2019 (3) TMI 1305 - AT - Income Tax

Penalty u/s 271AAA - appellant had made disclosure/surrender u/s 132(4) - if assessee has not paid the tax together with interest in respect of the undisclosed income, before the due date of filing of return of income but certainly before the assessment is made, would he get the immunity from penalty u/s 271 AAA or not? - time limit prescribed for getting the immunity - tax and interest has not been paid on or before the passing of the assessment order u/s 143 (3) - such tax should have been paid before at least due date of the filing of the return of income - HELD THAT - As per information available on record it is apparent that assessee has not paid the tax together with the interest in respect of the undisclosed income before the due date of filing of the return of income except, case seized of INR 12,100,000 during the course of search. Admittedly on such cash seized which is adjusted by the AO later on under section 154 of the income tax act the assessee should get benefit of the sum at least. However with respect to the balance sum, the assessee has not paid tax before the due date of the filing of the return for that impugned assessment year i.e. on or before 30/9/2011. Admittedly such tax has not been paid before the due date of filing of return of income but only later on. Reading of the provisions of section 271AAA we also do not find that there is any time limit for payment of the tax, despite the necessary condition. It is rather surprising that the legislator has made a condition precedent for immunity from levy of the penalty of payment of taxes along with interest on undisclosed income, but has not prescribed the time limit for the payment of such tax. It is necessary that whenever there is a condition precedent from seeking immunity from penalty of payment of tax, naturally there should also be a timeline by which it should have been paid. The legislature has not put such timeline. The honourable courts have interpreted such timeline up to the date of assessment because that is the time when the taxes are computed on the undisclosed income. CIT A has held that assessee has not paid tax alongwith the return of income, however there is another provision for consequences of for non payment of self assessment tax u/s 140A (3) of the Act but not 271AAA of the act. As relying on SMT. RITU SINGAL 2018 (3) TMI 593 - DELHI HIGH COURT we hold that when assessee has deposited complete tax before the assessment is made, the penalty u/s 271AAA to that extent cannot be levied. However, on reading the orders of the lower authorities as well as the information furnished by the AR, it is not certain about what is amount of tax paid before making the assessment u/s 143(3). Hence, we set aside the whole issue back to the file of the AO with a direction to levy penalty only on the proportionate sum for which tax and interest has not been paid on or before the passing of the assessment order u/s 143 (3) of the act. Accordingly, we reverse the order of the lower authorities and direct the learned assessing officer to recompute penalty u/s 271AAA of the act only on the tax along with interest on undisclosed sum remaining outstanding up to the date of assessment. - Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Initiation and imposition of penalty under Section 271AAA of the Income Tax Act.
2. Compliance with conditions under Section 271AAA(2) for immunity from penalty.
3. Calculation and payment of tax and interest on undisclosed income.
4. Delay in deposit and credit of seized cash.
5. Declaration of assessee as "assessee in default."
6. Approval of penalty imposition under Section 274(2) in a mechanical manner.

Detailed Analysis:

1. Initiation and Imposition of Penalty under Section 271AAA
The appeal was filed against the confirmation of a penalty of INR 20,000,000 levied under Section 271AAA by the Deputy Commissioner of Income Tax and upheld by CIT(A)-29, New Delhi. The penalty was imposed due to the assessee's failure to pay the full tax and interest on undisclosed income before the due date of filing the return.

2. Compliance with Conditions under Section 271AAA(2)
The assessee argued that they fulfilled all conditions under Section 271AAA(2), including:
- Admitting the undisclosed income during the search.
- Specifying and substantiating the manner in which the income was derived.
- Paying the tax and interest on the undisclosed income.

However, the AO and CIT(A) held that the penalty was justified as the full tax and interest were not paid by the due date for filing the return.

3. Calculation and Payment of Tax and Interest on Undisclosed Income
The assessee disclosed INR 200,000,000 as undisclosed income and filed the return on 20/09/2012. The AO noted that the tax on this income was not fully paid by the due date (30/09/2011). The CIT(A) confirmed the penalty, stating that the taxes were not paid along with the return, and thus, immunity from penalty could not be availed.

4. Delay in Deposit and Credit of Seized Cash
The assessee contended that INR 12,100,000 seized during the search was not credited as advance tax timely, leading to overcharged interest under Sections 234A, B, and C. The AO later adjusted this amount on 10/06/2013, and the assessee argued that the entire tax had been paid before the penalty was levied.

5. Declaration of Assessee as "Assessee in Default"
The assessee argued that they were wrongly declared as "assessee in default" without reasonable time to make payments, despite making voluntary payments and having no outstanding dues at the time of appeal.

6. Approval of Penalty Imposition under Section 274(2)
The assessee claimed that the Additional CIT approved the penalty in a mechanical manner without applying his mind, making the penalty bad in law.

Tribunal's Findings:
The Tribunal considered the rival contentions and noted that the assessee disclosed the income and specified the manner of earning it, satisfying the first two conditions under Section 271AAA(2). The primary issue was whether the tax and interest on the undisclosed income were paid timely.

The Tribunal referred to the Delhi High Court's decision in PCIT v. Ritu Singhal, which held that the outer time limit for payment of tax is not necessarily before the due date of filing the return but can extend to the assessment stage. The Tribunal found that the assessee paid the tax before the assessment was made, thus satisfying the third condition for immunity from penalty.

However, the Tribunal observed that it was unclear what amount of tax was paid before the assessment order under Section 143(3). Therefore, the Tribunal set aside the issue to the AO to recompute the penalty proportionate to the unpaid tax and interest up to the date of assessment.

Conclusion:
The appeal was allowed for statistical purposes, and the AO was directed to recompute the penalty under Section 271AAA based on the proportionate unpaid tax and interest up to the date of assessment. The order of the lower authorities was reversed accordingly.

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