2024 (7) TMI 1561 - HC - Income Tax

Penalty u/s 271AAA(1) - assessee declared the surrendered amount under the head additional income which was accepted by the Revenue - purported failure on the part of the assessee to substantiate the manner in which the undisclosed income was derived - whether CIT(A) and the Tribunal were justified in deleting the penalty? - HELD THAT - In terms of Section 271AAA(2), the statute clearly provides that sub-section (1) would not apply provided the assessee admits to the undisclosed income and specifies the manner in which such income had been derived in a statement made and recorded u/s 132(4). That provision then places the additional burden of substantiating the manner in which the undisclosed income was derived upon the searched assessee. It is only thereafter that in terms of clause (iii) of sub-section (2), a payment of tax together with interest in respect of undisclosed income is contemplated. As we read clauses (i) and (ii) of sub-section (2), it becomes evident that there is a statutory obligation placed upon the assessee to not only specify the manner in which the undisclosed income had been derived but also to substantiate the statement that may be made u/s 132(4). We also bear in mind the indubitable position that for the purposes of being absolved from the additional tax burden which stands constructed in terms of Section 271AAA(1), the burden is placed upon the assessee to establish that its case falls squarely within the scope and ambit of sub-section (2) thereof. As relying on Ritu Singal 2018 (3) TMI 593 - DELHI HIGH COURT income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely stated that the sums advanced were undisclosed income. She did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, source of the money, etc.). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement (under section 132(4)) substantiates the manner in which the undisclosed income was derived . Such being the case, this court is of the opinion that the lower appellate authorities misdirected themselves in holding that the conditions in section 271AAA(2) were satisfied by the assessee. Although learned counsel for the respondents sought to draw support from an earlier judgment rendered in Emirates Technologies Pvt. Ltd. 2017 (8) TMI 387 - DELHI HIGH COURT we find that the same rests solely on the Court ultimately coming to conclude that the same did not give rise to a substantial question of law.In any case, we find ourselves bound by the more elaborate discussion which appears in the judgment rendered in Ritu Singal. Decided against assessee.

Summary

Issues Involved:

1. Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in deleting the penalty imposed under Section 271AAA of the Income Tax Act, 1961.
2. Whether the assessee failed to substantiate the manner in which the undisclosed income was derived, as required under Section 271AAA(2) of the Act.

Issue-Wise Detailed Analysis:

1. Deletion of Penalty under Section 271AAA:

The core issue revolves around the ITAT's decision to delete the penalty of INR 1,97,70,670/- imposed by the Assessing Officer (AO) under Section 271AAA of the Income Tax Act, 1961. The ITAT observed that the assessee had declared a surrendered amount of INR 19,77,06,696/- as "additional income," which was accepted by the Revenue. The penalty proceedings were initiated by the AO without specifying reasons or confirming if the conditions laid down in Section 271AAA were satisfied. The ITAT noted that the surrender was made based on loose papers found during a search operation and was intended to avoid litigation and buy peace with the Department. The ITAT relied on the decision in CIT vs. Suresh Chander Mittal, which supported the view that mere surrender of income does not automatically warrant penalty imposition. Consequently, the ITAT confirmed the CIT(A)'s decision to delete the penalty, dismissing the Revenue's appeal.

2. Failure to Substantiate the Manner of Deriving Undisclosed Income:

The High Court examined whether the CIT(A) and ITAT were justified in deleting the penalty despite the assessee's purported failure to substantiate the manner in which the undisclosed income was derived. The AO contended that although the assessee admitted to undisclosed income, it failed to specify how such income was derived. The AO argued that the return filed under Section 139(1) was not voluntary, as it was filed post-search, and the disclosure did not absolve the assessee from penalty under Section 271AAA.

Section 271AAA(2) outlines that penalty under sub-section (1) does not apply if the assessee admits the undisclosed income, specifies and substantiates the manner of its derivation, and pays the tax with interest. The High Court emphasized the statutory obligation on the assessee to specify and substantiate the manner of deriving undisclosed income. The Court referred to the Delhi High Court's decision in Principal Commissioner of Income Tax vs. Ritu Singal, which underscored the necessity for the assessee to fulfill all conditions under Section 271AAA(2) to avoid penalty.

The High Court found that the assessee did not meet the requirement of substantiating the manner of deriving the undisclosed income. The Court noted that the assessee's statement lacked specificity regarding how the income was derived and under which head it fell. Citing the Supreme Court's decision in MAK Data (P) Ltd. v. CIT, the Court reiterated that voluntary disclosure does not exempt an assessee from penalty unless the statutory conditions are met.

Conclusion:

The High Court concluded that the lower appellate authorities, the ITAT and CIT(A), erred in their decision to delete the penalty, as the assessee failed to satisfy the conditions under Section 271AAA(2). The appeal was allowed, and the orders of the Tribunal and CIT(A) were set aside, with the questions raised answered in favor of the appellant.