2018 (5) TMI 1153 - AT - Income Tax

Penalty u/s 271AAA - AO no where directed the assessee to disclose manner or to substantiate such manner showing the earning of undisclosed income admitted during the course of search - Held that - As during the course of search statement of assessee was not recorded. It was of Anil Bholabhai Patel and no such specific question was asked. CIT(A) has reproduced statement of Shri Anil Bholabhai in the impugned order and observed that under identical circumstances penalties imposed on other group persons have been deleted. Department failed to demonstrate that the assessee was confronted with conditions enumerated in section 271AAA either during the course of search or during the assessment proceedings. In the absence of any such direction from the AO, it could not be expected from the assessee to explain the manner in which such income was earned. Therefore, to my mind the assessee has fulfilled all conditions contemplated in sub-section (2) of section 271AAA of the Act and no penalty deserves to be imposed upon the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271AAA of the Income Tax Act.

Analysis:
The Revenue appealed against the deletion of a penalty of ?34,45,000 imposed by the Assessing Officer (AO) under section 271AAA of the Income Tax Act. The case involved a search conducted under section 132 of the Act in the Anil Bholabhai Patel group, including the assessee, resulting in the disclosure of undisclosed income. The AO initiated penalty proceedings under section 271AAA, stating that the assessee failed to substantiate the manner in which the undisclosed income was derived, despite fulfilling the conditions under the section. The AO imposed a penalty at the rate of 10% of the undisclosed income. The ld.CIT(A) later deleted the penalty, leading to the Revenue's appeal.

The key contention was whether the assessee fulfilled the conditions under section 271AAA to avoid the penalty. The assessee argued that similar penalties imposed in other cases were deleted by the Tribunal and that the AO did not direct the assessee to disclose or substantiate the manner of earning the undisclosed income during the search or assessment proceedings. The Tribunal noted that section 271AAA allows for penalty imposition unless the assessee admits the undisclosed income, specifies the manner of derivation, substantiates it, and pays the tax with interest. The Tribunal observed that the AO did not direct the assessee to explain the manner of earning income during the search, and the statement recorded was not of the assessee but of Anil Bholabhai Patel. As other penalties in similar cases were deleted, the Tribunal concluded that the assessee fulfilled the conditions under section 271AAA, and thus, no penalty was warranted.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing that the assessee had met the conditions specified in section 271AAA to avoid the penalty. The judgment highlighted the importance of the AO's direction to the assessee regarding disclosure and substantiation of undisclosed income and noted that in the absence of such direction, the penalty could not be imposed. The decision was pronounced on 17th May 2018 by the Appellate Tribunal ITAT Ahmedabad, with Shri Rajpal Yadav, Judicial Member presiding over the case.