2018 (3) TMI 947 - AT - Income Tax

Penalty u/s 271(1)(c)/271AAB - admission of income u/s 132(4) - undisclosed income in respect of the deposits in the name of the employees of the assessee - Held that - In the assessee s case, the assessee had admitted the undisclosed income in respect of the deposits of the employees, exemployees in their bank accounts. The assessee admitted the peak deposit in the accounts of employees as his undisclosed income amounting to ₹ 56,74,868/-. At the time of search, the assessee has submitted before the A.O. that the bank accounts are not belonged to the assessee and they were belonged to the employees who opened the accounts and operating the same. However, the assessee had admitted peak deposits u/s 132(4) - A.O. did not make any further enquiries and accepted the admission given by the assessee. Though peak deposits were admitted by the assessee as additional income u/s 132(4) of the Act, the A.O. has not established that the impugned bank accounts were belonged to the assessee, therefore, we hold that there is no undisclosed income in respect of the deposits in the name of the employees of the assessee. - Decided in favour of assessee Unexplained source of acquisition of gold and jewellery - Held that - On the day of the search and subsequently, the assessee has categorically explained the source of acquisition of gold and jewellery stating that the said gold and jewellery was said to be belonging to his brother s daughter Miss S. Chandrika and also to his brother s wife. Though he has admitted the income, the above gold and jewellery required to be examined in the hands of Miss S. Chandrika and Mrs. Sita wife of his brother and his wife for levy of penalty u/s 271AAB. The A.O. stopped his enquiries once the disclosure has been made by the assessee and did not make any further enquiry, therefore, the A.O. has not established that gold and jewellery was acquired from the sources of undisclosed income. As per the provisions of section 271AAB of the Act, the penalty is leviable only on undisclosed income. Thus no case for imposing penalty u/s 271AAB - Decided in favour of assessee

Summary

Issues Involved:
1. Penalty under Section 271AAB of the Income Tax Act.
2. Admission of undisclosed income during search operations.
3. Ownership and source of gold, jewellery, and cash deposits.

Issue-wise Analysis:

1. Penalty under Section 271AAB of the Income Tax Act:
The primary issue revolves around the imposition of penalty under Section 271AAB following a search operation under Section 132. The Assessing Officer (A.O.) imposed a penalty of ?49,11,957/- at 30% on the undisclosed income. The CIT(A) held that the imposition of penalty is not mandatory, relying on various judicial precedents, and emphasizing that mere admission of income under Section 132(4) does not automatically lead to penalty under Section 271AAB. The Tribunal upheld the CIT(A)’s view that the penalty under Section 271AAB is discretionary and not mandatory, requiring a reasonable opportunity for the assessee to be heard.

2. Admission of Undisclosed Income During Search Operations:
During the search, the assessee admitted additional income for the assessment year 2013-14, including amounts from cheques deposited into employees' bank accounts, gold jewellery, diamonds, silver articles, and income from the construction business. The CIT(A) deleted the penalty related to the income from the construction business and discrepancies, as the financial year was not complete, and the A.O. could not prove non-disclosure. The Tribunal agreed with CIT(A) that the penalty cannot be imposed solely based on admission without conclusive evidence of concealment.

3. Ownership and Source of Gold, Jewellery, and Cash Deposits:
The A.O. found significant amounts of gold, jewellery, and cash deposits during the search. The assessee claimed that the gold and jewellery belonged to family members and admitted the peak deposits in employees' accounts as his income to avoid litigation. The CIT(A) provided partial relief, recognizing some jewellery as belonging to family members, and sustained the penalty for the remaining amount. The Tribunal, however, found that the A.O. did not establish that the bank accounts and jewellery were undisclosed income of the assessee. Consequently, the Tribunal upheld the CIT(A)’s decision to cancel the penalty related to the bank deposits and deleted the penalty on the jewellery, as the A.O. failed to prove the undisclosed nature of the income.

Judgment Summary:
The Tribunal concluded that the penalty under Section 271AAB is discretionary and not mandatory. It emphasized the necessity for the A.O. to provide a reasonable opportunity for the assessee to be heard and to establish the undisclosed nature of the income conclusively. The Tribunal upheld the CIT(A)’s decision to cancel the penalty related to the bank deposits and deleted the penalty on the gold, jewellery, and diamonds, as the A.O. did not provide sufficient evidence to prove that these were undisclosed incomes. The revenue's appeal was dismissed, and the assessee's cross-appeal was allowed.