2018 (9) TMI 1560 - HC - Income Tax

Penalty under Section 271AAA - surrender of income made by one of the directors - Held that - Plea and contention of the Revenue in the present appeal is to the effect that the statement made under Section 132(4) did not indicate and state the manner in which the undisclosed income was derived is different from the ground and reason given by the Assessing Officer to impose penalty of ₹ 3 crores under Section 271AAA of the Act, which was that the respondent-assessee had not been able to substantiate the manner in which the undisclosed income of ₹ 30 crores had been derived. The two aspects are different as is clear from clauses (i) and (ii) to sub-section (2) to Section 271AAA. AO had not relied upon or claimed that there was violation of clause (i) to sub-section (2) to Section 271AAA, but had imposed penalty on account of the fact that there was violation and non-compliance of clause (ii) to sub-section (2) to Section 271AAA of the Act, i.e., assessee was not able to substantiate the manner in which the undisclosed income was derived. - Decided against revenue

Summary

Issues Involved:
1. Validity of penalty under Section 271AAA of the Income Tax Act, 1961.
2. Substantiation of the manner in which undisclosed income was derived.
3. Compliance with sub-section (2) to Section 271AAA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of penalty under Section 271AAA of the Income Tax Act, 1961:
The Revenue's appeal challenges the order dated 17th April 2018 by the Income Tax Appellate Tribunal, which upheld the Commissioner of Income Tax (Appeals) decision to delete the penalty of ?3 crores imposed under Section 271AAA. The penalty was initially imposed by the Assessing Officer (AO) on the respondent-assessee for the Assessment Year 2012-13 following a search and seizure operation at the assessee's premises. The AO's penalty order was brief, cryptic, and largely based on the claim that the assessee had not substantiated the manner in which the undisclosed income was derived. The High Court noted that the penalty order lacked detailed discussion and was based on limited grounds.

2. Substantiation of the manner in which undisclosed income was derived:
The assessment order indicated that the respondent-assessee had declared an undisclosed income of ?30 crores in the return of income, which was accepted by the AO without any additions. The AO initiated penalty proceedings under Section 271AAA, asserting that the assessee failed to substantiate the manner in which the undisclosed income was derived. The respondent-assessee submitted several letters during the assessment proceedings, detailing the nature and bifurcation of the undisclosed income, which was primarily earned from transactions in land/properties and other speculative activities. The Commissioner of Income Tax (Appeals) found that the assessee had indeed provided the necessary substantiation during the assessment proceedings, and thus deleted the penalty.

3. Compliance with sub-section (2) to Section 271AAA of the Income Tax Act, 1961:
The High Court observed that the AO had imposed the penalty on the basis that the assessee had not substantiated the manner in which the undisclosed income was derived, as required under clause (ii) to sub-section (2) to Section 271AAA. However, the Court noted that the AO did not claim any violation of clause (i) of the same sub-section, which pertains to the statement made under Section 132(4) indicating the manner of deriving the undisclosed income. The High Court found that the respondent-assessee had complied with the requirements of clause (ii) by providing detailed submissions and documentary evidence during the assessment proceedings. The Court concluded that the penalty was imposed without proper consideration of the assessee's submissions and the documentary evidence provided.

Conclusion:
The High Court dismissed the Revenue's appeal, stating that there was no merit in the appeal and upheld the deletion of the penalty of ?3 crores imposed under Section 271AAA. The Court emphasized that the respondent-assessee had fulfilled the conditions laid down under sub-section (2) to Section 271AAA, particularly by substantiating the manner in which the undisclosed income was derived during the assessment proceedings. The appeal was dismissed without any order as to costs.