2013 (8) TMI 624 - AT - Income Tax

Penalty u/s 271AAA - Penalty where search has been initiated - Held that - assessee was asked to explain the entries in the work-in-progress sheet and assessee in the course of statement offered the income with a plea not to initiate penalty proceedings. The assessee was not asked about the manner in which such income was earned and also to substantiate the manner in which undisclosed income was derived - Following decision of CIT vs. Radha Kishan Goel 2005 (4) TMI 47 - ALLAHABAD High Court and CIT vs. Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT - No Penalty - Decided against Revenue.

Summary

Issues:
- Whether penalty u/s. 271AAA of the I.T. Act, 1961 was rightly deleted by CIT(A) without appreciating the failure of the assessee to substantiate the undisclosed income derived.

Analysis:
1. The appeal was filed by the revenue against the order of CIT(A)-40, Mumbai, challenging the deletion of penalty levied u/s. 271AAA of the I.T. Act, 1961 amounting to Rs.55,00,000. The revenue contended that the assessee failed to substantiate the manner in which the undisclosed income of Rs.5,50,00,000 was derived during search proceedings at Kanakia Group's premises. The revenue raised concerns about the non-fulfillment of conditions under sub-section(2) of section 271AAA for the non-levy of penalty.

2. The facts of the case revealed that during the search proceedings, incriminating documents led to the declaration of additional income of Rs.5,50,00,000 under various heads. The assessee offered this income for taxation, which was accepted by the Assessing Officer (AO). However, penalty proceedings were initiated under section 271AAA as the AO found the assessee unable to explain the sources of assets and substantiate the undisclosed income's derivation.

3. The assessee argued before CIT(A) that the surrendered amount was based on entries in the 'work-in-progress sheet' seized during the search, and the statement under section 132(4) was given accordingly. The assessee contended that by filing returns and paying taxes, they fulfilled the provisions of section 271AAA(2) for immunity from penalty. CIT(A) considered this submission and deleted the penalty by emphasizing that the assessee's disclosure of undisclosed income was sufficient, and the penalty was unjustified.

4. The ITAT Mumbai upheld CIT(A)'s decision, citing precedents and principles related to disclosures made under section 132(4) and immunity provisions under section 271AAA(2). Referring to a case where the High Court granted immunity under section 271(1)(c) based on similar statements under section 132(4), ITAT concluded that the assessee's compliance with tax payment and disclosure requirements warranted immunity from penalty. The tribunal highlighted the importance of substantial compliance and the lack of specific explanations during statement recordings in such cases.

5. Ultimately, the ITAT dismissed the revenue's appeal, affirming CIT(A)'s order to delete the penalty under section 271AAA. The judgment emphasized the significance of disclosure, tax payment, and substantial compliance in determining the applicability of penalty provisions in cases involving undisclosed income during search proceedings.

This detailed analysis showcases the progression of the case, the arguments presented, and the legal principles applied in arriving at the final judgment regarding the penalty under section 271AAA of the I.T. Act, 1961.