2016 (10) TMI 1404 - AT - Income Tax

Penalty levied u/s 271AAA - undisclosed cash found during search for which the assessee could not substantiate the manner of earning such income - CIT(A) deleted penalty levy - HELD THAT - Penalty u/s 271AAA is not leviable if the assessee in the course of search in a statement under sub section (4) of section 132 admits the undisclosed income and specifies the manner in which the said income has been derived substantiated the manner in which the undisclosed income is derived and pays the tax together with interest in respect of the undisclosed income. The first requirement of immunity under section 271AAA is that the assessee admits the undisclosed income in a statement recorded u/s 132(4) of the Act and specifies the manner in which the income has been derived. We find that the assessee in response to question no. 19 to the statement recorded u/s 132(4) has admitted the undisclosed income and stated that the income derived from the business of financing and brokerage. Therefore the first condition is satisfied. Second requirement is to substantiate the manner in which the undisclosed income was derived. CIT (A) has reported that the AO himself in the assessment order and also in the penalty order reported that the surrender made by the assessee was on account of undisclosed business of financing and brokerage. Therefore this observation of the ld. CIT (A) is not disputed by the revenue. Therefore the second requirement is also met by the statement of the assessee. The third requirement is of law that the assessee pays tax along with interest on the undisclosed income. The revenue has not disputed the payment of tax and interest thereon. Therefore in view of the above discussion we do not find any reason to interfere in the order of ld. CIT (A) same is hereby upheld. The ground of the revenue is dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the CIT (A), Central, Jaipur erred in deleting the penalty of Rs. 1,81,07,047/- levied under section 271AAA of the Income Tax Act, 1961.
• Whether the CIT (A), Central, Jaipur erred in deleting the penalty on the account of undisclosed cash found during the search for which the assessee could not substantiate the manner of earning such income.

ISSUE-WISE DETAILED ANALYSIS

1. Deletion of Penalty under Section 271AAA

Relevant Legal Framework and Precedents

Section 271AAA of the Income Tax Act, 1961, provides that a penalty may be levied on undisclosed income discovered during a search, unless certain conditions are met. Sub-section (2) offers immunity from penalty if the assessee admits the undisclosed income, specifies and substantiates the manner in which it was derived, and pays the due taxes with interest.

Court's Interpretation and Reasoning

The Tribunal examined whether the conditions for immunity under section 271AAA(2) were satisfied. It noted that the assessee had admitted the undisclosed income during the search, specified the manner of its derivation as business income from financing and brokerage, and paid the taxes due, thus fulfilling all statutory requirements for immunity.

Key Evidence and Findings

The Tribunal highlighted that the assessee, during the search, admitted to the undisclosed income and specified that it was derived from his business activities. This was corroborated by the statements recorded under section 132(4) and the subsequent acceptance of these facts by the assessing officer in the assessment order.

Application of Law to Facts

The Tribunal applied the provisions of section 271AAA(2) to the facts, concluding that the assessee had met all conditions for immunity from penalty. The assessee's admission of income, specification of its source, and payment of taxes were deemed sufficient to preclude the imposition of a penalty.

Treatment of Competing Arguments

The Revenue argued that the assessee failed to substantiate the manner of earning the undisclosed income. However, the Tribunal found that the assessee had adequately explained the source of the income as business income, and the Revenue did not provide contrary evidence.

Conclusions

The Tribunal concluded that the CIT (A) correctly deleted the penalty, as the assessee fulfilled all conditions under section 271AAA(2), thereby qualifying for immunity from penalty.

SIGNIFICANT HOLDINGS

Core Principles Established

• The Tribunal reaffirmed that the conditions under section 271AAA(2) must be strictly applied, and if satisfied, the assessee is entitled to immunity from penalty.
• The Tribunal emphasized that the mere non-statement of the manner of deriving income does not automatically lead to a penalty if the income is declared and taxes are paid.

Final Determinations on Each Issue

• The Tribunal upheld the CIT (A)'s decision to delete the penalty, affirming that the assessee met all statutory requirements for immunity under section 271AAA(2).
• The Tribunal dismissed the Revenue's appeal, concluding that there was no basis for imposing a penalty under the circumstances.