2013 (8) TMI 593 - AT - Income Tax

Penalty u/s 271AAA of the Income Tax Act - Immunity - Penalty where search has been initiated - Penalty has been imposed only because of alleged non compliance with the provisions of section 271AAA(2)(iii) which stipulates the payment of tax alongwith interest in respect of the undisclosed income. The only issue is that the assessee was levied interest u/s 234B for short payment of advance tax due on the income return which in turn was caused by inaction on the part of the A.O. to adjust the seized cash towards advance tax liability as requested by the assessee Held that - While payment of taxes, along with interest, by the assessee is one of the conditions precedent for availing the immunity under section 271AAA(2), there is no time limit set out for such payments by the assessee. Once a time limit for payment of tax and interest has not been set out by the statute, it cannot indeed be open to the Assessing Officer to read such a time limit into the scheme of the Section or to infer one. There is thus no legally sustainable basis for the stand of the Assessing Officer that in a situation in which due tax and interest has not been paid in full before filing of the relevant income tax return, the assessee will not be eligible for immunity under section 271 AAA(2). Relying on the judgment in the case of CIT Vs Mahendra C Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT , wherein it was held that Penalty provisions under section 271(1)(c) wherein Assessing Officer has to record the satisfaction in the course of assessment proceedings itself something which is not a condition precedent for imposition of penalty under section 271 AAA - Outer limit has to be the point of time when the assessment proceedings are undertaken by the Assessing Officer because the opening portion of section 271(1) of the Act requires the Assessing Officer to record satisfaction in the course of such proceedings - Section 271 AAA, as the statute unambiguously provides, does not require any subjective satisfaction of the Asessing Officer to be arrived at during the assessment roceedings, and, therefore, the outer limit of payment before the conclusion of assessment proceedings will not come into play - On the facts of the present case wherein entire tax and interest has been duly adjusted out of seized cash or otherwise paid in deference to notices of demand, well before the penalty proceedings were concluded, the assessee could not be denied the immunity under section 271AAA(2) only because entire tax, along with interest, was not paid before filing of income tax return or, for that purpose, before concluding the assessment proceedings Reliance is placed on the case DCIT vs. Pioneer Online Ltd in 2012 (5) TMI 6 - ITAT KOLKATA Decided in favor of Assessee.

Summary

Issues Involved:
1. Adjustment of seized cash against advance tax liability.
2. Imposition of penalty under Section 271AAA.
3. Interpretation of Section 132B(1) regarding "existing liability."
4. Compliance with Section 271AAA(2)(iii) for immunity from penalty.
5. Time limit for payment of tax and interest under Section 271AAA.

Detailed Analysis:

1. Adjustment of Seized Cash Against Advance Tax Liability:
The Revenue contended that the CIT(A) erred in directing the AO to treat the amount lying in the P.D. account as advance tax. The AO argued that under Section 132B(1), the seized cash could not be adjusted against advance tax liability as it was not an "existing liability." The assessee had requested the adjustment of Rs.89,30,000/- seized cash against the advance tax demand, but the AO did not comply, leading to interest charges under Section 234B/234C and short payment of taxes.

2. Imposition of Penalty Under Section 271AAA:
The AO imposed a penalty under Section 271AAA, arguing that the assessee did not comply with Section 271AAA(2)(iii), which requires the payment of tax along with interest on undisclosed income. The CIT(A) canceled the penalty, stating that the short payment of advance tax was due to the AO's failure to adjust the seized cash. The CIT(A) referenced the Jurisdictional High Court's decision in CIT vs. Ashok Kumar, which held that no interest under Section 234B was leviable, thus invalidating the basis for the penalty.

3. Interpretation of Section 132B(1) Regarding "Existing Liability":
The AO maintained that Section 132B(1) clearly states that seized assets can only be used to discharge "existing liability" and not advance tax. The CIT(A) disagreed, ruling that the advance tax demand became an existing liability upon receiving the notice under Section 156/210, and thus, the seized amount should have been adjusted against it.

4. Compliance with Section 271AAA(2)(iii) for Immunity from Penalty:
The CIT(A) found that the assessee had paid the tax and interest on the undisclosed income, thus complying with Section 271AAA(2)(iii). The AO's imposition of penalty was based on the incorrect application of interest under Section 234B, which was subsequently deleted by the CIT(A) and upheld by the ITAT.

5. Time Limit for Payment of Tax and Interest Under Section 271AAA:
The CIT(A) and ITAT noted that Section 271AAA does not specify a time limit for the payment of tax and interest. The CIT(A) highlighted that the omission of Section 271AAA and introduction of Section 271AAB, which includes a time limit, indicates that no such limit was intended under Section 271AAA. The ITAT supported this view, referencing the decision in DCIT vs. Pioneer Online Ltd., which held that the absence of a specified time limit means that the tax and interest need not be paid before filing the return or before the conclusion of assessment proceedings.

Conclusion:
The ITAT upheld the CIT(A)'s decision to treat the seized cash as advance tax and cancel the penalty under Section 271AAA. The ITAT agreed that the AO's refusal to adjust the seized cash led to an incorrect imposition of interest and penalty. The absence of a time limit for payment under Section 271AAA was emphasized, and the legislative intent was clarified by the subsequent introduction of Section 271AAB. The appeal filed by the Revenue was dismissed.