2024 (10) TMI 173 - AT - Income Tax

Penalty order u/s 271AAB - treating an amount included in the ROI as undisclosed income susceptible - CIT(A) on analysis of facts and law found that the ingredients of Section 271AAB are not fulfilled and therefore held that the penalty imposed by the AO is outside the sanction of law. The penalty imposed was thus deleted HELD THAT - As contended on behalf of the assessee, neither the income disclosed in the return by way of LTCG fall under the definition of undisclosed income contemplated u/s 271AAB of the Act nor any admission of so called undisclosed income has been made in the course of search in statement u/s 132(4) of the Act. The prerequisites of Section 271AAB (1A) are thus not satisfied. The action of the AO thus do not align with the penalty provisions codified u/s 271AAB of the Act. Significantly, LTCG in question was taxable in law in so far as the A.Y. 2021-22 is concerned and not exempt u/s 10 in any manner. The transactions are routed through Banking Channel and advance tax has also been paid prior to search. Taxable income from LTCG cannot be treated as undisclosed income by any stretch of imagination. On perusal of the assessment order or penalty order, it is seen that there is no reference to any statement recorded u/s 132(4) of the Act which may show any kind of admission towards so called undisclosed income. The admission of undisclosed income of alleged undisclosed income (with some further conditions with which, we are not personally concern) is the fulcrum on which action u/s 271AAB(1A) of the Act is based. In the absence of such admission imposition of penalty @ 30% of the so called undisclosed income under clause (a) of Section 271AAB(1A) of the Act is not justified. The case of the assessee does not fall in the definition of undisclosed income provided in the Explanation appended to Section 271AAB of the Act. The assessee claims to be not obligated of law to maintain the books of accounts and the income declared in the return of income arising from entries in respect of LTCG has not been alleged to be false by the Revenue. In the identical fact situation, in the case of family member of assessee (Tanya Jaiswal) 2024 (9) TMI 425 - ITAT DELHI has affirmed the view of the CIT(A). The issue thus stands covered in favour of the assessee and against the Revenue by the decision rendered in Tanya Jaiswal. Where imposition of penalty u/s 271AAB is left to the statutory discretion of AO and not being automatic, we are of the considered view that extenuating circumstances exists to exonerate the assessee from clutches of penalty provisions under Section 271AAB. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Appeal against penalty order under Section 271AAB of the Income-tax Act concerning Assessment Year 2021-22.
2. Interpretation of undisclosed income as per provisions of Section 271AAB.
3. Challenge to the deletion of penalty by the CIT(A).
4. Assessment of LTCG income and its treatment as undisclosed income.
5. Comparison with a similar case handled by the Co-ordinate Bench of Tribunal.

Issue 1: Appeal against Penalty Order under Section 271AAB:
The appeal before the Tribunal stemmed from the Revenue's challenge against the penalty imposed under Section 271AAB of the Income-tax Act for Assessment Year 2021-22. The penalty was initiated by the Assessing Officer based on an amount included in the Return of Income (ROI) as 'undisclosed income,' leading to a penalty of 30% on the undisclosed amount.

Issue 2: Interpretation of Undisclosed Income under Section 271AAB:
The crux of the matter revolved around the definition of 'undisclosed income' as per the provisions of Section 271AAB. The CIT(A) found that the conditions outlined in the Act were not met in the case at hand, leading to the deletion of the imposed penalty. The absence of seized material during the search to substantiate the alleged undisclosed income played a pivotal role in this interpretation.

Issue 3: Challenge to Deletion of Penalty by CIT(A):
The Revenue challenged the relief granted by the CIT(A) in deleting the penalty. The Revenue contended that the CIT(A)'s decision was unjustified, emphasizing that the assessee would not have disclosed the income if the search had not occurred. However, the Counsel for the assessee argued that the provisions of Section 271AAB were not applicable in this scenario due to the lack of undisclosed income and the absence of admission during the search.

Issue 4: Assessment of LTCG Income and Treatment as Undisclosed Income:
The assessment of Long-Term Capital Gains (LTCG) income was a focal point, with the Revenue asserting that the LTCG income should be considered undisclosed income. The assessee, on the other hand, maintained that the LTCG income was not undisclosed as it was declared in the return of income and was not based on any incriminating material found during the search.

Issue 5: Comparison with Similar Case Handled by Co-ordinate Bench:
The Counsel for the assessee referenced a similar case handled by the Co-ordinate Bench of the Tribunal to support the argument that the penalty under Section 271AAB should not apply in this instance. The decision in the parallel case involving a family member of the assessee favored the assessee, further strengthening the argument against the imposition of the penalty.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the CIT(A) to delete the penalty imposed under Section 271AAB. The Tribunal's analysis focused on the lack of undisclosed income meeting the statutory requirements, the treatment of LTCG income, and the precedence set by a similar case. The decision underscored that the imposition of the penalty was not justified given the circumstances and statutory provisions governing undisclosed income.