2019 (11) TMI 597 - AT - Income Tax

Penalty u/s. 271AAB - 10% OR 30% of undisclosed income - HELD THAT - The fact remains that the seized cash of ₹ 65.50 lacs was in the Department s custody since 20-03-2015 and the assessee in his statement dated 05-05- 2015 as also at the time of filing of the return had made requests in writing for adjustment of seized cash. For deciding the date of payment , it is wholly immaterial whether or not such payment is regarded as advance tax . Material fact is that the Department itself treated the seized cash to be the payment made towards discharge of assessee s tax liability. In the foregoing circumstances the only conclusion which one may draw is that the date of cash seizure was the date of tax payment and therefore no interest u/s 234B could be levied once the date of payment is held to be 20.03.2015. Grounds raised before us by the Revenue s appeal that the Revenue per se has not objected to the ld. CIT(A) specific finding of fact that the assessee in his statement u/s. 132(4) dt. 05-05-2015 had requested the AO to adjust the seized amount of ₹ 65.50 lakhs against the tax payable on the undisclosed income. This finding of fact by the ld. CIT(A) has been not challenged before us, which finding thus crystallizes and becomes final. We therefore hold that the ld. DR s contention that assessee made the plea of adjustment of seized cash against tax on undisclosed income much after the completion of assessment is per-se wrong. CIT(A) has rightly held that the assessee did not commit the default of non-payment of tax before filing of return and therefore penalty could not be levied at 30% of the undisclosed income. And moreover, the department having taken the amount of ₹ 65.50 lakhs in their custody, cannot take unjust enrichment of it, when on one hand the department says it is assessees undisclosed income and then, not doing what he assessee directs to do with his money and thereafter finding fault with him and penalizing him for their revenue own omission cannot be accepted. We accordingly uphold the ld. CIT(A) s order restricting the penalty levied at 10% of the undisclosed income in the facts circumstances of the case. So, we confirm the action of Ld CIT(A) and dismiss the Ground Nos. 1and 2 of the Revenue. Benefit of Section 271AAB(1)(a) to the assessee just on the basis of payment of his tax liability on undisclosed income by way of adjustment of seized cash against the advance tax as held by him - The only ground for which the penalty was levied under Section 271AAB(1)(c) was that the assessee had failed to pay tax along with interest before filing of the return for the specified year. Except this lone reason, the AO did not cite any other reason or ground justifying the levy of penalty. We also note that the ld. CIT(A) adjudicated the assessee s appeal with reference to correctness of such sole ground on which the AO had levied the penalty. We therefore find that Ground No. 3 taken by the Revenue does not emanate from the orders of the lower authorities. We also find merit in the ld. AR s submission that the penalty proceedings being quasi criminal in nature, the AO was bound to spell out the precise reasons at the time of passing of the penalty order and he cannot be permitted to make out new grounds before the Tribunal justifying his action of levying penalty and thus enlarge the scope of the appeal, which is not permissible. We therefore hold that since. Ground No. 3 raised by the Revenue does not arise from the orders of lower authorities, this ground is dismissed in limine.

Summary

Issues Involved:

1. Whether the CIT(A) erred in restricting the penalty u/s 271AAB to 10% of undisclosed income.
2. Whether the CIT(A) correctly held that the assessee was entitled to the benefit of Section 271AAB(1)(a).
3. Whether the CIT(A) erred in giving the benefit of Section 271AAB(1)(a) without the assessee specifying the manner in which the undisclosed income was derived.

Detailed Analysis:

Issue 1: Restriction of Penalty to 10%

The Revenue appealed against the CIT(A)'s decision to restrict the penalty u/s 271AAB to 10% of undisclosed income, as opposed to the AO's imposition of a 30% penalty. The AO argued that the assessee failed to deposit the full tax and interest on the undisclosed income before filing the return, thus justifying a 30% penalty under Section 271AAB(1)(c). The CIT(A), however, found that the assessee had requested the adjustment of seized cash against the tax liability in his statement u/s 132(4) and at the time of filing the return. The CIT(A) noted that the AO eventually allowed this adjustment in an order u/s 154, and thus the assessee had effectively discharged his tax liability before the completion of assessment. Consequently, the CIT(A) restricted the penalty to 10% as per Section 271AAB(1)(a).

Issue 2: Entitlement to Benefit of Section 271AAB(1)(a)

The CIT(A) concluded that the assessee was entitled to the benefit of Section 271AAB(1)(a), which imposes a 10% penalty, because the conditions prescribed therein were satisfied. The AO had initially refused to grant this benefit, arguing that the assessee had not paid the entire tax liability before the completion of assessment. However, the CIT(A) found that the AO's refusal to adjust the seized cash against the tax liability was incorrect, as the request for adjustment was made well before the completion of assessment. The CIT(A) determined that if the AO had promptly acted on the request, there would have been no shortfall in the payment of tax on the undisclosed income, thus entitling the assessee to the benefit of Section 271AAB(1)(a).

Issue 3: Manner of Deriving Undisclosed Income

The Revenue contended that the CIT(A) erred in giving the benefit of Section 271AAB(1)(a) because the assessee did not specify the manner in which the undisclosed income was derived, as required by the section. However, the Tribunal found that this ground was not raised by the AO at the time of imposing the penalty. The AO had solely based the penalty on the ground that the assessee failed to pay the tax and interest before filing the return. The Tribunal held that the Revenue could not introduce new grounds at the appellate stage that were not part of the original assessment or penalty order. Consequently, the Tribunal dismissed this ground in limine.

Conclusion:

The Tribunal upheld the CIT(A)'s order restricting the penalty to 10% of the undisclosed income, finding that the assessee had effectively discharged his tax liability before the completion of assessment. The Tribunal also dismissed the Revenue's new ground regarding the manner of deriving the undisclosed income, as it was not part of the original penalty proceedings. Thus, the Tribunal dismissed the Revenue's appeal in its entirety.