2019 (11) TMI 79 - AT - Income Tax

Levying of penalty u/s. 271AAB - voluntary disclosure of Income by assessee - HELD THAT - AO has not specified any document assets and entry during the course of search which indicate that assessee s additional undisclosed income, represents any money, bullion, jewellery or valuable article or any entry in the books or other documents therein. The assessee has made disclosure of ₹ 10.51 crore on account of the fact that certain income out of the real estate development and land related activities pertaining to F.Y. 2012-13 and F.Y. 2013-14 which were not recorded in the books of account as per statement u/s. 132(4) dated 30.08.2013 - there was no pin pointed question posed by the search team in regard to incriminating material/documents related to such undisclosed income. CIT(A) has confirmed the penalty u/s. 271AAB on the assumption bases by stating that admitted undisclosed income may be directly related to entries in loose papers and transactions not recorded in the books of accounts found subsequently during the course of search on 28.10.2013. Lower authorities have failed to establish that assessee has disclosed the income with reference to any specific loose papers/asset etc. AO has failed to substantiate that the disclosure made by the assessee u/s. 132(4) was on the basis of incriminating material. In the case of ACIT Sri Kanwar Sain Gupta 2018 (6) TMI 1559 - ITAT KOLKATA has held that the statement of the assessee without any corroborating evidence cannot be the only basis for levying penalty. - Decided in favour of assessee.

Summary

Issues:
Appeal against penalty u/s. 271AAB for A.Ys. 2013-14 & 2014-15.

Analysis:
The appeals were filed against the penalty levied under section 271AAB of the Income Tax Act, 1961 for the assessment years 2013-14 and 2014-15. The appellant contended that the disclosed income was voluntary and therefore, no penalty should be imposed. The Assessing Officer (AO) initiated penalty proceedings based on the undisclosed income declared during the search proceedings. The appellant had voluntarily disclosed income of ?2 crore for A.Y. 2013-14 and ?4.01 crores for A.Y. 2014-15. The AO levied penalties of ?20,00,000 and ?40,10,000 respectively. The appellant argued that the disclosed income was explained and offered in the original returns, hence penalty under section 271AAB should not apply.

The appellant appealed before the Ld. CIT(A) who dismissed the appeal. During the appellate proceedings, the appellant presented details and documents supporting the voluntary disclosure of additional income during the search action. The appellant's counsel argued that the disclosed income was bifurcated among group members, and no incriminating material was found during the search to support the undisclosed income. The appellant referred to various judicial pronouncements to support their case.

After hearing both sides and examining the facts, it was noted that no specific documents or assets were identified during the search indicating additional undisclosed income. The appellant had disclosed income related to real estate activities not recorded in the books of account. The AO failed to establish that the disclosure was based on incriminating material found during the search. The lower authorities assumed a direct link between the admitted undisclosed income and entries in loose papers found post-search. However, it was found that the authorities did not substantiate that the disclosure was based on incriminating material as required by Sec. 271AAB. Referring to a decision by ITAT Vishakhapatnam, it was emphasized that undisclosed income must be established based on incriminating material.

Consequently, the order of the lower authorities was set aside, and the penalty under section 271AAB was canceled. Both appeals of the assessee were allowed.

This judgment highlights the importance of establishing a direct link between disclosed income and incriminating material found during a search to levy penalties under section 271AAB of the Income Tax Act, ensuring a fair and evidence-based approach in penalty proceedings.