2018 (11) TMI 992 - AT - Income Tax

Penalty levied u/s 271 AAA - assessee does not specify the manner of earning income and also fails to substantiate the same - whether the assessee has specified the manner and substantiated it or not? - Held that - Assessee has disclosed income in the return of income which were disclosed in statement U/s 132 (4) of the act. Copies of the statement are submitted before us where the total disclosure of the firm was ₹ 15.40 Crores, which has been bifurcated amongst the family member, and assessee is one of them. There is no dispute that assessee has already deposited tax thereon. Assessee has to disclose the manner of earning income i.e. how it has been earned and further to substantiate it means to prove it by the assessee has disclosed income in the return of income which were disclosed in statement U/s 132 (4). Copies of the statement are submitted before us where the total disclosure of the firm was ₹ 15.40 Crores, which has been bifurcated amongst the family member, and assessee is one of them. There is no dispute that assessee has already deposited tax thereon. Now the only issue remains that whether the assessee has specified the manner and substantiated it or not. Assessee has to disclose the manner of earning income i.e. how it has been earned and further to substantiate it means to prove it by the production of necessary evidence . We are also of the opinion that assessee has disclosed the manner of funding of the income from sale of artwork, paintings, and sculptures in her business and cash generated wherefrom. In view of this, it is apparent that assessee has disclosed the manner of earning of cash from the business of sale of artwork. She has also given source of cash generated in her hand that is the business of proprietary concern run by her form Gallaerie Nvya. Hence, we are of the opinion that assessee has given the manner of earning cash on hand of ₹ 1.34 crores and substantiated the same. For both the above-undisclosed income, assessee has disclosed the manner and stated that both are the business income of the assessee from the artwork/ paintings and Sculpture business . She has also shown how the same has been earned .Hence, it cannot be said that disclosure of these two income can be said to be disclosed with some Specificity . Therefore on this two undisclosed income the assessee is eligible for pardon u/s 271AAA (2) and hence, penalty u/s 271AAA cannot be levied. Now we come to the third item of the undisclosed income earned by the assessee in the form of undisclosed jewelry added as unexplained assets of the assessee of ₹ 96 lakhs. The assessee has merely stated that this jewelry has been received by her from the various family members and from investors. It was further stated that the family members of the assessee were also continuously acquiring jewelry as per their financial capabilities. Therefore according to the family status, age, tradition in the family, economic status of the assessee, jewelry held since marriage, gifted to her by other family members and married status of the assessee, she disclosed the unaccounted income to the tune of ₹ 9555637/ . Assessee neither gave the names of the persons who gifted her jewelry and she could not show sources of such excess jewelry found. In view of this, we are of the view that assessee has failed to disclose the manner of the earning of undisclosed income and failed to substantiate the same further. Hence, on the undisclosed income of ₹ 96 lakhs on account of unexplained jewelry, assessee is correctly held to be liable for payment of penalty at the rate of @ 10 percent on the undisclosed income. We uphold levy of penalty under section 271AAA on undisclosed income found during the course of such of ₹ 96 lakhs on unexplained jewelry. We also direct AO to delete the penalty with respect to the disclosure of ₹ 3 crores on account of undervaluation of the closing stock of artwork/ paintings/ sculptures etc. and cash of ₹ 1.34 crores found during the search, for which the manner of earning was disclosed and substantiated. Further on plain look at penalty order, AO has levied penalty of ₹ 30 lakhs stating that since in this case the penalty under section 271 (1)(c) is being imposed on substantive basis on the same issue, therefore, he held that penalty under section 271AAA would be on protective basis. We do not find any provision under the act to levy penalty under this section in the manner ld AO has envisaged. According to the provisions of section 271AAA (3) of the act provides that no penalty under the provisions of section 271 (1)(c) shall be imposed upon the assessee in respect of the undisclosed income referred to in subsection 1 of that section. Therefore, if the penalty has already been levied under section 271AAA, no further penalty on it can be levied u/s 271 (1) (c) of the act. Penalty u/s 271AAA and 271 (1) (c) are mutually exclusive. Even on this ground, too penalty of ₹ 30 lakhs levied by the AO on protective basis is unsustainable. Penalty of ₹ 23 lakhs initiated and levied by the learned CIT A is otherwise unsustainable in law as only the assessing officer is authorized to levy it. CIT A is not an assessing officer as defined u/s 2 (7A). Therefore, according to us the penalty initiated by the learned commissioner appeals and levied by him of ₹ 23 lakhs is not sustainable, as he is not authorized to levy the same. If authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorized under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to perform an action on any particular issue, then it is that authority alone who should do that action. We delete the penalty on the undisclosed income of ₹ 3 crores on account of undervaluation of closing stock of artwork, paintings, and sculptures, on cash found of ₹ 1.34 crores, and uphold penalty on unexplained jewelry of ₹ 96 lakhs. - Appeal filled by assessee partly allowed.

Summary

Issues Involved:
1. Confirmation and enhancement of penalty under Section 271AAA of the Income Tax Act.
2. Disclosure and substantiation of undisclosed income.
3. Authority to levy penalty under Section 271AAA.

Issue-wise Detailed Analysis:

1. Confirmation and Enhancement of Penalty under Section 271AAA:

The Assessee contested the penalty of ?30 lakhs levied by the Assistant Commissioner of Income Tax (AO) and its enhancement by ?23 lakhs by the Commissioner of Income Tax (Appeals) [CIT(A)], totaling ?53 lakhs. The penalty was on account of undisclosed income detected during a search operation. The AO imposed the penalty on ?3 crores disclosed voluntarily by the Assessee during the search, while the CIT(A) enhanced the penalty by ?23 lakhs for an additional ?2.30 crores of undisclosed income not initially considered by the AO.

2. Disclosure and Substantiation of Undisclosed Income:

The Assessee’s disclosure included ?3 crores for stock discrepancies and ?2.30 crores for unexplained cash and jewelry. The CIT(A) held that the Assessee failed to meet the conditions of Section 271AAA(2), which requires the Assessee to substantiate the manner in which the undisclosed income was derived. The Assessee argued that the disclosure was made in the statement under Section 132(4) and that all conditions were met, including payment of taxes on the disclosed income.

The Tribunal examined the Assessee’s submissions and statements. It was found that the Assessee provided detailed explanations and substantiated the manner of earning the undisclosed income related to stock discrepancies and cash. However, the Assessee failed to substantiate the manner of earning the undisclosed income related to the jewelry, merely stating it was received from family members without specific details.

3. Authority to Levy Penalty under Section 271AAA:

The Tribunal noted that only the AO is authorized to levy penalties under Section 271AAA, not the CIT(A). The CIT(A)’s enhancement of the penalty by ?23 lakhs was deemed invalid as it was beyond his authority. The Tribunal cited several judicial precedents supporting the principle that only the designated authority can perform specific actions.

Conclusion:

The Tribunal upheld the penalty of ?9.6 lakhs on unexplained jewelry but deleted the penalty of ?30 lakhs on stock discrepancies and ?13.4 lakhs on cash, as the Assessee had substantiated the manner of earning these incomes. The Tribunal also invalidated the ?23 lakhs penalty levied by the CIT(A) due to lack of authority. The appeal was partly allowed, with the final penalty reduced to ?9.6 lakhs.