2019 (9) TMI 605 - AT - Income Tax

Levy of penalty u/s 271 AAB - surrender of additional income during search - HELD THAT - Specific unretracted admission of the assessee of earlier undisclosed income and discrepancies in the books of account, we hold, is without any doubt the best piece of evidence against the assessee and is incriminating material enough representing undisclosed income for the purpose of levy of penalty under section 271AAB of the Act. The assessee had himself admitted to the fact of having not disclosed the income on account of brokerage and commission earned and had himself admitted to the fact that there were discrepancies and unrecorded entries in his books of account and also certain rough notings and estimates. Having himself admitted to all these facts and at no point of time having ever retracted this admission, the same constitutes incriminating material against the assessee None of the case laws are of any assistance to the assessee since in the impugned case the assessee has made specific admission of having undisclosed income relating to commission/brokerage and discrepancies in the books of accounts which has remained unretracted. We concur with the findings of the CIT(A) that the specific admission of the assessee to the undisclosed income and discrepancies in its accounts constituted incriminating material representing undisclosed income of the assessee for the purposes of levy of penalty under section 271AAB of the Act. We, therefore, uphold the order of the Ld. CIT(A) confirming the levy of penalty.- Decided against assessee.

Summary

Issues Involved:
1. Levy of penalty under Section 271AAB of the Income Tax Act, 1961.
2. Definition and applicability of "undisclosed income" under Section 271AAB.
3. Validity of the penalty imposed based on the surrender of income during search operations.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271AAB of the Income Tax Act, 1961:
The appeals were filed against the orders of the Commissioner of Income Tax (Appeals)-5, Ludhiana, which confirmed the levy of penalty under Section 271AAB. The penalty was levied subsequent to the assessment framed following a search carried out on the Deepak Singal group of cases. The appeals were consolidated and dealt with by a common order due to the identical nature of the issues involved.

2. Definition and Applicability of "Undisclosed Income" under Section 271AAB:
During the search conducted under Section 132(1), the assessee admitted to undisclosed income amounting to ?10 lakhs. The penalty proceedings were initiated, and a show-cause notice was issued. The assessee contended that there was no "undisclosed income" as defined under Section 271AAB and argued that the surrendered income was included in the filed return and taxes were paid. The definition of "undisclosed income" under Section 271AAB was scrutinized, which includes income not recorded in the books of account or disclosed to the tax authorities before the search. The assessee argued that no incriminating material was found during the search to qualify as "undisclosed income."

3. Validity of the Penalty Imposed Based on the Surrender of Income During Search Operations:
The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) upheld the penalty, stating that the surrender was made to cover discrepancies found in the seized documents and unrecorded income. The Tribunal noted that the surrender letter admitted discrepancies in the books of account and unrecorded entries, which were sufficient to constitute "undisclosed income." The Tribunal found no merit in the assessee's contention that no incriminating material was found, as the surrender letter itself was considered incriminating material. The Tribunal also distinguished the present case from other case laws cited by the assessee, where no specific admission of undisclosed income was made.

Conclusion:
The Tribunal upheld the penalty under Section 271AAB, confirming that the specific admission of undisclosed income and discrepancies in the books of account constituted sufficient incriminating material. Both appeals filed by the assessees were dismissed, affirming the orders of the lower authorities. The judgment emphasized that the specific unretracted admission of undisclosed income during the search was the best evidence against the assessee, justifying the levy of penalty.