2019 (6) TMI 1121 - AT - Income Tax

Levy of penalty u/s 271AAB - surrender of income in the statement recorded u/s 132(4) - discrepancy in stock as well as purchase/sale/issue/receipt/approval and other discrepancies as per various annexures prepared during the search - HELD THAT - AO has levied penalty @10% of the surrendered/undisclosed income thus accepting that the assessee s case qualified for penalty as per clause(a) of section 271AAB as per which the assessee fulfilled the conditions of admitting to the undisclosed income in the statement recorded u/s 132(4) of the Act, specified the manner in which the income was derived, substantiated the same also and paid all taxes alongwith the interest on the same. The sole reason for levy of penalty therefore is that the surrendered income was in the nature of undisclosed income as defined in the section. Admittedly, the surrender had been made on account of discrepancy/shortage in stock. Clearly, this short stock had not been accounted for by the assessee. The same therefore, we hold, has been rightly held to qualify as undisclosed income as per the definition of the same in section 271AAB of the Act. Moreover the issue is squarely covered by case of M/s SEL Textiles Limited 2019 (4) TMI 1719 - ITAT CHANDIGARH wherein identical surrender made on account of the discrepancy in stock was held by the ITAT to qualify as undisclosed income liable to penalty u/s 271AAB of the Act. We uphold the order of the CI T(A) confirming the levy of penalty u/s 271AAB of the Act. - Decided against assessee

Summary

Issues:
Levy of penalty u/s 271AAB of the Income Tax Act, 1961 on surrendered undisclosed income.

Detailed Analysis:

1. Background and Penalty Initiation:
The appeal was filed against the Commissioner of Income Tax (Appeals) upholding the penalty under section 271AAB of the Income Tax Act, 1961. The assessee had admitted and surrendered undisclosed income during a search operation. The Assessing Officer initiated penalty proceedings under section 271AAB based on the surrendered income.

2. Assessee's Contentions:
The assessee contended that the surrendered income was disclosed in the return, taxes were paid, and the manner of earning was specified, hence no penalty should be levied. The argument was that the penalty was not automatic.

3. Revenue's Arguments:
The Revenue argued that the surrender was due to discrepancies in stock and other transactions found during the search, qualifying as undisclosed income. The Commissioner upheld the penalty, citing the explanation to section 271AAB(3) and the conditions fulfilled by the assessee.

4. Legal Provisions and ITAT Decision:
The ITAT analyzed section 271AAB, which deals with penalties in search-initiated cases. Undisclosed income is defined under Explanation(c) of the section. The penalty ranges from 10% to 60% based on conditions specified in sub-clauses (a) to (c) of subsection (1) of the section.

5. Confirmation of Penalty:
The ITAT upheld the penalty, considering the surrendered income as undisclosed income due to stock discrepancies. The decision was supported by a previous ITAT case where a similar surrender on stock discrepancies led to a penalty under section 271AAB. The penalty amount of ?28,30,000 was confirmed by the ITAT.

6. Conclusion:
The ITAT dismissed the assessee's appeal and upheld the penalty under section 271AAB. The decision was based on the definition of undisclosed income and the conditions specified in the Act. The penalty was deemed applicable due to the nature of the surrendered income as undisclosed, specifically related to stock discrepancies.

This detailed analysis outlines the key arguments, legal provisions, and the ITAT's decision regarding the levy of penalty under section 271AAB of the Income Tax Act, 1961 on surrendered undisclosed income.