2019 (4) TMI 1518 - AT - Income Tax

Penalty u/s 271AAB - assessee s search disclosure amounted to undisclosed income within the meaning of section 271AAB Explanation (c) - HELD THAT - The taxpayer on the other hand strongly supports the CIT(A) s findings deleting the impugned penalty mainly on the ground that the disclosure in issue was made suo motu without any corroborating material found or seized during the course of search which could form the basis for levying the penalty in issue. We find in this backdrop of facts the instant issue raised at the Revenue s behest as to whether the impugned sec. 271AAB penalty is automatic or not is no more res integra. see DCIT, CENTRAL CIRCLE-2 (2) , KOLKATA VERSUS AKA LOGISTICS PVT. LTD., AMBEY MINING PVT. LTD., M/S CALCUTTA INDUSTRIAL SUPPLY CORP. 2019 (3) TMI 209 - ITAT KOLKATA Validity of sec. 271AAB proceedings in a show cause indicating sec. 271(1)(c) action - penalty show cause notice did not specify the specific charge / clause of sec. 271AB - HELD THAT - Revenue has sufficiently proved right from the beginning that the assessee s undisclosed income is based on corroborative material found during the course of search relations to impugned assessment year 2013-14 only. Learned coordinate bench has already taken sufficient note of all these judicial precedents in identical backdrop of facts. Hon'ble apex court s decision in Sandeep Chadak 2018 (6) TMI 106 - SUPREME COURT OF INDIA has admittedly declined the very argument challenging validity of sec. 271AAB proceedings in a show cause indicating sec. 271(1)(c) action. We do not find any prejudice caused to the assessee once the AO had initiated sec. 271AAB proceedings to the instant lead case Condonation of delay in filing objections 548 days - various procedural formalities and compilation of necessary records - HELD THAT - The Revenue is fair enough in not disputing correctness of the said condonation averments. We therefore condone the above identical delay in all these cross objection(s). The same are now taken up for adjudication on merits.

Summary

Issues Involved:
1. Delay in filing cross objections.
2. Correctness of penalties imposed under Section 271AAB of the Income Tax Act, 1961.
3. Validity of penalty proceedings and specific charges in show-cause notices.

Detailed Analysis:

1. Delay in Filing Cross Objections:
The cross objections (CO Nos. 104-106/Kol/2018) suffered from an identical delay of 548 days in filing. The assessees submitted condonation petitions and affidavits citing procedural formalities and compilation of necessary records as reasons. The Revenue did not dispute the correctness of these condonation averments. Consequently, the tribunal condoned the delay and took up the cross objections for adjudication on merits.

2. Correctness of Penalties Imposed Under Section 271AAB:
The primary issue across the seventeen cases was the correctness of penalties imposed under Section 271AAB. The penalties were imposed following a search dated 16.10.2012, and the Assessing Officer (AO) concluded that the disclosures made by the assessees amounted to "undisclosed income" inviting penal proceedings under Section 271AAB. The AO levied penalties at 10% of the disclosed amounts.

The CIT(A) reversed the AO’s action, noting that the penalties were based on disclosures made suo motu by the assessees without any corroborating evidence found during the search. The CIT(A) referenced the Supreme Court’s judgment in Sudharsan Silk and Sarees, which held that penalty provisions do not apply if the disclosure is made to buy peace of mind without any incriminating evidence found during the search. The CIT(A) emphasized that the penalty under Section 271AAB requires "undisclosed income" and a "specified previous year," and in these cases, the disclosures were made without any supporting evidence.

The tribunal upheld the CIT(A)’s decision, confirming that Section 271AAB penalties are not automatic and require corroborative evidence found during the search. The tribunal referenced its coordinate bench’s decision in ITA No.1604/Kol/2017, which clarified that penalties under Section 271AAB apply only when there is corresponding material indicating undisclosed income.

3. Validity of Penalty Proceedings and Specific Charges in Show-Cause Notices:
The assessees argued that the AO’s penalty show-cause notices did not specify the specific charge or clause under Section 271AAB. The tribunal found no merit in this argument, noting that the AO’s assessment order clearly indicated the initiation of Section 271AAB proceedings. The tribunal referenced the jurisdictional High Court’s decision in Pr.CIT vs. M/s SRMB Srijan Ltd., which held that penalty proceedings must specify the taxpayer’s default regarding undisclosed income. However, the tribunal concluded that the AO had sufficiently proved the undisclosed income based on corroborative material found during the search.

Conclusion:
The tribunal dismissed all Revenue’s appeals and assessees’ cross objections, affirming the CIT(A)’s findings. The penalties not based on corroborative evidence were deleted, while those based on evidence found during the search were confirmed. The tribunal emphasized that penalties under Section 271AAB are not automatic and require specific evidence of undisclosed income. The order was pronounced in open court on 24/04/2019.