2015 (7) TMI 333 - AT - Income Tax

Penalty u/s.271(1)(c) - non fulfilment of conditions u/s. 271AAA(2)(i) and manner of deriving of the impugned undisclosed income was neither specified nor substantiated in this case - CIT(A) deleted the addition - Held that - It is evident that the assessee has attributed this undisclosed income to be on-money on sale of residential properties throughout. The CIT(A) holds that the Assessing Officer accepted the above stated source and undisclosed income in assessment framed without making any comment or observation. This case file comprises of the assessment order as well. The Revenue fails to refer to any such query being put up to the assessee doubting the source and manner of deriving of the impugned undisclosed income. We find that a coordinate bench in The D. CIT, Cent. Cir-3, Surat Versus Smt. Sulochanadevi A. Agarwal 2012 (12) TMI 21 - ITAT AHMEDABAD has quoted the hon ble jurisdictional high court decision in case of CIT vs. Mahindra C. Shah (2008 (2) TMI 32 - GUJARAT HIGH COURT) in holding that when an assessee admits undisclosed income in course of search, offers it to be taxed in the return, pays tax thereupon, no penalty can be levied particularly in the absence of any question being raised in respect thereof by the Assessing Officer. The Revenue fails to point out any exception to the same. It also does not rebut the CIT(A) crucial findings that the assessee had not been put to specific question specifying and substantiating the manner of having derived the impugned undisclosed income. - Decided against revenue.

Summary

Issues Involved:
1. Legitimacy of the penalties under Section 271AAA of the Income Tax Act, 1961.
2. Compliance with conditions under Section 271AAA(2)(i)-(iii).
3. Assessment of unaccounted income and its disclosure.
4. Evaluation of the CIT(A)'s decision to delete the penalties.

Detailed Analysis:

1. Legitimacy of the penalties under Section 271AAA of the Income Tax Act, 1961:
The Revenue's appeals arise from the CIT(A)-II, Ahmedabad's orders deleting penalties of Rs. 30 lacs and Rs. 70 lacs under Section 271AAA of the Income Tax Act, 1961. The penalties were imposed following a search on 14.02.2008, where the assessee admitted to unaccounted on-money income of Rs. 3 crores, which was included in the return filed on 12.01.2009. The Assessing Officer (AO) completed the regular assessment on 24.12.2009, making an unexplained investment addition of Rs. 6,79,10,000 and initiated penalty proceedings under Section 271(1)(c) for concealment and furnishing inaccurate particulars of income.

2. Compliance with conditions under Section 271AAA(2)(i)-(iii):
The AO held that the assessee did not fulfill the conditions under Section 271AAA(2)(i) and (ii), as the assessee did not disclose particulars of accounts and details with the source thereof. The CIT(A), however, found that the assessee had admitted the undisclosed income, specified the manner in which it was derived, and paid the taxes and interest. The CIT(A) referenced the principles laid down by the Hon'ble High Courts in CIT v. Mahendra C. Shah and CIT v. Radha Krishna Goel, emphasizing that the authorized officer must explain the provisions to the assessee and that substantial compliance is sufficient.

3. Assessment of unaccounted income and its disclosure:
The CIT(A) noted that the assessee made a disclosure of Rs. 3 crores on account of net income from on-money receipts during the search and provided a bifurcation of the undisclosed income. The AO accepted the returned income, which included the disclosure amount of Rs. 3 crores, without making any comments or observations about the source and nature of the income. The CIT(A) concluded that the assessee had substantially discharged the onus of explaining and substantiating the manner of earning the undisclosed income.

4. Evaluation of the CIT(A)'s decision to delete the penalties:
The CIT(A) held that the AO was not justified in levying the penalty under Section 271AAA, as the assessee had made the disclosure during the search, paid the taxes with interest, and the AO accepted the returned income without any adverse comments. The Tribunal agreed with the CIT(A)'s findings, noting that the Revenue failed to refer to any query doubting the source and manner of deriving the undisclosed income. The Tribunal affirmed the CIT(A)'s decision to delete the penalties, referencing a coordinate bench decision and the jurisdictional high court's ruling in CIT v. Mahindra C. Shah.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision to delete the penalties under Section 271AAA, as the assessee had substantially complied with the conditions under Section 271AAA(2)(i)-(iii), and the AO had accepted the disclosed income without raising any specific queries. The order was pronounced on 26 June 2015 at Ahmedabad.