2014 (10) TMI 421 - AT - Income Tax

Penalty u/s 271AAA in case of search AO was of the view that the assessee did not specify the manner in which undisclosed income was derived and also did not substantiate - Held that - The assessee surrendered ₹ 20 lakh during search and seizure operation conducted on 28/09/2007 and the department treated the same as income from undisclosed sources - the statement of the assessee was recorded in question and answer form and during the statement recorded u/s 132(4) of the Act on oath she was asked to explain the source of jewellery if the statement of the assessee recorded u/s 132(4) of the Act does not specify the manner in which the income is derived, if the income is declared and tax thereon has been paid, there would be substantial compliance not warranting any further denial of the benefit under exception no. 2 in Explanation 5 attached to section 271(1) of the Act - relying upon Mothers Pride Education Personna P. Ltd. Versus Deputy Commissioner of Income Tax, CC 5 New Delhi 2012 (10) TMI 774 - ITAT, DELHI - during assessment proceedings u/s 271AAA the question about manner in which income was derived were asked to assessee and she had replied to that - the penalty provisions on search and seizure were contained in section 271(1)(c) and immunity was granted to the assessee vide clause (2) of explanation 5 appended to section 271(1)(c). Provisions of clause (2) of explanation 5 appended to section 271(1)(c) are similar to immunity granted to assessee under clause (2) of section 271AAA thus, the order of the CIT(A) is to be set aside Decided in favour of assessee.

Issues Involved:
1. Applicability of the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel.
2. Whether the penalty under section 271AAA of the Income Tax Act, 1961, is justified.
3. Whether the assessee specified and substantiated the manner in which undisclosed income was derived.
4. The duty of the oath administrator during the recording of the statement under section 132(4).

Detailed Analysis:

1. Applicability of the Judgment of Hon'ble Allahabad High Court:
The assessee contended that the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel, 278 ITR 454, still holds good and is applicable to their case. The CIT(A) failed to consider this precedent, which could have influenced the decision regarding the penalty.

2. Justification of Penalty under Section 271AAA:
The penalty was upheld by the CIT(A) based on the assessee's failure to specify and substantiate the manner in which the undisclosed income was derived during the search and seizure operation. The CIT(A) noted that the appellant did not fulfill the conditions stipulated under section 271AAA, thereby justifying the penalty.

3. Specification and Substantiation of Undisclosed Income:
The assessee argued that they were not given a proper opportunity to specify and substantiate the manner in which the undisclosed income was derived. The statement recorded under section 132(4) did not include questions that allowed the assessee to explain the manner of deriving the income. The assessee asserted that they had disclosed all facts asked during the search and seizure operation.

The tribunal noted that the statement was recorded in a question-and-answer format, and the assessee was not explicitly asked to specify the manner in which the income was derived. The tribunal referenced the ITAT Mumbai decision in Gulabrai V Gandhi vs. ACIT, 84 ITD 370, and the ITAT Delhi decision in Mrs. Raj Rani Gupta's case, where it was held that the benefit of immunity from penalty cannot be denied if the statement does not specify the manner of deriving the income but the income is declared and tax is paid.

4. Duty of the Oath Administrator:
The assessee argued that the oath administrator did not ask questions in an appropriate form or inform the assessee of the benefits of specifying the manner in which the income was derived. The tribunal found merit in this argument, noting that the oath administrator's failure to ask the right questions deprived the assessee of the opportunity to comply with the requirements of section 271AAA.

Conclusion:
The tribunal concluded that the penalty under section 271AAA was unjustified as the assessee was not given a fair opportunity to specify and substantiate the manner in which the undisclosed income was derived. The tribunal set aside the orders of the authorities below and directed the AO to delete the penalty, following the precedent set in similar cases.

Order:
The appeal of the assessee was allowed on all grounds, and the penalty imposed under section 271AAA was ordered to be deleted. The judgment was pronounced in the open court on 22.8.2014.

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