2014 (1) TMI 805 - HC - Income Tax

Penalty u/s 271AAA - Held that - It is found that the difference between the disclosed income and the assessment was very meagre - There was no material to indiciate that the assessee has not disclosed the proper income - The assessee had offered to show an additional income of 1.21 crores to avoid unnecessary controversy in the matter - The Tribunal came to a finding that the imposition of penalty was bad in law - Decided against Revenue.

Summary

Issues:
1. Appeal against the order passed by the Income Tax Appellate Tribunal regarding penalty imposition under Section 271AAA.
2. Interpretation of Section 271AAA of the Income Tax Act.
3. Justification of penalty imposition based on undisclosed income and discrepancies in accounts.

Analysis:
The High Court of Kerala heard an appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal (ITA) in ITA No. 367/Coch/2011. The case involved a search conducted under Section 132 of the Income Tax Act at the business premises of the assessee, leading to the filing of the return of income by the assessee. The return declared a total income of Rs. 8,39,77,210, including an additional sum offered to cover possible omissions and commissions. Subsequently, a penalty was imposed on the assessee under Section 271AAA for concealment of income amounting to Rs. 12,26,000.

The assessee appealed against the penalty order before the Commissioner of Income Tax (Appeal), which was allowed on the grounds that there was no violation of Section 271AAA. The revenue then appealed to the Tribunal, which upheld the decision of the Commissioner. The revenue contended that the Tribunal erred in concluding that Section 271AAA did not apply to the case, highlighting discrepancies in the accounts and the additional income declared by the assessee.

The First Appellate Authority found that Section 271AAA imposes a 10% penalty on undisclosed income found during a search. The Managing Partner of the assessee firm had admitted to offering additional income to avoid litigation, and no undisclosed income was unearthed during the search. The Tribunal noted that the assessee had declared additional income in the return, and there was no justification for imposing a penalty based on the disclosed income.

The High Court considered the arguments and found that the difference between the disclosed income and the assessment was minimal. The Tribunal's decision was based on factual circumstances, with no evidence indicating improper disclosure of income by the assessee. The Court agreed with the Tribunal's findings, stating that no substantial questions of law arose regarding the applicability of Section 271AAA. Consequently, the appeal by the revenue was dismissed, affirming the decision of the Tribunal.