CIT(A) noted that the action under Section 132(1) was taken on 11.02.2010, and the case is covered under Section 271AAA(1) of the Act. There was no dispute regarding the nature and quantum of the "undisclosed income" declared by the assessee in his Return of Income for the year under consideration. The assessee had paid necessary taxes on the undisclosed income declared in his statement under Section 132(4) and offered the undisclosed income to tax in his Return of Income for the relevant year. The only ground for the Assessing Officer imposing the penalty was the assessee's failure to comply with the provisions of sub-clauses (i) and (ii) of Section 271AAA(2) of the Act, i.e., failing to specify the manner in which such income was derived and failing to substantiate the same. The CIT(A) observed that the assessee was never specifically asked to specify the manner in which the declared unaccounted income was derived or to substantiate the same during the recording of his statement under Section 132(4) of the Act. The CIT(A) perused the assessee's statement under Section 132(4) and the assessment records and noted that no specific questions were asked by the Authorized Officer requiring the assessee to specify the manner in which the declared unaccounted income was derived or to substantiate the same. The Assessing Officer also failed to provide any specific opportunity to the assessee to comply with the provisions of sub-clauses (i) and (ii) of Section 271AAA(2) of the Act. The CIT(A) referred to several judicial precedents, including the Hon'ble ITAT, Ahmedabad's decision in the case of DCIT vs. Rajendra Prasad Dokania, where it was held that if the assessee was neither asked by the Authorized Officer nor by the Assessing Officer to substantiate the manner in which the undisclosed income was derived, the assessee would be deemed to have discharged his onus of substantiating the manner in which the undisclosed income was derived. Similar views were expressed by the Hon'ble ITAT, Chandigarh in the case of Sunil Kumar Bansal vs. DCIT and the Hon'ble Delhi ITAT in the case of Neerat Singhal vs. ACIT. The CIT(A) also referred to the Hon'ble Gujarat High Court's decision in the case of CIT vs. Mahendra C. Shah, where it was held that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon is paid, there would be substantial compliance not warranting denial of benefit under exception 2 in Explanation 5 to Section 271(1)(c) of the Act. Based on the above discussion and judicial precedents, the CIT(A) directed the deletion of the penalty of ?19,83,000/- levied under Section 271AAA for the year under consideration. The Learned Departmental Representative contended that the CIT(A) erred in law and on facts in deleting the penalty, arguing that the assessee failed to specify the manner of deriving the undisclosed income and to substantiate the same during the search and assessment proceedings. However, the CIT(A)'s finding that no such query was put to the assessee by the Authorized Officer while recording the search statement remained unchallenged. The Tribunal noted the Hon'ble jurisdictional High Court's recent judgment in PCIT vs. Mukeshbhai Ramanlal Prajapati, which held that it is incumbent for the Authorized Officer to question the assessee about the relevant manner of deriving the undisclosed income and then only the onus shifts to the taxpayer to substantiate the same. The Tribunal concluded that the CIT(A) rightly deleted the impugned penalty, and the Revenue's appeal was dismissed. The judgment was pronounced in the open Court on the 16th day of March, 2018.
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