2017 (7) TMI 773 - AT - Income Tax

Penalty u/s 271AAA - Held that - As per section 271AAA(2)(i), one of the conditions for obtaining relief from the imposition of penalty under s.271AAA is that the assessee in the statement recorded under s.132(4) of the Act admits the undisclosed income and specifies the manner in which such income has been derived. Section 271AAA(2)(ii) casts obligation on the part of the assessee to substantiate the manner in which the undisclosed income was derived. Thus, sub-section (2)(ii) finds its genesis from sub-section 2(i) of the Act. Admittedly, the Revenue is not aggrieved by the condition stipulated in sub-section 2(ii) of the Act. Impliedly, the Revenue admits that the assessee has not failed to substantiate the manner in which the undisclosed income derived. This being so, it follows by necessary implication that the assessee has not failed to specify the manner at the first place when substantiation thereof has not been called into question by the Revenue. Thus, the case of the Revenue requires to be summarily dismissed on this ground alone. Notwithstanding, we further note that the assessee has replied to the query raised while recording the statement as called for. The revenue does not appear to have quizzed the assessee for satisfying the manner in which the purported undisclosed income has been derived. We simultaneously note that no where in the assessment order or in the penalty order, the revenue has made out a case that the manner of earning undisclosed income was enquired into post search stage either. The revenue has not pointed out any query which remained unreplied or evaded in the course of search or post search investigation. Therefore looking from any angle, it is difficult to hold in favour of the revenue. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of penalty under section 271AAA for Assessment Year 2010-11.

Analysis:
The case involved an individual engaged in textile business admitting unaccounted income during a search action. The Assessing Officer imposed a penalty of ?20 lakhs under section 271AAA for AY 2010-11, which was deleted by the CIT(A) citing fulfillment of exceptions in section 271AAA(2). The CIT(A) found that the undisclosed income was admitted during the search, specified as earned from taxable business, substantiated with supporting documents, and taxes were paid. The appellant's compliance with section 271AAA(2) was deemed satisfactory by the CIT(A), leading to the penalty deletion.

The Revenue appealed to the Tribunal, arguing that the assessee failed to satisfy the conditions of section 271AAA(2) and hence was not eligible for penalty exemption. The Revenue contended that the manner in which the undisclosed income was derived was not adequately specified by the assessee during the search statement, as required by section 271AAA(2)(i). However, the Tribunal noted that the Revenue did not challenge the substantiation of the income's manner, indicating implicit acceptance of compliance with section 271AAA(2)(ii). The Tribunal held that since the Revenue did not question the manner of income derivation during or after the search, and the undisclosed income was included in the return with taxes paid, the assessee's case was strong. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the penalty.

In conclusion, the Tribunal upheld the CIT(A)'s order deleting the penalty under section 271AAA, emphasizing the importance of explicit compliance with the specified conditions in the Income Tax Act to avoid penalties. The case highlighted the significance of substantiating and specifying the manner of undisclosed income during search actions to benefit from penalty exemptions under relevant provisions.