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2024 (12) TMI 561 - AT - Income TaxLevy penalty u/s 271AAB - As alleged no allegation of existence of any undisclosed income by the revenue - CIT(A) modified and scaled down the rate of levy of penalty from 30% to 10% on the ground that the assessee has provided the list of creditors and thus provided the manner of deriving undisclosed income and also substantiated such manner - HELD THAT - The plea of assessee towards non applicability of s. 271AAB in our view is devoid of any rationale. On the face of cogent evidences detected and admitted to be un-explainable liability one may wonder as to what is the nature of such admitted suppression of income etc. The entries found recorded in the books as a result of creative accounting towards un-explained liabilities is noting but undisclosed income as defined in s. 271AAB of the Act. Likewise the entries found not recorded in the books towards expenditure incurred also squarely meets the requirement of definition of undisclosed income appended in s. 271AAB - Assessee has by his express conduct has rather accepted the existence of undisclosed income. The plea of assessee towards non existence of any undisclosed income per se seeks to obfuscate reality and thus cannot be accepted. The existence of undisclosed income discovered in the course of search qua the specified previous year provides sound basis for applying s. 271AAB of the Act in the present case. The substantive and main ground of the assessee towards legality of imposition of penalty u/s 271AAB of the Act is thus liable to be dismissed. Legal requirement to specify the limb in the show cause notice which is claimed to be attracted in the instant case - Quantum of imposable penalty thus depends on appreciation of facts in perspective after taking the response of the assessee in account. It is at times difficult to pre-conceive and show cause the assessee qua the exact quantification of penalty at the initial stage of issue of show cause notice. Noticiably for the purposes of s. 271AAB there is no requirement in law to form any satisfaction as contemplated under s. 271(1B) for the purposes of s. 271(1)(c) before initiating penalty proceedings. The provisions of s. 271AAB thus can not be read pari materia with that of s. 271(1)(c) of the Act. The scheme of Act merely provides for reasonable opportunity to the assessee while imposing penalty which opportunity was duly provided and availed. It is not the case of the assessee that no opportunity was provided in the course of penalty proceedings. The assessee has not raised any objections on such aspect before the AO. The assessee was also privy to all relevant facts. There being no substance in the plea the additional ground raised by the assessee on this score is liable to be dismissed. The cross objection raising the grievance similar to additional ground is also a damp squib. AO imposed penalty @30% on the amount surrendered under clause (c) to Section 271AAB(1) - As a corollary a person who for any reason fails to specify the manner of deriving undisclosed income despite admission at the time of search itself gets trapped by higher penalty @ 30% under clause (c) owing to admission at the time of search which is the case in the instant appeal. To put it differently a person who does not admit undisclosed income at the threshold in the course of search is better off under clause (b) compared to a person who extends co-operation and volunteers to admit existence of undisclosed income but subjected to harshness of clause (c) due to inability to spell out manner / substantiation etc. Hence in the wake of attendant obligations fastened under clause(a) a searched person ends up incurring relatively far more incidence of penalty on admission of undisclosed income in the event of failure to provide manner and substantiation. A searched assessee making admission is in worser position compared to another searched person who adopts silence on admission at the time of search and consequently gets covered under clause (b) in the absence of obligation annexed in clause (b) towards manner etc. Other things being constant a person making admission cannot be made to pay higher quantum of penalty vis a vis a searched person who declares the undisclosed income directly in the ROI without making any admission in the course of search. This militates against both common sense and spellbound logic. Hence there appears to an ex-facie legislative aberration which remained unaddressed. It is trite that legislative casus omissus cannot be supplied by the judicial interpretive process.
Issues Involved:
1. Legality of imposing penalty under Section 271AAB of the Income Tax Act. 2. Correctness of the quantum of penalty imposed under Section 271AAB(1). 3. Obligation of specifying the limb of Section 271AAB(1) under which penalty is proposed in the show cause notice. Issue-wise Detailed Analysis: 1. Legality of Imposing Penalty under Section 271AAB: The core issue was whether the penalty under Section 271AAB was legally imposed. During a search operation, incriminating documents were found, revealing fictitious liabilities and bogus purchases amounting to Rs. 52 crore. The assessee admitted these were fictitious liabilities and included this amount in the return of income. The Tribunal held that the presence of undisclosed income was evident from the search findings, and the assessee's admission confirmed this. Thus, the application of Section 271AAB was deemed appropriate. The Tribunal dismissed the assessee's argument that there was no undisclosed income, affirming that the entries of unexplained liabilities and expenses met the definition of undisclosed income under Section 271AAB. 2. Correctness of the Quantum of Penalty Imposed: The Assessing Officer (AO) initially imposed a penalty at 30% under Section 271AAB(1)(c) on the undisclosed income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced this to 10% under Section 271AAB(1)(a), citing the assessee's cooperation and payment of taxes. The Revenue challenged this reduction, arguing that the assessee failed to substantiate the manner of deriving the undisclosed income. The Tribunal found that the CIT(A) provided insufficient reasoning for reducing the penalty and that merely furnishing a list of creditors did not satisfy the requirements of specifying and substantiating the manner of deriving undisclosed income. Consequently, the Tribunal restored the AO's decision to impose a 30% penalty under clause (c), as the conditions of clause (a) were not met. 3. Obligation of Specifying the Limb of Section 271AAB(1) in the Show Cause Notice: The assessee contended that the penalty notice was vague as it did not specify which limb of Section 271AAB(1) was being invoked. The Tribunal rejected this argument, stating that unlike Section 271(1)(c), Section 271AAB does not require the AO to form a satisfaction or specify the limb at the initiation stage. The Tribunal emphasized that the penalty under Section 271AAB is automatic upon the detection of undisclosed income during a search, and the AO is not required to specify the limb in the show cause notice. The Tribunal found no merit in the assessee's additional ground and dismissed it. Conclusion: The Tribunal dismissed the appeal and cross-objection filed by the assessee, upholding the legality and quantum of the penalty imposed by the AO under Section 271AAB(1)(c). The Tribunal allowed the Revenue's appeal, restoring the penalty rate to 30% as initially imposed by the AO. The decision underscores the mandatory nature of penalties under Section 271AAB upon the discovery of undisclosed income during searches, and the non-requirement for the AO to specify the penalty limb at the initiation stage.
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