2019 (10) TMI 716 - AT - Income Tax

Penalty u/s 271AAA - @ 10% confirmed after the order of ITAT more so when the addition is based on estimation of trading profit by applying GP rate - HELD THAT - It is not a case of mere estimation of gross profit rate on declared turnover of the assessee but the fact of the matter which is clearly emerging from the orders of the authorities below as well as decision of the Coordinate Bench is that such estimation of gross profit is on reported sales/turnover as well as the undisclosed sales/turn over which has not been disclosed by the assessee in its regular books of accounts which was surrendered on the basis of search carried out at the premises of the assessee. Therefore, to the extent of profit estimated on undisclosed sales/turn over which has been found in the course of search and which has not been disclosed/recorded in the books of accounts maintained in the normal course of business, it is clearly a case of undisclosed income as defined in explanation to section 271AAA. No infirmity in the findings of the ld CIT(A) where he says that such addition is also covered under the definition of undisclosed income being directly relatable to seized documents from the appellant of the specified previous year . The penalty so levied on undisclosed income of ₹ 61,19,120 is hereby confirmed. Before parting, we would like to state that the decisions of Hon ble High Court relied upon by the assessee are distinguishable on facts and doesn t support the case of the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of penalty imposed under section 271AAA of the Income Tax Act, 1961.
2. Definition and scope of "undisclosed income" under section 271AAA.
3. Estimation of Gross Profit (GP) rate and its implications on penalty.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty Imposed Under Section 271AAA:
The core issue revolves around the penalty imposed by the Assessing Officer (AO) under section 271AAA on the assessee's undisclosed income. The AO imposed a penalty of ?30,71,912 on the surrendered income of ?2,46,00,000 and the additional income of ?61,19,120 sustained by the Tribunal. The CIT(A) deleted the penalty on the surrendered income but confirmed it on the additional income. The Tribunal upheld the penalty on the additional income, affirming that it fell under the definition of "undisclosed income" as per section 271AAA.

2. Definition and Scope of "Undisclosed Income" Under Section 271AAA:
The assessee argued that the additional income of ?61,19,120, sustained by the Tribunal, was based on the estimation of the GP rate and did not represent "undisclosed income." The Tribunal referred to the definition in Explanation 2 of section 271AAA, which includes income not recorded in the books of account or disclosed before the search. The Tribunal concluded that the additional income was indeed "undisclosed income" as it was derived from unrecorded sales discovered during the search.

3. Estimation of Gross Profit (GP) Rate and Its Implications on Penalty:
The Tribunal examined the findings of the AO, CIT(A), and the Co-ordinate Bench regarding the estimation of the GP rate. The AO had computed the net profit based on a special audit, revealing undisclosed sales and profits. The CIT(A) adjusted the GP rate to 24% on estimated sales of ?26 crores. The Co-ordinate Bench further refined this to a weighted average GP rate of 16.98% on a turnover of ?25,06,61,673. The Tribunal emphasized that the additional income was not merely an estimation but was based on unrecorded sales discovered during the search, thus justifying the penalty under section 271AAA.

Conclusion:
The Tribunal confirmed the penalty on the additional income of ?61,19,120, affirming that it constituted "undisclosed income" as per section 271AAA. The appeal of the assessee was dismissed, and the findings of the lower authorities were upheld. The decision underscores the importance of accurate record-keeping and the implications of undisclosed income discovered during search operations.