2022 (2) TMI 117 - AT - Income Tax

Penalty u/s.271AAB - Belated filing of regular return after search - income offered by the assessee in regular return of income filed u/s.139(1) of the Income Tax Act, 1961, on cessation of liability u/s.41(1) of the Act, being unsecured loan taken - HELD THAT - In this case, except fact that regular return of income was filed after the date of search there was no adverse finding from the Assessing Officer regarding income offered by the assessee being cessation of liability u/s.41(1) of the Act, that said income is in nature of undisclosed income which was disclosed consequent to search Cessation of liability treated by the assessee towards unsecured loan taken from M/s. Park Field Developers Builders P.Ltd. was not part of disclosure made in the statement recorded under section 132(4) of the Income Tax Act, 1961, nor it was case of the Assessing Officer that said income was disclosed in return of income filed in response to notice issued u/s.153A of the Act as a consequence of search. Penalty cannot be levied u/s.271AAB of the Act, in respect of income disclosed in regular return of income filed by the assessee for relevant assessment year, even though said return has been filed subsequent to date of search, so long as return filed by the assessee was within due date prescribed u/s.139(1) / 139(4) of the Income Tax Act, 1961. Since the assessee has filed regular return for impugned assessment year within extended due date prescribed u/s.139(4) of the Act, the Assessing Officer cannot levy penalty u/s.271AAB of the Act. The learned CIT(A) without appreciating facts has simply confirmed additions made by the Assessing Officer. Hence, we direct the Assessing Officer to delete penalty levied u/s.271AAB of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of penalty under section 271AAB of the Income Tax Act, 1961.
2. Treatment of unsecured loan as undisclosed income under section 41(1) of the Act.
3. Applicability of penalty provisions in case of income disclosed in regular return post search.

Issue 1: Validity of penalty under section 271AAB:
The appellant challenged the penalty levied under section 271AAB by the Assessing Officer, arguing that the addition on which the penalty was based had been deleted by the Tribunal in a previous judgment. The appellant contended that the unsecured loan from a company should not be treated as unexplained cash credit under section 68. The appellant further argued that the Assessing Officer failed to prove the additions made towards cessation of liability under section 41(1) as undisclosed income, which, according to the appellant, did not warrant the penalty under section 271AAB.

Issue 2: Treatment of unsecured loan as undisclosed income:
The Assessing Officer had treated a sum claimed as an unsecured loan from a company as cessation of liability under section 41(1) of the Income Tax Act, 1961, and included it as income. The appellant had filed the return of income admitting this amount, but the Assessing Officer levied a penalty under section 271AAB for admitting undisclosed income. The Tribunal, in a previous judgment, had already established the genuineness of the unsecured loan, ruling that it could not be considered an unexplained cash credit under section 68. Thus, the penalty based on this treated income could not stand.

Issue 3: Applicability of penalty provisions post regular return filing:
The crux of the matter was whether the penalty under section 271AAB could be imposed when the income was disclosed in the regular return filed by the assessee after the search operation. The Assessing Officer's reasoning that the assessee would not have declared the income if not for the search was found to be unsubstantiated. The Tribunal highlighted that penalty under section 271AAB is applicable if undisclosed income is admitted during the search and relevant taxes are paid. As the income was disclosed in the regular return within the prescribed due date, the penalty under section 271AAB could not be upheld. The Tribunal directed the Assessing Officer to delete the penalty levied under section 271AAB.

This judgment by the Appellate Tribunal ITAT Chennai addressed the validity of the penalty under section 271AAB, the treatment of unsecured loan as undisclosed income under section 41(1), and the applicability of penalty provisions in case of income disclosed in the regular return post search. The Tribunal ruled in favor of the appellant, emphasizing that the penalty could not be sustained due to the deletion of the addition by the Tribunal in a previous case, the genuineness of the unsecured loan, and the timely disclosure of income in the regular return.