2019 (1) TMI 1392 - AT - Income Tax

Penalty imposed u/s 271AAB(1)(a) - amount admitted under disclosure statement u/s 132(4) - amount offered by the assessee suo motto to buy peace of mind - Penalty where search has been initiated - Held that - As discussed the provisions containing u/s 271AAB of the Act, it is justified to hold that ₹ 75,00,000/- is undisclosed amount, that the assessee shall pay penalty u/s 271AAB of the Act @ 10% under clause (a) of sub-section (1) of section 271AAB of the Act for the reasons set out hereunder under - 1 . Search action u/s 132 initiated u/s 132 on or after 01.06.2012; 2 . The assessee has made disclosure of undisclosed income during the course of search action, has paid the tax together with interest and filed return of income; and 3 . The assessee substantiated the manner in which the undisclosed income and in view of the above, the order of CIT(A) is justified, sole Ground raised by the assessee is dismissed. Regarding the decisions relied on by the Ld.AR, which were considered by us and the principles canvassed by the Ld.AR does not come to the rescue of the present case in view of our discussion made herein above at para 15 of this order. Regarding striking out relevant charge, the notice issued u/s 274 of the Act is of no relevance in view of our finding at para 17. - Decided against assessee

Issues Involved:
1. Legitimacy of the penalty imposed under section 271AAB(1)(a) of the Income Tax Act, 1961.
2. Validity of the penalty notice issued under section 274 read with section 271.
3. Applicability of the principle of "buying peace" to avoid penalty.
4. Binding nature of judicial precedents and the doctrine of per incuriam.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under section 271AAB(1)(a) of the Income Tax Act, 1961:
The assessee, engaged in mining and trading of iron and other ores, was subjected to a search and seizure operation. During this operation, undisclosed income amounting to ?2,25,00,000/- was discovered, which was not recorded in the books of accounts. The Assessing Officer (AO) initiated penalty proceedings under section 271AAB(1)(a) of the Act, imposing a penalty of 10% on the undisclosed income. The CIT(A) partly confirmed this penalty, reducing it to ?75,00,000/- based on the assessee's claim that ?1,50,00,000/- was offered to buy peace and avoid litigation, and hence should not attract penalty.

2. Validity of the penalty notice issued under section 274 read with section 271:
The assessee argued that the penalty notice was defective as it did not specify the charge of penalty. However, the Tribunal found that the notice provided the assessee with a reasonable opportunity to be heard, fulfilling the requirement under section 274. The Tribunal referred to the judgment of the Hon'ble High Court of Allahabad in the case of Sandip Chandak, which stated that the provisions of section 271AAB automatically attract in cases where undisclosed income is admitted during a search, and the procedural requirements under section 274 were met.

3. Applicability of the principle of "buying peace" to avoid penalty:
The assessee contended that no penalty should be imposed on the ?1,50,00,000/- offered to buy peace, citing judicial precedents such as Girish Devchand Rajani and Punjab Tyres, which held that penalty is not leviable when income is offered to avoid litigation. The CIT(A) accepted this argument, relying on the Supreme Court's decision in Sudharsan Silk & Sarees, which held that penalty cannot be levied on amounts offered to buy peace. However, the Tribunal upheld the penalty on ?75,00,000/-, finding that it was undisclosed income discovered during the search and thus subject to penalty under section 271AAB(1)(a).

4. Binding nature of judicial precedents and the doctrine of per incuriam:
The Tribunal discussed the binding nature of judicial precedents and the doctrine of per incuriam, referring to decisions such as Mamleshwar Prasad and A.K. Mukherjee. The Tribunal noted that a judgment rendered in ignorance of a statutory provision or binding authority may not act as a binding precedent. The Tribunal also considered the decision of the Hon'ble High Court of Calcutta in A.K. Mukherjee, which emphasized that a judgment must be read in the context of the question before the court and not in isolation.

Conclusion:
The Tribunal dismissed all the cross-objections filed by the assessee, upholding the penalty imposed on the undisclosed income of ?75,00,000/- under section 271AAB(1)(a). The Tribunal found that the procedural requirements for imposing the penalty were met, and the principle of "buying peace" did not apply to the undisclosed income discovered during the search. The Tribunal also emphasized the importance of adhering to binding judicial precedents and the correct interpretation of statutory provisions.

← Previous Next →