2018 (6) TMI 65 - AT - Income Tax

Penalty u/s 271AAA - inability to explain certain seized documents - Held that - When the assessee has failed to specify the manner and substantiate the manner in which the undisclosed income was derived rather embark upon the mercy plea that he is making surrender to buy peace of mind and avoid litigation, he is not entitled for benefit of section 271AAA(2). Following the decision in case cited as Pr.CIT vs. Smt. Ritu Singal (2018 (3) TMI 593 - DELHI HIGH COURT) we are of the considered view that CIT (A) has erred in deleting the penalty u/s 271AAA, hence appeal filed by the Revenue is hereby allowed.

Summary

Issues:
1. Appeal against deletion of penalty u/s 271AAA of Income Tax Act.
2. Whether the assessee failed to substantiate the undisclosed income of ?21 crores.

Issue 1: Appeal against deletion of penalty u/s 271AAA of Income Tax Act:
The Assistant Commissioner of Income-tax filed an appeal seeking to set aside the order deleting the penalty imposed under section 271AAA for the assessment year 2010-11. The dispute arose as the Revenue contended that the penalty should not have been deleted by the CIT (Appeals)-1, New Delhi.

Detailed Analysis:
The appellant, being the Assistant Commissioner of Income-tax, challenged the order of the CIT (Appeals) that deleted the penalty imposed under section 271AAA. The Revenue argued that the CIT (A) erred in deleting the penalty of ?2,10,00,000 imposed by the Assessing Officer. The matter was brought before the Tribunal by the Revenue through the present appeal.

Issue 2: Whether the assessee failed to substantiate the undisclosed income of ?21 crores:
The key question was whether the assessee failed to substantiate the manner in which the undisclosed income of ?21 crores was derived, making them liable for penalty under section 271AAA of the Income Tax Act.

Detailed Analysis:
During the search and seizure operation, the assessee surrendered additional income of ?21 crores. The Assessing Officer initiated penalty proceedings under section 271AAA, but the CIT (A) deleted the penalty. The Revenue contended that the assessee did not substantiate how the undisclosed income was derived. The Tribunal analyzed the provisions of section 271AAA(2) and noted that the assessee failed to specify and substantiate the manner in which the undisclosed income was derived. The Tribunal found that the voluntary surrender of income by the assessee was not a sufficient explanation to avoid penalty under section 271AAA.

In conclusion, the Tribunal allowed the appeal filed by the Revenue and restored the penalty order passed by the Assessing Officer. The decision was based on the failure of the assessee to meet the conditions specified under section 271AAA(2) regarding substantiating the undisclosed income. The Tribunal found that the voluntary surrender of income without proper substantiation did not exempt the assessee from the penalty provisions of the Income Tax Act.