2019 (2) TMI 812 - AT - Income Tax

Penalty under section 271AAA - assessee has not substantiated the manner of earning of income - The assessee s responses to this is that neither any question in this regard was raised during search nor it is an issue of source of income as the item discovered were only certain jewellery - Held that - We find that the conduct of the assessee in this case is not contumacious so as to warrant levy of penalty. We further place reliance from the Apex Court decision rendered in the case of Hindustan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT wherein it was held that An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. Accordingly, we set aside the orders of the authorities below and delete the levy of penalty. - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty under section 271AAA of the Income-tax Act, 1961.

Detailed Analysis:
1. Background: The appeal was directed against the order of the Commissioner of Income Tax (Appeals) dated 26.12.2016 for the assessment year 2012-13.

2. Facts of the Case: A search and seizure action was conducted under section 132 of the Income Tax Act in the case of the assessee. The assessee initially declared undisclosed investment but did not offer it for taxation in the return filed under section 139 of the Act. Later, a revised return was filed declaring the undisclosed income. Penalty proceedings under section 271AAA were initiated.

3. Assessee's Contentions: The assessee argued that the case falls under section 271AAA(2) providing immunity from penalty. The assessee claimed to have paid taxes on the undisclosed income to avoid litigation and that the undisclosed income was offered in good faith.

4. Assessing Officer's Decision: The Assessing Officer levied a penalty under section 271AAA despite the assessee's explanations.

5. Commissioner's Decision: The Commissioner noted that the assessee failed to substantiate the manner in which the undisclosed income was derived, a condition for immunity under section 271AAA(2). The Commissioner upheld the penalty.

6. Appellate Tribunal's Decision: The Tribunal considered the bonafide conduct of the assessee, who disclosed the undisclosed income and paid taxes before filing the return. Citing legal precedents, the Tribunal held that the penalty should not be imposed for a technical breach when there is no contumacious conduct. The Tribunal set aside the penalty and allowed the appeal.

7. Conclusion: The Tribunal, based on the bonafide conduct of the assessee and legal precedents, deleted the penalty imposed under section 271AAA. The appeal was allowed, and the penalty was revoked.

This detailed analysis covers the background, facts of the case, contentions of the parties, decisions of the Assessing Officer and Commissioner, the Tribunal's reasoning, and the final conclusion of setting aside the penalty.