2019 (5) TMI 1260 - AT - Income Tax

Penalty u/s 271AAA - income surrendered during the course of search seizure action u/s 132 - recording of satisfaction in the assessment order before initiating penalty - HELD THAT - We are of the considered view that the CIT (A) has deleted the penalty on the wrong premise that the AO has not recorded his satisfaction in the assessment order itself as to the reasons why he was satisfied that penalty u/s 271AAA should be initiated. Because in the assessment order AO sought to initiate the penalty proceedings u/s 271AAA qua the surrendered amount during search operation which is in accordance with the provisions contained in the section. Even otherwise, all the conditions laid down to initiate the penalty proceedings u/s 271AAA are complete as discussed in the preceding paras. Failure to substantiate the manner in which the undisclosed income as derived and liability to penalized as required u/s 271AAA(2) - In the instant case, instead of complying with the provisions laid down u/s 271AAA (2) to specify the manner in which the surrendered income has been derived and to substantiate the manner in which the undisclosed income was derived, assessee merely harped upon his statement that the surrender is being made to buy peace and to avoid litigation with the Department in the spirit of cooperation, to avail of the escape route from the penalty under sub-section (2) of section 271AAA. So, when the assessee has failed to specify the manner and substantiate the manner in which the undisclosed income was derived rather embark upon the mercy plea that he is making surrender to buy peace of mind and avoid litigation, he is not entitled for the benefit of section 271AAA(2) of the Act. Following the decision rendered in case cited as Pr.CIT vs. Smt. Ritu Singal 2018 (3) TMI 593 - DELHI HIGH COURT we are of the considered view that ld. CIT (A) has erred in deleting the penalty u/s 271AAA, hence appeal filed by the Revenue is hereby allowed and penalty order passed by the AO is restored. - Decided in favour of revenue

Summary

Issues Involved:
1. Whether the CIT(A) erred in law and facts by deleting the penalty imposed under Section 271AAA of the Income Tax Act.
2. Whether the Assessing Officer (AO) is required to record his satisfaction before initiating penalty proceedings under Section 271AAA.
3. Whether the assessee failed to substantiate the manner in which the undisclosed income was derived, thus making them liable for penalty under Section 271AAA(2).

Issue-wise Detailed Analysis:

1. Deletion of Penalty by CIT(A):
The Revenue challenged the order of the CIT(A) which deleted the penalty of ?2,18,10,000 imposed by the AO under Section 271AAA. The penalty was levied on the surrendered amount of ?21,81,00,000 during a search and seizure action. The CIT(A) deleted the penalty, relying on Tribunal and High Court decisions, concluding that the AO did not question the assessee during the search or assessment proceedings about the manner in which the undisclosed income was derived. Furthermore, the AO did not record his satisfaction in the assessment order regarding the reasons for initiating penalty proceedings under Section 271AAA.

2. Requirement of AO's Satisfaction for Initiating Penalty:
The Tribunal examined whether the AO is required to record his satisfaction before initiating penalty proceedings under Section 271AAA, similar to the requirement under Section 271(1)(c). It was determined that under Section 271AAA, the satisfaction of the AO is not the same as in Section 271(1)(c). Section 271AAA(2) provides an escape route for the assessee if three conditions are met: (i) admission of undisclosed income during the search, specifying the manner in which such income was derived, (ii) substantiation of the manner in which the undisclosed income was derived, and (iii) payment of tax and interest on the undisclosed income. The Tribunal concluded that the CIT(A) wrongly deleted the penalty on the premise that the AO did not record his satisfaction in the assessment order.

3. Substantiation of Undisclosed Income:
The Tribunal analyzed whether the assessee failed to substantiate the manner in which the undisclosed income of ?21,81,00,000 was derived, as required under Section 271AAA(2). The assessee's statement during the search mentioned that the income was speculative and utilized for land development and facilitation expenses. However, the Tribunal found that merely terming the income as "speculative" did not specify or substantiate the manner in which the income was derived. The Tribunal emphasized that the assessee must specify and substantiate the manner of deriving the income during the search statement under Section 132(4) and not afterward. The Tribunal referred to the Delhi High Court decision in Pr.CIT vs. Smt. Ritu Singal, which held that the assessee must provide specific details on how the income was derived to fulfill the requirements of Section 271AAA(2).

Conclusion:
The Tribunal concluded that the CIT(A) erred in deleting the penalty since the assessee failed to comply with the conditions under Section 271AAA(2) to avail of the amnesty. The assessee's statement during the search did not specify or substantiate the manner in which the undisclosed income was derived. Consequently, the Tribunal allowed the Revenue's appeal, restoring the penalty order passed by the AO. The order was pronounced in open court on May 14, 2019.