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2022 (6) TMI 1113 - AT - Income TaxLevy of penalty u/s.271AAB - Jewellery found during the course of search and treated by the AO as undisclosed - HELD THAT - As is evident from the charts filed by the assessee relating to addition of jewellery, the jewellery is inherited and acquired in this year or received any gift or pertaining to any specified year is not clear. As noted that the jewellery found in term of quantity and value and finally addition confirmed by CIT(A) in all three cases remains only to the extent of 10%. The 10% addition sustained on estimate may be on various reasons like valuation of jewellery by estimate in quantity and determination of value i.e., rate. We noted that this all depend on the social circumstances, family status and other consideration for holding of jewellery. But, the Revenue could not prove in these cases that jewellery pertains to any specified year, i.e., assessment year 2015-16. Cumulative of these factors is considered which seems that excess jewellery to the extent of 10% on estimate basis cannot attract penalty u/s.271AAB of the Act because this is simpliciter estimation. We noted that the penalty u/s.271AAB of the Act is discretionary and not mandatory as noted by various Co-ordinate Bench decisions and hence, by taking the quantum found in all these three cases and the quantum added in all these is just less then 10%, which is negligible and can be ignored easily due to various reasons noted above. In view of the facts and circumstances, we delete the penalties in these three cases, levied by the AO and confirmed by the CIT(A) u/s.271AAB of the Act and allow these three appeals of assessee.
Issues Involved
1. Confirmation of penalty levied under Section 271AAB of the Income Tax Act, 1961. 2. Definition and applicability of "undisclosed income" under Section 271AAB. 3. Whether the penalty under Section 271AAB is discretionary or mandatory. Detailed Analysis Issue 1: Confirmation of Penalty Levied under Section 271AAB The primary issue in these appeals is the confirmation of the penalty levied by the Assessing Officer (AO) under Section 271AAB of the Income Tax Act, 1961. The penalty was imposed due to the addition made on account of unexplained investment in jewellery found during a search operation. The AO framed the assessment and made an addition of Rs. 44,08,288/- in one case, which was later restricted to Rs. 9,05,818/- by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO levied a penalty at the rate of 30% of the undisclosed income, which was confirmed by the CIT(A). Issue 2: Definition and Applicability of "Undisclosed Income" The assessees argued that there was no "undisclosed income" as defined under Section 271AAB of the Act. They contended that the jewellery found during the search was either inherited, received as gifts, or already disclosed in wealth-tax returns. Therefore, the jewellery could not be considered as "undisclosed income" for the specified previous year. The CIT(A) and AO, however, treated the jewellery as unexplained and levied penalties accordingly. Issue 3: Discretionary or Mandatory Nature of Penalty under Section 271AAB The Tribunal examined whether the penalty under Section 271AAB is discretionary or mandatory. The assessees argued that the penalty is discretionary, citing the use of the word "may" in the section, which implies that the AO has the discretion to levy the penalty. They relied on various judicial precedents, including the ITAT Jaipur and Visakhapatnam Bench decisions, which held that the penalty under Section 271AAB is not automatic but discretionary. The Revenue, on the other hand, argued that the penalty under Section 271AAB is mandatory, emphasizing that the AO does not have the discretion to drop the penalty once the conditions specified in the section are met. Tribunal's Findings On Confirmation of Penalty The Tribunal noted that the jewellery found during the search and the quantum of addition confirmed by the CIT(A) was less than 10% of the total jewellery found. This small percentage was attributed to estimation errors and social factors such as family status and traditions. The Tribunal held that such a minor discrepancy could not attract a penalty under Section 271AAB, as it was based on estimation. On Definition of "Undisclosed Income" The Tribunal observed that the jewellery in question was not proven to pertain to any specified previous year. The Revenue failed to demonstrate that the jewellery was acquired during the assessment year 2015-16. Therefore, the Tribunal concluded that the jewellery could not be classified as "undisclosed income" under Section 271AAB. On Discretionary vs. Mandatory Nature of Penalty The Tribunal referred to multiple judicial precedents, including the ITAT Jaipur and Visakhapatnam Bench decisions, which held that the penalty under Section 271AAB is discretionary. The Tribunal emphasized that the AO must consider the explanation provided by the assessee and make a judicious decision. The Tribunal concluded that the penalty under Section 271AAB is not mandatory but discretionary. Conclusion The Tribunal allowed the appeals filed by the assessees, deleting the penalties levied under Section 271AAB. The Tribunal held that the minor discrepancy in the jewellery found could not attract a penalty and that the penalty provisions under Section 271AAB are discretionary, not mandatory. Order The appeals filed by the assessees in ITA Nos. 287, 288, and 289/Chny/2021 are allowed. The penalties levied by the AO and confirmed by the CIT(A) under Section 271AAB of the Act are deleted. Pronouncement The order was pronounced in the open court on 22nd June, 2022, at Chennai.
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