2019 (7) TMI 1052 - HC - Income Tax

Penalty u/s 271AAA - assessee failed to substantiate the manner in which undisclosed income was derived - Tribunal deleted the addition - HELD THAT - The findings of fact recorded by the two revenue authorities is that the assessee offered the total unaccounted income of ₹ 9.29 Crores for the assessment year 2011-12 in his statement recorded during the search and seizure operation u/s. 132(4) of the Act. The Tribunal, by placing reliance on the decision of this Court in the case of CIT vs. Mahendra C. Shah 2008 (2) TMI 32 - GUJARAT HIGH COURT took the view that the Assessing Officer is obliged to specifically ask the assessee to explain the manner in which the undisclosed income had been derived and the failure on the part of the Assessing Officer in not inquiring specifically should not go against the assessee and the assessee should not be penalised. The Revenue took notice of the statement of Shri Prajapati, a Director of the company, recorded under Section 132(4) of the Act during the search and seizure. In such statement, no such question had been asked to the assessee. We are convinced with the findings recorded by the Tribunal. In our opinion, there is no substantial question of law involved in the present appeal.

Summary

Issues:
1. Whether the Appellate Tribunal was right in deleting the penalty under Section 271AAA of the Income Tax Act?
2. Whether the Appellate Tribunal was correct in relying on specific judgments in support of their decision?

Analysis:
1. The Tax Appeal was filed by the Revenue against the order passed by the Income Appellate Tribunal regarding the deletion of a penalty under Section 271AAA of the Income Tax Act for the assessment year 2011-12. The Tribunal concurred with the findings of the CIT(A) in deleting the penalty based on the assessee's declaration of unaccounted income during a search and seizure operation. The Tribunal noted that the assessee had offered the undisclosed income and fulfilled the conditions specified under the Act. The Tribunal also cited previous court judgments to support its decision, emphasizing that the Assessing Officer must specifically inquire about the manner in which undisclosed income was derived, failing which the assessee should not be penalized.

2. The Tribunal relied on the decision of the High Court in the case of Mahendra C. Shah and other relevant judgments to support its conclusion. The Court highlighted the importance of the statement recorded under Section 132(4) of the Act in disclosing the manner of deriving undisclosed income to avoid penalties. The Court discussed the provisions of Section 271AAA and the requirements for avoiding penalties, emphasizing the need for the assessee to substantiate the manner in which the income was derived. The Court held that the onus is on the assessee to disclose and specify the manner of deriving income, and only then the requirement to substantiate arises. The Court concluded that in the absence of specific questioning by the Revenue during the statement recording, the assessee cannot be penalized for failure to substantiate the manner of deriving income.

In summary, the Court dismissed the appeal, upholding the Tribunal's decision to delete the penalty under Section 271AAA. The Court emphasized the significance of the statement recorded under Section 132(4) for disclosing the manner of deriving undisclosed income and highlighted the conditions for avoiding penalties under the Act. The Court's analysis focused on the assessee's responsibility to disclose and substantiate the income derivation method, emphasizing the need for specific questioning by the Revenue to enforce penalties effectively.