2019 (3) TMI 209 - AT - Income Tax

Penalty u/s 271AAB - additional income disclosures only during the course of search & seizure operation - undisclosed income - specified previous year in terms of sub-clause (i) of clause (b) of Explanation to section 271AAA - meaning of the terms date of search - additional incomes suo motu and substantiated the manner of having derived the same from various business such as mining, civil construction, transportation and other activities followed by due payments of tax - expression before the date of search in the definition of undisclosed income . HELD THAT - imposition the impugned penalty u/s 271AAB not automatic - mere issue of notice to impose penalty u/s 271(1)(c) is not sufficient - Assessing Officer had to apply u/s 271AAB Explanations clause (a) to (c). On an analysis of the expression before the date of search in the definition of undisclosed income , it amply transpires that it refers to the date of initiation of the search . Our reasoning is that part (A) in clause (i) of the Explanation (a) refers to the undisclosed income etc. which has not been recorded in the books of account before the date of search. It necessarily has to be an income which is not found to be recorded at the time of initiation of search and it cannot be an income which is not found to be recorded at the time of conclusion of search. Specified previous year in this case u/s. 271AAB Explanation (b)(ii) squarely applies in given facts and circumstances of the case. We wish to repeat here at the cost of brevity that impugned search is dated 20.12.2012. The assessee s last date of filing return u/s 139(1) was upto on 30.09.2012. The specified previous year therefore has been rightly taken in the instant case to be financial year 2012-13 under the above statutory provision. We conclude in these facts that CIT(A) has rightly sustained the impugned penalty of ₹17 lac qua the impugned cash sum declared during the course of search as undisclosed income under Explanation (c) of the Act.

Issues Involved:
1. Delay in filing the Revenue's appeals.
2. Merits of the penalty proceedings under Section 271AAB of the Income Tax Act, 1961.
3. Assessing Officer's decision to levy penalties.
4. CIT(A)'s decision to delete or restrict penalties.
5. Revenue's argument for automatic imposition of penalties.
6. Assessee's argument against the imposition of penalties.
7. Interpretation of "specified previous year" and "undisclosed income" under Section 271AAB.

Detailed Analysis:

1. Delay in Filing the Revenue's Appeals:
The Revenue's appeals suffered from a 25-day delay in filing, attributed to the compilation of necessary documents and procedural formalities. The assessees did not dispute this delay. Consequently, the delay was condoned as neither intentional nor deliberate.

2. Merits of the Penalty Proceedings under Section 271AAB:
The Assessing Officer levied penalties of ?45 lakh, ?38.50 lakh, and ?35.50 lakh on the assessees at 10% of additional income disclosures amounting to ?4.5 crores, ?4.02 crores, and ?3.55 crores, respectively. The CIT(A) deleted the penalties in the first and third cases entirely and restricted the penalty in the second case to ?17 lakh.

3. Assessing Officer's Decision to Levy Penalties:
The Assessing Officer initiated penalty proceedings under Section 271AAB based on the additional income disclosed by the assessees during the search. The assessees argued that they had declared their additional incomes suo motu and substantiated the manner of deriving the same from various businesses. The Assessing Officer, however, held that the disclosures were made only due to the search and levied penalties accordingly.

4. CIT(A)'s Decision to Delete or Restrict Penalties:
The CIT(A) deleted the penalties in the first and third cases and restricted the penalty in the second case to ?17 lakh. The CIT(A) reasoned that the additional income of ?3.85 crore in the second case was offered suo motu without any evidence of undisclosed income or assets found during the search. The penalty was thus restricted to ?17 lakh, which was backed by evidence.

5. Revenue's Argument for Automatic Imposition of Penalties:
The Revenue contended that the penalty under Section 271AAB is automatically applicable when the searched assessee declares additional income. The Revenue cited the Supreme Court's decision in Sandeep Chandak vs. PCIT to support this argument, asserting that the penalty provision comes into play the moment additional income is declared during a search.

6. Assessee's Argument Against the Imposition of Penalties:
The assessees argued that the penalty under Section 271AAB could only be levied if the undisclosed income was derived from specified categories of assets or transactions found during the search. They cited various tribunal decisions supporting this interpretation. The assessees also argued that the penalty provision is not automatic and must be applied with discretion.

7. Interpretation of "Specified Previous Year" and "Undisclosed Income":
The tribunal held that the penalty under Section 271AAB applies only if the undisclosed income is derived from specified categories of assets or transactions found during the search. The tribunal also distinguished the Supreme Court's decision in Sandeep Chandak, noting that it did not support the automatic imposition of penalties. The tribunal upheld the CIT(A)'s decision to delete or restrict the penalties, concluding that Section 271AAB does not apply automatically in case of a search.

Conclusion:
The tribunal dismissed the Revenue's appeals and the first and third assessees' cross objections as infructuous. The second assessee's cross objection challenging the sustained penalty of ?17 lakh was also dismissed. The tribunal confirmed that the penalty under Section 271AAB applies only in cases involving corresponding material indicating undisclosed income, rather than automatically following a search.

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