2016 (4) TMI 949 - AT - Income Tax

Penalty levied u/s 271AAA - assessee has not explained the manner in which the undisclosed income has been derived - Held that - In the present case on hand, on perusal of the facts, we find that the assessee has admitted the undisclosed income at the time of search, while recording the statement u/s 132(4) of the Act. The assessee has explained the manner in which such undisclosed income has been derived. It was the explanation of the assessee that the undisclosed income was derived because of suppression of sales turnover relates to his business. The assessee further explained that the suppressed sale was on account of sale of flats, which were not disclosed in the regular books of accounts. The assessee explained the undisclosed income even at the time of search while recording statement u/s 132(4) of the Act and also explained before the A.O. at the time of assessment, which was evident from para-5 and 5.1 of the assessment order. Therefore, in our considered opinion, clause (i) & (ii) of sub section (2) of section 271AAA of the Act is fulfilled and hence, no penalty can be levied u/s 271AAA of the Act. On perusal of the facts available on record, it was clear that the assessee has paid the entire self assessment tax admitted in the revised return before initiation of penalty proceedings u/s 271AAA of the Act. Though assessee has not paid the total taxes along with revised return of income, it has explained the reasons for non-payment of taxes before completion of assessment, however, has paid the total taxes before initiation of penalty u/s 271AAA of the Act. Therefore, in our opinion, the assessee has fulfilled the clause (iii) of sub section (2) of section 271AAA of the Act, hence, no penalty can be levied u/s 271AAA of the Act as held by the Hon ble Supreme Court in the case of ACIT Vs. Gebilal Kanhaialal (HUF) (2012 (9) TMI 297 - SUPREME COURT ). - Decided in favour of assessee

Summary

Issues Involved:
1. Erroneous order of CIT(A) on facts and law.
2. Assessee's explanation of the manner in which unaccounted income was derived.
3. Satisfaction of conditions for payment of taxes under section 271AAA(2) of the Income Tax Act.

Detailed Analysis:

Issue 1: Erroneous Order of CIT(A) on Facts and Law
The revenue argued that the CIT(A)'s order was erroneous both factually and legally. The CIT(A) had deleted the penalty levied under section 271AAA(1) of the Income Tax Act, which the revenue contended was not appropriate given the circumstances of the case.

Issue 2: Assessee's Explanation of the Manner in Which Unaccounted Income Was Derived
During a search and seizure operation conducted on 30.1.2008, suppression of sales amounting to ?3 crores was detected and admitted by the assessee. The assessee filed a revised return on 17.8.2009, admitting a total income of ?4,35,64,790, which included the undisclosed income. However, the A.O. levied a penalty of ?44,03,744 under section 271AAA(1) of the Act, arguing that the assessee failed to specify and substantiate the manner in which the undisclosed income was derived. The CIT(A) found that the assessee had indeed explained the manner of deriving the undisclosed income during the search and in subsequent proceedings, thus fulfilling the conditions under section 271AAA(2)(i) and (ii).

Issue 3: Satisfaction of Conditions for Payment of Taxes Under Section 271AAA(2)
The A.O. contended that the assessee did not pay the taxes on the undisclosed income before filing the revised return, which was a condition under section 271AAA(2)(iii). The CIT(A) noted that the assessee paid the taxes before the initiation of penalty proceedings and that the Act does not prescribe an upper time limit for payment of taxes. This interpretation was supported by the Supreme Court's decision in ACIT Vs. Gebilal Kanhaialal (HUF), which held that no specific time limit for payment of taxes is prescribed under clause (iii) of section 271AAA(2).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the assessee had fulfilled all the conditions under section 271AAA(2) by admitting the undisclosed income, explaining and substantiating the manner in which it was derived, and paying the taxes before the initiation of penalty proceedings. The appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was also dismissed, supporting the CIT(A)'s order. The Tribunal found no error or infirmity in the CIT(A)'s order and directed the A.O. to delete the penalty levied under section 271AAA(1) of the Act.