2018 (12) TMI 581 - AT - Income Tax

Penalty levied u/s 271AAB(1)(c) or 271AAB(1)(a) - undisclosed income admitted by the assessee on the basis of incriminating documents found in the course of search - assessment completed u/s 153A - penalty u/s 271AAB in the case on hand is to be imposed u/s 271AAB(1)(c) @ 30% of undisclosed income or u/s 271AAB(1)(a) @ 10% of undisclosed income - Held that - We find that the fact that AO issued notice u/s 153A on 07.10.2014 requiring the assessee to file the return of income within 30 days of receipt of notice (i.e., the specified date) and that the assessee had not complied with the same is not disputed. The assessee filed the return in response to the notice u/s 153A dated 07.10.2014 only on 01.03.2016; i.e., more than a year after the specified date. We also further observe that the taxes in respect of the undisclosed income were also paid long after the specified date i.e., ₹ 32,11,300/- on 30.10.2015; ₹ 5,39,200/- on 17.12.2015 and ₹ 10,00,000/- on 19.02.2016. It is also not disputed by the assessee that the statement wherein Shri. Kiran Kumar Mahasamudram admitted the undisclosed income was not u/s 132(4) of the Act. The provisions of sections 271AAB(1)(a) and 271AAB(1)(b) which provides for imposition of penalty @ 10% and 20% respectively are not applicable. The view of the CIT(A), that even though the assessee had not satisfied the conditions specified in 271AAB(1)(a)(iii) of the Act, the failure to do so constitutes reasonable cause as it was due to conditions beyond the assessee s control and therefore penalty is to be levied only @ 10% and not 30% of the undisclosed income of ₹ 1,31,50,000/- admitted in this Assessment Year, is totally untenable. Section 271AAB commences with non-obstante clause overriding all other provisions of the Act and therefore the CIT(A) s attempt to read into this unambiguous Section, what is not there by importing discretion in order to reduce the penalty to be levied on the assessee is odious to say the least. We are of the view that the impugned order of the CIT(A) is factually and legally unsustainable and therefore set aside the same. We consequently, restore the order of the AO dated 30.09.2016 levying penalty of ₹ 39,45,000/- u/s 271AAB(1)(c) of the Act @ 30% of the undisclosed income of ₹ 1,31,50,000/- admitted by the assessee for Assessment Year 2013-14. - Decided in favour of revenue.

Summary

Issues Involved:
1. Applicability of penalty under Section 271AAB(1)(c) versus 271AAB(1)(a) of the Income Tax Act, 1961.
2. Compliance with conditions under Section 271AAB(1)(a) for reduced penalty.
3. Validity of CIT(A)'s discretion in reducing the penalty rate.

Detailed Analysis:

1. Applicability of Penalty under Section 271AAB(1)(c) versus 271AAB(1)(a):
The primary issue revolves around whether the penalty should be levied at 30% under Section 271AAB(1)(c) or at 10% under Section 271AAB(1)(a) of the Income Tax Act, 1961. The Assessing Officer (AO) levied a penalty of ?39,45,000/- at 30% of the undisclosed income of ?1,31,50,000/-, arguing that the conditions for a reduced penalty under Section 271AAB(1)(a) were not met. The CIT(A) reduced this penalty to 10%, stating that the conditions under Section 271AAB(1)(a) were substantially met despite some delays.

2. Compliance with Conditions under Section 271AAB(1)(a):
Section 271AAB(1)(a) stipulates a 10% penalty if the assessee:
- Admits the undisclosed income in a statement under Section 132(4).
- Specifies and substantiates the manner in which the income was derived.
- Pays the tax along with interest and files the return of income before the specified date.

In this case, the assessee admitted the undisclosed income but did not file the return or pay the taxes by the specified date. The CIT(A) argued that the assessee’s compliance with the conditions under Section 271AAB(1)(a) was sufficient, considering the delay was due to circumstances beyond the assessee's control, such as liquidity issues.

3. Validity of CIT(A)'s Discretion in Reducing the Penalty Rate:
The Tribunal found the CIT(A)’s decision to reduce the penalty rate to be legally and factually unsustainable. The Tribunal emphasized that Section 271AAB begins with a "non-obstante clause," overriding other provisions of the Act, and does not provide for discretion in penalty rates. The Tribunal concluded that the conditions under Section 271AAB(1)(a) were not fully met, particularly the requirement to file the return and pay taxes by the specified date. Consequently, the Tribunal restored the AO's order, imposing a 30% penalty under Section 271AAB(1)(c).

Conclusion:
The Tribunal ruled in favor of the Revenue, reinstating the AO's original penalty of ?39,45,000/- at 30% of the undisclosed income under Section 271AAB(1)(c). The assessee's cross objections, which supported the CIT(A)'s reduced penalty, were dismissed. The Tribunal found no merit in the CIT(A)'s attempt to apply discretion not provided by the statute. The final order was pronounced on December 7, 2018.