2012 (10) TMI 774 - AT - Income Tax

Penalty u/s 271 AAA - search and seizure u/s.132 - Held that - Under Section 132(4) unless the authorized officer puts a specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated but has been stated subsequently, that amounts to the compliance with Explanation 5(2) of the Income Tax Act, 1961 as decided in CIT vs. Mahendra C Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT Examining the statements recorded at the time of search u/s 132(4) came to a conclusion that the assessee was never asked about the manner in which the income was earned, nor that she was even asked to substantiate the manner in which undisclosed income was arrived - in favour of assessee.

Summary

Issues:
Penalty under Section 271(AAA) of the Income Tax Act, 1961 - Whether justified based on undisclosed income derived during search and seizure operation.

Detailed Analysis:
1. The appeal was filed against the order of the Ld.CIT(A) for the Assessment Year 2008-09. The appellant contended that the penalty levied was unjustified based on the judgment of Hon'ble Supreme Court in Hindustan Steel vs State of Orissa 1972 83 ITR 26. It was argued that the appellant had disclosed all facts during the search, and hence, the penalty was uncalled for.

2. A search and seizure operation under Section 132 of the Act revealed that an amount of Rs. 2.5 crores was made outside the books for property, admitted as additional income of the company. Penalty proceedings under Section 271(AAA) were initiated, and a penalty of Rs. 25 lakhs was imposed, which was confirmed by the First Appellate Authority.

3. The Tribunal examined the statements recorded during the search and found that the assessee was not asked about the manner in which the income was earned. It was noted that if such a question had been posed, the assessee might have replied and substantiated the undisclosed income. Citing relevant case laws, the Tribunal held that the failure to specify the manner in which income was derived did not warrant the penalty under Section 271(AAA).

4. Referring to the decision in the case of Smt. Raj Rani Gupta, where a similar penalty was deleted, the Tribunal concluded that the penalty in the present case should also be deleted. It was emphasized that the authorized officer must explain the provisions adequately during the statement recording process, and substantial compliance with tax payment suffices, even if the manner of income derivation is not specified.

5. Considering the judgments and the facts of the case, the Tribunal deleted the penalty imposed under Section 271(AAA) of the Income Tax Act, 1961, in line with the Co-ordinate bench order. Consequently, the appeal of the assessee was allowed.