2019 (12) TMI 688 - AT - Income Tax

Levy of penalty u/s 271AAB(1)(a)(ii) - During the course of search, the Investigation team found incriminating material in the form of a note in I-pod with regard to rate quoted by the assessee for sale of plots @₹ 4,600/- per square yard which was seized in the office and also in the residential premises of the partners / directors of the assessee firm - HELD THAT - Though the incriminating material was found indicating sale of plots at ₹ 4,600/- per sq.yd. the assessee admitted the income @3,700/- for Sunray Village and ₹ 2,700/- for Sunray Beach Front after deducting the expenditure which was paid outside the books of accounts and the AO had accepted the admission made by the assessee and completed the assessment. From the assessment order and the penalty order, we find that the assessee had explained the manner in which the additional income was admitted stating that the plots were sold @2,700/- and ₹ 3,700/- per sq.yd and the sale consideration was recorded at the rate lesser than the sale consideration accounted in the books of accounts. No evidence was brought on record by the revenue to show that the contention of the assessee was incorrect. In fact the revenue has accepted the submissions made by the assessee and completed the assessment on the disclosure made by the assessee. Therefore, we hold that the assessee has satisfied the conditions laid down u/s 271AAB for levying penalty @10% which the Ld.CIT(A) has upheld. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. - Decided against revenue Penalty u/s 271AAB and 271F - assessee admitted the additional income of ₹ 2.00 crores for the assessment year which was accepted by the department and completed the assessment estimating the income @18% on gross contract receipts before depreciation - AR argued that the AO should have initiated penalty u/s 271(1)(c) - A.Y.2014-15 - HELD THAT - Though in the earlier years, the assessee had admitted the additional income on the net consideration received, in the year under consideration the admission was only towards estimated profits for future period i.e. from 01.04.2013 to 31.04.2014. The AO also completed the assessment estimating the income @18% rejecting the books of accounts of the assessee company before depreciation. No material was also brought on record to support the estimation of income @18% on gross receipts. Though the AO completed the assessment on estimation of income, penalty was initiated u/s 271AAB instead of 271(1)(c). From the material gathered, submissions made by the assessee and from the records, we are of the considered view that no material was available with the department to hold that there was undisclosed income for the previous year ending 31.03.2014 till the date of search. Thus, there is no case for levying the penalty u/s 271AAB and we do not find any reason to interfere with the order of the Ld.CIT(A). Accordingly, the appeals of the revenue as well as the cross objections filed by the assessee are dismissed.

Summary

Issues Involved:
1. Levy of penalty under Section 271AAB(1)(a)(ii) of the Income Tax Act, 1961.
2. Determination of undisclosed income and its substantiation.
3. Quantum of penalty to be levied (10% vs. 30%).

Detailed Analysis:

1. Levy of Penalty under Section 271AAB(1)(a)(ii) of the Income Tax Act, 1961:
The appeals revolve around the levy of penalty under Section 271AAB(1)(a)(ii) following a search under Section 132. During the search, incriminating material was found, leading to the assessee admitting undisclosed income. The Assessing Officer (AO) initiated penalty proceedings under Section 271AAB and levied a penalty of ?1,68,03,824, being 30% of the undisclosed income of ?5,60,12,746.

2. Determination of Undisclosed Income and Its Substantiation:
The assessee admitted to an undisclosed income of ?11.65 crores for A.Y. 2008-09 to 2013-14 and ?2 crores for A.Y. 2014-15. The AO argued that the assessee did not voluntarily admit the income but did so due to the search action. The AO also noted that the assessee failed to substantiate the manner in which the undisclosed income was derived. The CIT(A) found that the incriminating material indicated the sale of plots at ?4,600 per sq. yd. and that the assessee's admission of additional income constituted undisclosed income under Section 271AAB. The CIT(A) observed that the assessee had explained the manner in which the additional income was earned, thus satisfying the conditions for a 10% penalty.

3. Quantum of Penalty to be Levied (10% vs. 30%):
The AO levied a 30% penalty, asserting that the assessee did not substantiate the manner of earning the undisclosed income. However, the CIT(A) reduced the penalty to 10%, stating that the assessee had satisfied the conditions for a lower penalty. The CIT(A) found that the assessee had explained the manner of earning the additional income and had paid the taxes accordingly. The Tribunal upheld the CIT(A)'s decision, noting that the revenue did not provide evidence to counter the assessee's explanation and that the AO had accepted the assessee's submissions during the assessment.

Separate Judgment for A.Y. 2014-15:
For A.Y. 2014-15, the assessee admitted an additional income of ?2 crores, which the AO accepted and completed the assessment. The AO levied a 30% penalty under Section 271AAB, but the CIT(A) cancelled the penalty, stating that the additional income did not fall within the scope of undisclosed income as defined in Section 271AAB. The Tribunal upheld the CIT(A)'s decision, noting that the search was conducted at the beginning of the year and no material was found to support the AO's estimation of income for the period from 01.04.2013 to 27.04.2013. The Tribunal concluded that the penalty under Section 271AAB was not applicable and dismissed the revenue's appeal.

Conclusion:
The Tribunal dismissed the revenue's appeals and the assessee's cross-objections, upholding the CIT(A)'s decisions to impose a 10% penalty for A.Y. 2013-14 and to cancel the penalty for A.Y. 2014-15. The Tribunal found that the assessee had explained the manner of earning the additional income and that the revenue did not provide evidence to the contrary.