2022 (1) TMI 636 - AT - Income Tax

Penalty imposed u/s. 271AAB(c) - undisclosed income - as per AO assessee has itself disclosed additional income during the course of search - CIT-A deleted the penalty levy - HELD THAT - CIT(A) has quashed the penalty order on account of the fact that the addition stood deleted by the ITAT and this very specific appeal effect order passed by the AO was taken cognizance of by him. We have already extracted the relevant portion from the penalty order and seen that the specific penalty was levied on account of the alleged disclosure. Accordingly, we are of the view that the prayer of the assessee has to be allowed and ground raised by the Revenue has no merit. The departmental grounds stand dismissed.

Summary

Issues:
1. Correctness of order deleting penalty under section 271AAB(c) of the Income Tax Act, 1961.
2. Appeal to add, amend, or modify grounds of appeal.

Issue 1: Correctness of Penalty Deletion under Section 271AAB(c):
The appeal was filed by the Revenue challenging the deletion of a penalty imposed under section 271AAB(c) of the Income Tax Act, 1961. The Revenue contended that the assessee had voluntarily disclosed an additional income of ?80 crores during a search conducted under section 132, out of which ?6,62,65,239 was offered as business income to cover discrepancies. The penalty was imposed based on this undisclosed income. The Revenue argued that the undisclosed income was not properly substantiated by the assessee, justifying the penalty under section 271AAB. However, the assessee contended that the amount in question was related to a disallowance under section 14A, which did not fall within the definition of 'undisclosed income' as per section 271AAB. The assessee relied on a judgment from the ITAT Chandigarh to support this argument. The CIT(A) ultimately deleted the penalty, considering the ITAT's decision in favor of the assessee regarding the disallowance under section 14A. The CIT(A) found the penalty not sustainable and hence, deleted it.

Issue 2: Appeal to Add, Amend, or Modify Grounds of Appeal:
During the hearing, the ld. AR for the appellant requested an adjournment due to a mix-up of files, leading to a short adjournment of the appeal. The ld. Sr. DR representing the Revenue highlighted the penalty order under section 271AAB, emphasizing the voluntary disclosure of additional income by the assessee during the search. The penalty was imposed based on this disclosure. The ld. DR argued that the penalty was justified as the assessee failed to substantiate the undisclosed income properly. However, the ld. AR relied on the ITAT's decision affirming the deletion of the addition in the quantum proceedings related to the same issue. The ld. AR presented the ITAT's order and the AO's appeal effect, demonstrating that the ITAT's decision was in favor of the assessee. The CIT(A) considered these aspects and quashed the penalty order, stating that the addition had been deleted by the ITAT, rendering the penalty baseless. Consequently, the appeal of the Revenue was dismissed by the ITAT Chandigarh.

In conclusion, the ITAT Chandigarh upheld the decision of the CIT(A) to delete the penalty imposed under section 271AAB(c) of the Income Tax Act, 1961. The judgment emphasized the importance of proper substantiation of undisclosed income and highlighted the relevance of judicial decisions in determining the applicability of penalties. The detailed analysis of the facts and legal arguments led to the dismissal of the Revenue's appeal, ultimately favoring the assessee in this case.