2018 (9) TMI 1324 - HC - Income Tax

Penalty u/s. 271AAA - undisclosed income - failure to prove the manner in which income has been earned - disclosure made with the consent of the family members and all partners - Held that - Answer of partner to the addition to confirming the disclosure of undisclosed income, further stated that the income was earned by the group out of land related transactions which was not previously recorded in the books. This was thus specifically in compliance with the requirement of establishing the manner, in which, the income was earned. It is true that at this stage, he could not give the break up of such income person wise or firm wise citing the reason of sealing of the bank locker. In our opinion, this would not be of much relevance. Firstly as noted, the answer was in sufficient compliance of requirement of manner of earning income. Secondly, as recorded by the CIT (A), AO had made additions taxing the admitted amounts in respective hands. We are primarily of the view that there is substantial compliance by the assessee. We do not see any reason to disturb the Tribunal's order, however, for the reasons somewhat different from those recorded by the Tribunal. The addition outside of the disclosures by the assessee are not significant.

Summary

Issues:
Penalty under section 271AAA of the Income Tax Act, 1961 - Compliance with the requirement of specifying the manner of deriving undisclosed income for claiming immunity - Substantial compliance with the additional requirement - Whether penalty can be deleted if Assessing Officer did not raise the query regarding the manner of deriving income - Effect of additional additions made by Assessing Officer during assessment on penalty deletion.

Analysis:

Issue 1: Penalty under section 271AAA - Compliance with the requirement of specifying the manner of deriving undisclosed income for claiming immunity:
The case involved a penalty levied by the Assessing Officer under section 271AAA of the Income Tax Act, 1961. The issue revolved around whether the assessee had fulfilled the requirement of specifying the manner of deriving undisclosed income for claiming immunity from the penalty. The CIT(A) concluded that the assessee had satisfied this additional requirement for claiming immunity due to substantial compliance. The Tribunal upheld this decision, citing relevant case laws.

Issue 2: Effect of Assessing Officer not raising query regarding the manner of deriving income:
The counsel for the Revenue argued that the Assessing Officer did pose a specific query to the partner of the firm regarding the undisclosed income and its manner of earning. This raised the question of whether the penalty could be deleted if the Assessing Officer did not explicitly raise the query regarding the manner of deriving income during the assessment process.

Issue 3: Impact of additional additions made by Assessing Officer on penalty deletion:
The Revenue contended that since the Assessing Officer had made additional additions over and above the disclosed income during the raid, the penalty should not have been deleted. This issue raised concerns about the effect of such additional additions on the deletion of the penalty under section 271AAA.

The judgment highlighted the importance of substantial compliance with the requirement of specifying the manner of deriving undisclosed income for claiming immunity from the penalty under section 271AAA. It emphasized that the responsibility to substantiate the manner of deriving income arises only when the base requirement of specifying the manner is fulfilled. The court considered the specific queries raised by the Assessing Officer during the assessment process and the responses provided by the assessee to determine substantial compliance. Ultimately, the court upheld the Tribunal's decision to dismiss the appeal, citing the substantial compliance by the assessee and the insignificance of additional components added by the Assessing Officer.