2020 (1) TMI 962 - AT - Income Tax

Penalty u/s 271AAB - No undisclosed income found - HELD THAT - When the Revenue has failed to explain any undisclosed income as per the statutory definition and affirm the CIT(A) s findings deleting the impugned penalty(ies). Revenue fails in its sole substantive grievance

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271AAB of the Income Tax Act, 1961.
2. Definition and interpretation of "undisclosed income" under Explanation (c) to Section 271AAB.
3. Validity of penalty proceedings and notices issued by the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271AAB:
The Revenue's appeals sought to reverse the CIT(A)'s action of deleting penalties under Section 271AAB for the assessment years 2013-14 and 2014-15. The penalties were imposed by the Assessing Officer (AO) based on the income disclosed during a search operation. The AO argued that the income disclosed by the appellant constituted "undisclosed income" and levied a penalty at 30% under clause (c) of Section 271AAB. However, the CIT(A) found that the income did not fall within the definition of "undisclosed income" as per Explanation (c) to Section 271AAB, leading to the deletion of the penalties.

2. Definition and Interpretation of "Undisclosed Income":
The CIT(A) examined the term "undisclosed income" as defined in Explanation (c) to Section 271AAB, which includes:
- Income represented by money, bullion, jewelry, or other valuable articles not recorded in the books of account or other documents maintained in the normal course before the date of the search.
- Income represented by false entries in respect of expenses recorded in the books of account or other documents maintained in the normal course.

The CIT(A) concluded that the appellant's income of ?3,16,37,099/- did not represent "unexplained money, bullion, jewelry, valuable article, or any other asset" and was recorded in documents maintained in the normal course of business. Therefore, it did not qualify as "undisclosed income" under Section 271AAB.

3. Validity of Penalty Proceedings and Notices Issued:
The appellant argued that the penalty proceedings were invalid as the AO did not issue proper notices in the prescribed manner. Although the CIT(A) found merit in the appellant's primary contention that the income did not constitute "undisclosed income," it did not adjudicate on the validity of the penalty proceedings due to the primary issue's resolution.

Tribunal's Decision:
The Tribunal affirmed the CIT(A)'s findings, agreeing that the income disclosed by the appellant was recorded in regular documents maintained in the normal course of business. The Tribunal referenced a similar case involving the appellant's family member, where it was held that the income disclosed did not fall within the definition of "undisclosed income" under Section 271AAB. Consequently, the Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to delete the penalties.

Conclusion:
The Tribunal's decision emphasized that the income disclosed by the appellant during the search did not qualify as "undisclosed income" under Section 271AAB, and thus, the penalties imposed by the AO were not justified. The appeals were dismissed, and the CIT(A)'s orders deleting the penalties were upheld.