2022 (9) TMI 298 - AT - Income Tax

Penalty u/s 271AAA - money surrendered in search and seizure operation - assessee has offered the undisclosed income in the statement recorded under section 132(4) - HELD THAT - Penalty under section 271AAA(1) cannot be imposed in a case where the assessee has offered the undisclosed income in the statement recorded under section 132(4) specifying the manner in which such income has been derived and if the assessee pays the tax along with interest of such income. In the facts of the present case, undisputedly, the assessee has offered the cash found as income in the statement recorded under section 132(4) - It is also a fact that the assessee has paid the tax on such income. Whether penalty under section 271AAA could be levied for the years under consideration ? - As we note that for the assessment year 2009-10 being the search year, the said assessment year falls out of the block period and therefore the necessary criteria to levy penalty under section 271AAA is not applicable. According to the department assessee has not specified the manner in which such income was derived - On a perusal of the statement recorded under section 132(4) of the Act, that forms part of the assessment order, we observe that, in response to a question asked by the authority concerned, the assessee came forward to offer the money found in the bank account as well as in cash as income. It is observed, the authority recording statement did not pose any specific query to the assessee to explain the mode and manner in which such undisclosed income was derived. Further during the penalty proceedings, we note that the reply filed by the assessee has not even been considered and has been rejected at the threshold. Thus, in course of search and seizure operation when the assessee came forward and offered certain income to show his bona fide and ultimately followed it up by actually offering such income to tax, in our view, the assessee should be given the benefit of the exceptions provided under sub-section (2) of section 271AAA. It is a fact on record that the assessee is no more and has been substituted by his legal heir, in course of proceeding before us. Thus, in our considered opinion, a liberal and compassionate view has to be taken qua the imposition of penalty under section 271AAA of the Act. Based on the above discussion we direct the Ld.AR you to delete the penalty levied for both the assessment years under consideration under section 271AAA of the act. - Decided in favour of assessee.

Issues Involved:
1. Legality of the penalty imposed under section 271AAA of the Income Tax Act, 1961.
2. Satisfaction of conditions for exemption from penalty under section 271AAA.
3. Validity of the notice issued under section 271AAA.
4. Applicability of section 271AAA for the assessment year 2008-09.
5. Discretionary nature of penalty under section 271AAA for the assessment year 2009-10.
6. Excessiveness of the penalty levied.

Detailed Analysis:

1. Legality of the penalty imposed under section 271AAA of the Income Tax Act, 1961:
The assessee argued that the penalty levied was opposed to law, equity, and facts. The authorities below failed to appreciate that the returned income had been accepted and there was no evidence of concealment, thus the penalty deserved to be canceled.

2. Satisfaction of conditions for exemption from penalty under section 271AAA:
The assessee contended that the twin conditions required for exemption from the levy of penalty were satisfied. The income earned from real estate and leasing quarries was disclosed and accepted by the department in the quantum proceedings. The assessee had also paid the entire tax and interest on the income offered to tax, fulfilling all conditions specified under section 271AAA.

3. Validity of the notice issued under section 271AAA:
The assessee raised additional grounds challenging the validity of the notice issued under section 271AAA, arguing that it was bad in law. The authorities failed to appreciate that the penalty under section 271AAA could be levied only for a single year, based on the definition of "specified previous year."

4. Applicability of section 271AAA for the assessment year 2008-09:
The assessee argued that penalty under section 271AAA could not be levied for the assessment year 2008-09, as it did not fall within the "specified previous year" as defined under the Act.

5. Discretionary nature of penalty under section 271AAA for the assessment year 2009-10:
For the assessment year 2009-10, the assessee contended that the penalty was not automatic and that the assessing officer should have exercised discretion. The penalty proceedings should not be resorted to as a matter of procedure.

6. Excessiveness of the penalty levied:
The assessee argued that the penalty levied was highly excessive and liable to be reduced substantially.

Judgment:

Admission of Additional Grounds:
The Tribunal admitted the additional grounds raised by the assessee, following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co Ltd vs. CIT.

Brief Facts:
The assessee was engaged in the business of real estate and leasing quarries. A search under section 132 of the Act was conducted, leading to the discovery of incriminating documents and concealment of income. The assessee declared the income based on the seized materials and paid the due taxes.

Penalty Proceedings:
The Assessing Officer (AO) initiated penalty proceedings under section 271AAA, issuing a show-cause notice. The assessee's reply was not accepted, and penalties were imposed for the assessment years 2008-09 and 2009-10.

Tribunal's Findings:
- The Tribunal noted that the authorities did not put any specific query regarding the mode and manner in which the undisclosed income was derived during the statement recorded under section 132(4).
- The assessee had offered the undisclosed income, paid the taxes, and substantiated the manner in which the income was derived.
- The Tribunal observed that the penalty under section 271AAA(1) could not be imposed if the assessee had admitted the undisclosed income, specified the manner of derivation, and paid the tax along with interest.
- For the assessment year 2009-10, the Tribunal noted that the year fell outside the block period, making the criteria for penalty under section 271AAA inapplicable.
- The Tribunal emphasized a liberal and compassionate view, especially since the assessee was no more and had been substituted by his legal heir.

Conclusion:
The Tribunal directed the deletion of the penalties levied for both assessment years under consideration, allowing the appeals filed by the assessee.

Order Pronounced:
The appeal filed by the assessee was allowed on the additional grounds raised for the assessment years 2008-09 and 2009-10. The order was pronounced in the open court on 30th August 2022.

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