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2013 (12) TMI 1213 - HC - Income TaxPenalty u/s 271AAA on undisclosed income accepted during search operation - Held that - Initially the amount of Rs.12.5 crores was declared and disclosed by the AOP but subsequently the AOP had filed a revised return declaring nil income - The Assessing Officer had decided that Rs.12.5 crores should be equally divided and taxed in the hands of Virendara Kumar Gupta, Sarad Jain and Sudhir Jain - The three respondent-assessees had filed appeal before the Commissioner (Appeals) questioning the said order/position - The AOP filed an application under Section 264 in pursuance of which the individual assessees withdrew the appeals - 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 - It was stated that such an income was undisclosed income - Decided against Revenue.
Issues:
1. Tax liability on undisclosed income surrendered during search. 2. Assessment of income in the hands of an 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 for undisclosed income. Analysis: 1. Tax Liability on Undisclosed Income: The undisclosed income of Rs.20 crores was surrendered during a search, and the tax liability was agreed to be paid as per the statement recorded under Section 132(4) of the Income Tax Act. An affidavit confirmed the undisclosed income, which was further bifurcated into amounts related to inventory discrepancies and income earned through a joint enterprise. The tribunal found the order just and fair, as taxes on the undisclosed income were duly paid. 2. Assessment of Income in AOP vs. Individual Members: The AOP "Sugandh Sansar" filed a return of income, but the Assessing Officer decided to tax the undisclosed income individually in the hands of the members rather than the AOP. The Commissioner of Income Tax, Delhi-VII, allowed the relief to the AOP citing legal precedents that income must be assessed in the hands of the "right person." The tribunal upheld the decision, emphasizing that the AOP had filed a "nil" return of income after the Assessing Officer's decision to divide and tax the undisclosed income in the hands of the individual members. 3. Revision Petition under Section 264: The AOP filed a revision petition under Section 264, which was accepted by the Commissioner of Income Tax. The Commissioner's order emphasized the judicial nature of revisional powers, stating that the revision had to be exercised objectively in the interest of justice. The order set aside the initial assessment and determined the income at "Nil" based on the facts and circumstances of the case. 4. Exoneration from Penalty under Section 271AAA: The Revenue argued that the AOP had initially declared the undisclosed income but later filed a revised return declaring "nil" income, potentially affecting the exoneration from penalty under Section 271AAA. However, the tribunal found no merit in the argument, noting that the AOP had initially declared the income, and the penalty was deleted considering the factual matrix and the subsequent actions of the AOP and individual members. In conclusion, the High Court dismissed the appeals, upholding the tribunal's decision based on the realistic and pragmatic view taken regarding the tax liability, assessment of income, revision petition, and penalty under Section 271AAA in the context of the undisclosed income and its treatment under the Income Tax Act.
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