2020 (1) TMI 287 - AT - Income Tax

Penalty u/s 271AAB - search and survey operation under section 132(1) was conducted - assessee at the time of search admitted an undisclosed income of ₹ 1.90 Crores under section 132(4) - HELD THAT - In this case there was an existing tax liability on the assessee to pay the taxes and, therefore, the Assessing officer should have adjusted the tax from the seized assets , hence, it cannot be said that the assessee has not complied the aforesaid requirement of provisions of section 271AAAB of the Act . Even otherwise, the assessee has also explained that it was not possessed of sufficient funds and the moment it got possessed of funds, it filed the revised return on 12.2.2014 and paid due taxes. So far as the contention of the Ld. Counsel for the assessee that the aforesaid surrender can not / does not fall within the definition of the undisclosed income, as defined under the provisions of section 271AAB is concerned, we do not agree with the above submissions. The assessee has duly made a statement that the aforesaid disclosure was on account of unrecorded transactions / discrepancies in the accounts and on account of certain loose papers found during the search action. In view of this, the aforesaid disclosure, in our view, falls within the scope of undisclosed income as provided under Explanation (C) to section 271AAB - We hold that the case of the assessee does not fall under the provisions of section 271AAB(3) of the Act but under the provisions of section 271AAB(1) of the Act and minimum penalty@ 10% of the undisclosed income is leviable. - Appeal of the assessee is partly allowed.

Summary

Issues Involved:

1. Sustenance of penalty under Section 271AAB.
2. Applicability of clauses (a), (b), and (c) of sub-section (1) of Section 271AAB.
3. Compliance with the conditions for lower penalty rates.
4. Interpretation of "undisclosed income" under Section 271AAB.

Issue-wise Detailed Analysis:

1. Sustenance of Penalty under Section 271AAB:

The primary grievance of the assessee was the sustenance of a penalty amounting to ?57,00,000 levied by the Assessing Officer (A.O.) under Section 271AAB of the Income Tax Act, 1961. The penalty was based on an undisclosed income of ?1.90 Crores admitted by the assessee during a search operation conducted under Section 132(1) of the Act. The A.O. observed that the assessee failed to substantiate the manner of earning the undisclosed income and levied a penalty of 30% on the undisclosed income.

2. Applicability of Clauses (a), (b), and (c) of Sub-section (1) of Section 271AAB:

The assessee contended that the conditions prescribed under clause (a) of sub-section (1) of Section 271AAB were fulfilled, and therefore, no penalty should be exigible. However, the Ld. CIT(A) confirmed the penalty, stating that the assessee neither paid the taxes together with interest before the specified date nor filed the return declaring the undisclosed income within the stipulated time. As such, the case fell under clause (c) of sub-section (1) of Section 271AAB, which attracts a penalty ranging from 30% to 90% of the undisclosed income.

3. Compliance with Conditions for Lower Penalty Rates:

The Ld. CIT(A) emphasized that for the application of lower penalty rates (10% or 20%), the assessee was required to fulfill all conditions, including paying taxes together with interest and filing the return declaring the undisclosed income before the specified date (31.10.2013 for A.Y. 2013-14). The assessee failed to pay the taxes before the specified date, as evidenced by the payment made on 27.03.2014. Consequently, the penalty was levied at 30% as per clause (c) of sub-section (1) of Section 271AAB.

4. Interpretation of "Undisclosed Income" under Section 271AAB:

The Tribunal referred to a similar case (ITA No. 697/Chd/2017) where the assessee had surrendered income during the search, which was treated as undisclosed business income. The Tribunal noted that the provisions of Section 271AAB are similar to Section 271AAA, with the difference being the rate of penalty. The Tribunal held that the surrendered income fell within the scope of "undisclosed income" as defined under Explanation (c) to Section 271AAB, and the minimum penalty of 10% was applicable if the conditions were met.

Conclusion:

The Tribunal, following its earlier decision, modified the order of the Ld. CIT(A) and directed the A.O. to levy the minimum penalty of 10% on the undisclosed income, thereby partly allowing the appeal of the assessee. The judgment clarified the interpretation and application of Section 271AAB, emphasizing the importance of fulfilling all prescribed conditions to qualify for lower penalty rates.