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2013 (12) TMI 484 - HC - Income TaxPenalty u/s 271AAA - Surrender of income at the time search - Held that - The AOP consisted of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain - Initially, the AOP had declared the entire undisclosed income - AOPs are taxed at maximum marginal rate, whereas individuals are taxed on cascading scale. The Assessing Officer had himself given tax credit to individual members of the tax paid by AOP - Taxes and applicable interest were paid on the undisclosed income - Details of nature of undisclosed income and manner of earning was recorded in the statement of Virendara Kumar Gupta - The income was derived from trading transactions not recorded in the books - Decided against Revenue.
Issues:
1. Tax liability on surrendered undisclosed income. 2. Assessment of income in the hands of Association of Persons (AOP) versus individual members. 3. Revision petition under Section 264 of the Income Tax Act. 4. Exoneration from penalty under Section 271AAA. Issue 1: Tax liability on surrendered undisclosed income: The tribunal upheld the order where Rs.20 crores was surrendered as undisclosed income during a search. The undisclosed income was bifurcated into Rs.7.50 crores due to discrepancies in inventory and Rs.12.50 crores earned through a joint enterprise. The AOP filed a return declaring income, but the Assessing Officer decided to tax the amount individually. The Commissioner of Income Tax passed an order citing relevant case law and the nature of jurisdiction under Section 264 of the Act. Issue 2: Assessment of income in the hands of AOP vs. individual members: The Commissioner held that if income belongs to the AOP in law, only the AOP should be taxed, not its members individually. The AOP filed a revision petition under Section 264, which was accepted. The AOP then filed a nil return of income after the Assessing Officer decided to tax the undisclosed income in the hands of individual members. The tribunal deleted the penalty under Section 271AAA considering the factual matrix and tax credit given to individual members by the Assessing Officer. Issue 3: Revision petition under Section 264 of the Income Tax Act: The Commissioner exercised revisional powers under Section 264, considering the judicial nature of the power and the duty to act judicially in the interest of doing real justice between the parties. The revision was based on an objective consideration of the facts and circumstances of the case, leading to the withdrawal of appeals by individual members. Issue 4: Exoneration from penalty under Section 271AAA: The Revenue argued that the conditions for exoneration from penalty under Section 271AAA were not satisfied as the AOP had filed a revised return declaring nil income. However, the tribunal found no merit in this contention. The AOP initially declared the undisclosed income, and the penalty was deleted based on the realistic and pragmatic view taken by the tribunal. In conclusion, the High Court upheld the tribunal's decision, dismissing the appeal as it found no grounds to interfere based on the facts and circumstances of the case.
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