2022 (8) TMI 1566 - HC - Income Tax

Penalty u/s 271AAA - undisclosed income - assessee had not paid tax and interest - principal argument is that nothing was found during the course of search; assessee had voluntarily filed return of income more than what he had admitted before the DDIT - Whether the compliance with all the three conditions mentioned in Sub-section (2) of Section 271AAA mandatory or not? - HELD THAT - Admittedly as recorded by the Tribunal third condition namely the payment of tax together with interest if any has not been fulfilled by the assessee. In view of the above first substantial questions raised by the appellant is answered in favour of the Revenue holding that compliance of all three conditions in Sub-clause (2) of Section 271AAA of the Act are mandatory. Reduction of penalty commensurate with quantum of tax which the appellant has deposited is also answered against the assessee and in favour of the revenue because admittedly appellant had not disclosed the income at all. But for search the same could not have been unearthed. Having filed the returns the assessee did not comply with condition No. 3 in Sub-Section (2). If the second question were to be answered in favour of assessee it will amount to placing premium on a person who does not abide by law. Decided against assessee.

Summary

The Karnataka High Court considered the following issues in a tax penalty case:1. Whether compliance with all three conditions in Sub-section (2) of Section 271AAA of the Income Tax Act is mandatory.2. Whether the penalty prescribed under Section 271AAA can be reduced if the tax and interest on undisclosed income are partly complied with, even with a delay.The Court heard arguments from both parties. The appellant argued that the disclosed income was less than the returned income, and since nothing incriminating was found during the search, the penalty should not apply. The Revenue contended that all three conditions of Section 271AAA must be met, including the payment of tax and interest, for the penalty to be imposed.The Court analyzed the provisions of Section 271AAA, which allows for a penalty of 10% of undisclosed income unless all three conditions are met. It noted that the appellant failed to fulfill the third condition of paying tax and interest, as confirmed by the Tribunal.The Court ruled in favor of the Revenue, holding that compliance with all three conditions in Section 271AAA(2) is mandatory. It also rejected the appellant's argument for reducing the penalty based on partial compliance with tax payment, emphasizing that failing to disclose income should not be rewarded.In conclusion, the Court dismissed the appeal, upholding the penalty imposed by the Revenue without awarding costs to either party.