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2019 (2) TMI 736 - HC - Income TaxPenalty u/s 271AAA - recording the statement of the assessee under section 132(4) - Held that - Revenue failed to question the assessee while recording his statement under section 132 (4) as regards the manner of deriving such income, the Revenue cannot jump to the consequential or later requirement of substantiating the manner of deriving the income. In the context of the requirement of the assessee specifying the manner of deriving the income the decision of this Court in case of CIT vs. Mahendra C.Shah (2008 (2) TMI 32 - GUJARAT HIGH COURT) would hold the field even in the context of subsection (2) of section 271AAA. It is only when the officer of the raiding party recording the statement of the assessee under section 132(4) of the Act elicits a response from the assessee s this requirement, the assessee s responsibility to substantiate the manner of deriving such income would commence. When the base requirement itself fails, the question of denying the benefit of no penalty would not arise.
Issues:
Imposition of penalty under Section 271AAA of the Income Tax Act - Failure to specify the manner of earning undisclosed income - Interpretation of statutory provisions and case law precedents. Analysis: The appeal challenges the ITAT's decision to delete the penalty under Section 271AAA of the Income Tax Act. The main issue revolves around the requirement for the assessee to specify the manner in which undisclosed income was earned. The Assessing Officer contended that since the assessee did not disclose the earning manner, they were not eligible for penalty immunity. The Tribunal, however, referred to precedents from Allahabad and Gujarat High Courts to support the deletion of the penalty. The High Court examined the Tribunal's decision and found no error. It compared the requirement under Section 271AAA with a similar provision in Section 271 of the Act. Citing the Allahabad High Court's decision, it emphasized that the Authorized Officer must ask specific questions about the income's derivation manner during the statement recording. The Gujarat High Court also reiterated this stance, emphasizing that the officer must explain the provisions entirely to the assessee and not stop short during the recording. In a subsequent case, the Gujarat High Court reiterated that the responsibility to specify the income's derivation manner lies with the assessee only after the officer elicits a response during the statement recording. If the officer fails to question the assessee about the income's derivation manner, the assessee cannot be held accountable for substantiating it later. The Court held that the base requirement of specifying the earning manner must be fulfilled before the onus of substantiating it arises. The High Court dismissed the appeal, upholding the principle that the assessee's responsibility to substantiate the income's derivation manner arises only after specifying it during the statement recording. The failure of the Revenue to question the assessee about this manner during the recording absolves the assessee from the subsequent requirement of substantiation. The decision of the High Court in a previous case was deemed applicable even in the context of the additional requirement introduced by subsection (2) of Section 271AAA of the Act. In conclusion, the High Court affirmed the Tribunal's decision based on the interpretation of statutory provisions and case law precedents, emphasizing the importance of the assessee's initial specification of the income's derivation manner during the statement recording process to avoid penalties under Section 271AAA of the Income Tax Act.
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