2023 (8) TMI 26 - AT - Income Tax

Penalty u/s 271(1)(c) OR 271AAA - Addition of undisclosed income found during search proceedings - correct section for levy of penalty - HELD THAT - As the requirements for levy of penalty under section 271AAA of the Act were (i) search action should have been initiated after 1stJune, 2007, (ii) there is undisclosed income and (iii) the undisclosed income relates to a specified previous year . CIT(A) correctly noted that the assessee fulfilled first condition since search in the present case was conducted in February, 2011. He noted fulfillment of the second condition of there being undisclosed income noting that all income found in the case of the assessee represented by entries in books of accounts or other documents found during the search, unexplained jewellery and unexplained marriage expenses were included in the definition of undisclosed income as per the Explanation to the section. Fulfillment of the other condition, that the impugned assessment year qualified as specified previous year since as per the definition of specified previous year it included the year in which search was concluded, which he found was the fact in the present case. DR was unable to controvert the above findings of the Ld.CIT(A) - No infirmity in the order of the ld.CIT(A) holding that the correct section for levy of penalty in the present case was under section 271AAA and not section 271(1)(c) which was invoked by the AO. Decided against revenue. Whether mere invocation of incorrect section would not invalidate order? - AO had no power to levy penalty under section 271(1)(c) of the Act, which had been expressly denied by sub-section (3) of section 271AAA of the Act. Therefore, plea of the Revenue that the AO having power to levy penalty ,he could have exercised the same by levying either under section 271AAA or under section 271(1)(c) of the Act, we hold is wholly misplaced and contrary to law.

Summary

Issues:
The appeal filed against the order of the ld.Commissioner of Income Tax (Appeals)-12, Ahmedabad under section 250(6) of the Income Tax Act, 1961 for the Asst. Year 2011-12.

Issue 1: Penalty under section 271(1)(c) of the Act

The ld.CIT(A) deleted the penalty imposed by the AO under section 271(1)(c) and directed its deletion, holding that penalty ought to have been levied under section 271AAA of the Act. The ld.CIT(A) found that all the additions made in the case of the assessee were covered under the definition of "undisclosed income" as per section 271AAA, which includes any income represented by entries in books of accounts found during the search. The ld.CIT(A) concluded that the penalty under section 271AAA was applicable in this case.

Issue 2: Correct Section for Levy of Penalty

The Revenue challenged the order of the ld.CIT(A) on the grounds that the correct section for levy of penalty was under section 271(1)(c) of the Act and not section 271AAA. However, the ld.CIT(A) analyzed the provisions of section 271AAA and found that the assessee's case qualified for penalty under this section. The ld.CIT(A) noted that the conditions for levy of penalty under section 271AAA were fulfilled in the present case, including the existence of undisclosed income and a specified previous year.

Separate Judgment by the Judges:

The Revenue's plea that the AO had the power to levy penalty under section 271(1)(c) despite section 271AAA of the Act was dismissed. Sub-section (3) of section 271AAA explicitly states that no penalty under section 271(1)(c) shall be imposed in cases referred to in section 271AAA(1). Therefore, the AO did not have the authority to levy penalty under section 271(1)(c) in this case.

Conclusion:

The appeal of the Revenue was dismissed, upholding the order of the ld.CIT(A) deleting the penalty imposed under section 271(1)(c) and affirming that the correct section for levy of penalty in this case was under section 271AAA of the Act. The grounds raised by the Revenue challenging the deletion of penalty were dismissed, and the appeal was concluded in favor of the respondent.