2019 (1) TMI 1208 - AT - Income Tax

Penalty u/s 271AAA - income surrendered consequent to search - unexplained cash found at the time of search - Held that - AO completed the assessment by accepting the return of income filed by the assessee which included surrendered amount of ₹ 51,64,100/-. In fact in the Assessment Order, AO added another sum of ₹ 14,00,000/- as unexplained cash found at the time of search which in the second round after the Tribunal s order was deleted by the AO whereby accepting this cash belonged to the other entities. This aspect is not denied by the revenue. The initiation of penalty u/s 271AAA in the Assessment order is based on the surrendered amount which cannot be termed as undisclosed income. In fact, by surrendering the said amount, the assessee has disclosed it before the Revenue authorities. The quantum assessment order has nowhere stated that the surrendered amount of ₹ 51,64,100 is an undisclosed income. The surrendered amount was declared in the return of income u/s 153A as misc. income. AO accepted this surrendered amount as misc. income as declared by the assessee in the return of income and levied the income tax on it accordingly. In the present case, even the penalty order is silent on subject of undisclosed income. Therefore, provisions u/s 271AAA will not come under the purview as it is specifically a penalty relating to undisclosed income. - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 271AAA of the Income Tax Act.
2. Requirement of prior approval for imposing penalties exceeding specified amounts.
3. Conditions for exemption from penalty under Section 271AAA.
4. Validity of the assessment order without approval under Section 153D.
5. Nature of the surrendered income and its classification as undisclosed income.

Detailed Analysis:

1. Legality of the penalty imposed under Section 271AAA of the Income Tax Act:
The core issue revolves around the penalty of ?5,16,410/- imposed on the assessee under Section 271AAA. The penalty was levied at 10% of the undisclosed income of ?51,64,100/- surrendered during a search operation on 31.07.2008. The assessee argued that the penalty was unwarranted because the surrendered amount was disclosed during the assessment proceedings and tax along with interest was paid to buy peace. The Tribunal noted that the surrendered amount was included in the return of income and accepted by the Assessing Officer as miscellaneous income, not as undisclosed income. Consequently, the penalty under Section 271AAA, which pertains specifically to undisclosed income, was deemed inapplicable.

2. Requirement of prior approval for imposing penalties exceeding specified amounts:
The assessee contended that the penalty of ?20,000/- imposed by the Deputy Commissioner of Income Tax (DCIT) was illegal as it was done without the prior approval of the Additional/Joint Commissioner of Income Tax, as mandated by Section 274(2) of the Act. The Tribunal did not find explicit mention of such approval in the assessment order, thus questioning the legality of the penalty imposition.

3. Conditions for exemption from penalty under Section 271AAA:
The Tribunal examined whether the conditions for exemption from penalty under Section 271AAA were met. According to Section 271AAA(2), no penalty shall be imposed if the assessee, in the course of the search, admits the undisclosed income, specifies the manner in which it was derived, substantiates the manner, and pays the tax with interest. The Tribunal observed that the assessee had disclosed the income, paid the due tax, and provided explanations for the sources of shares, cash, and jewellery found during the search. However, the Tribunal noted that the penalty was initiated without a clear basis or specific charge, leading to its cancellation.

4. Validity of the assessment order without approval under Section 153D:
The assessee argued that the assessment order was invalid as it lacked the necessary approval from the Additional/Joint Commissioner of Income Tax under Section 153D. The Tribunal found that the assessment order did not mention any such approval, raising questions about its validity. The absence of approval rendered the assessment order and the consequent penalty order legally questionable.

5. Nature of the surrendered income and its classification as undisclosed income:
The Tribunal scrutinized the nature of the surrendered income and whether it qualified as undisclosed income under Section 271AAA. The assessee had surrendered ?51,64,100/- as miscellaneous income, which was included in the return of income and accepted by the Assessing Officer. The Tribunal concluded that the surrendered amount was disclosed to the revenue authorities and could not be classified as undisclosed income. Therefore, the penalty under Section 271AAA was not applicable.

Conclusion:
The Tribunal allowed the appeal of the assessee, ruling that the penalty imposed under Section 271AAA was not justified as the surrendered amount was disclosed and not classified as undisclosed income. The assessment order's validity was also questioned due to the lack of required approval under Section 153D. The Tribunal emphasized the need for clear and specific charges when initiating penalties, which was not evident in this case.