2019 (9) TMI 486 - AT - Income Tax

Levy of penalty u/s 271AAA - allegation that, assessee had not accounted for this surrendered income in his books of account on the date of search and further the assessee has failed to specify the manner in which such income has been derived and even failed to substantiate such manner - HELD THAT - It is a case where in the seized documents, the aforesaid transactions were recorded, which when being confronted to the assessee, he explained about the mode and manner of earning of such income, which duly stood substantiated in the shape of the documents found during search action. It is not a case where any unaccounted income in the shape of cash or otherwise, was found, of which the assessee could not explain the source, or to say, specify the mode and manner of the earning. In view of this, as per the provisions of section 271AAA the assessee s case squarely falls within the exceptional clauses of sub-section (2) of section 271AAA. The assessee in the course of search has made a statement and has admitted the undisclosed income and also specified the manner of earning of income, which also stood substantiated from the documents seized and has also paid the due taxes together with interest in respect of the undisclosed income. In view of this, the action of the lower authorities in levying the impugned penalty cannot be held to be justified. - Decided in favour of assessee Penalty in respect of which even no document/evidence of any unaccounted transaction was found - assessee surrendered the aforesaid income to cover up further discrepancies, if any, found in the seized documents - HELD THAT - Definition of undisclosed income would show that there must be some income found during the course of search action either in the form of money, bullion or jewellery or other items or there must be some transaction or entry either not recorded in the books of account or in the form of expenditure or an entry of any expenditure, etc., which is found to be false. However, we find that in the case of surrender except the seized documents, otherwise nothing was found during the search action which would construe undisclosed income of the assessee as defined under the provisions of section 271AAA - Though the assessee has honored its commitment and has duly offered for taxation the total surrendered income. It is not a case of levy of penalty either in the case of the surrendered amount, the mode and manner of remaining of which has been stood specified and substantiated, as held by the CIT(A), nor in respect of the remaining amount which would otherwise, not fall within the definition of undisclosed income. - Decided in favour of assessee

Summary

Issues Involved:
Validity of levy of penalty under section 271AAA of the Income Tax Act, 1961.

Analysis:

ITA No.739/Chd/2016:
- The Department appealed against the penalty imposed under section 271AAA of the Act.
- The assessee surrendered additional income during a search operation.
- The AO levied the penalty as the income was not accounted for in the books of account.
- The CIT(A) upheld the penalty.
- The assessee explained the manner of earning the surrendered income.
- The Tribunal found that the assessee specified and substantiated the manner of earning the income.
- The Tribunal held that the penalty was not justified as the income was disclosed, taxes were paid, and the manner of earning was substantiated.
- The appeal of the Revenue was dismissed.

ITA No.1266/Chd/2017 and ITA No.1304/Chd/2017:
- The CIT(A) confirmed penalty on a surrendered amount that lacked specific asset representation.
- The Revenue challenged the deletion of penalty on part of the surrendered income.
- The Tribunal noted that no undisclosed income was found during the search, except in seized documents.
- The CIT(A) deleted penalty on income related to seized documents but confirmed penalty on the remaining amount.
- The Tribunal found that the remaining surrendered amount did not fall under the definition of undisclosed income.
- The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed.

In conclusion:
- The penalty under section 271AAA was not justified when income was disclosed and substantiated.
- Surrendered amounts without evidence of undisclosed income were not subject to penalty.
- The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal in the respective cases.