2020 (3) TMI 937 - AT - Income Tax

Penalty u/s 271AAB - Assessment u/s 153B - Addition u/s 69 r.w.s 115BBE - 30% of undisclosed income of ₹ 10.00 lacs due to the reason that return of income filed by the assessee was belated beyond the time prescribed provided u/s 139(1) - income surrendered by the assessee - HELD THAT - There is nothing either in the proceedings u/s 132 or in the statement recorded u/s 132(4) of the Act regarding unaccounted expenditure incurred by the assessee on construction of house. There is no mention of the actual construction of the house by the assessee or the timing the construction period or completion of construction work. Even the alleged expenditure not recorded in the books of account is not based on any documentary evidence or even on physical verification of the Electrical items as well as furniture and fixture installed in the house of the assessee. When the said income is not represented by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions then even if the assessee has surrendered a sum of ₹ 10.00 lacs as unaccounted expenditure, the same would not fall in the ambit of undisclosed income as defined in explanation to Section 271AAB . A bare surrender of income not representing the money, bullion, jewellery or other valuable article or thing or any entry in the books of account will not be regarded as undisclosed income for the purpose of levy of penalty u/s 271AAB. In the case in hand, it is clear from the records that the assessee in his statement recorded u/s 132(4) of the Act has made a surrender of ₹ 10.00 lacs based on said seized materials marked as Annexure A-2 Page 60 to 62 which is Electric Plan and Site Map of the house. Therefore, in the absence of any undisclosed income revealed by said sized materials, the income surrendered by the assessee cannot be said to be undisclosed income for the purpose of Section 271AAB - Hence, when income surrendered by the assessee does not fall in the ambit of undisclosed income as defined in Section 271AAB the same would not attract the levy of penalty u/s 271AAB of the Act. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of the penalty order under Section 271AAB of the Income Tax Act, 1961.
2. Whether the income surrendered by the assessee qualifies as "undisclosed income" under Section 271AAB.
3. Justification of the penalty imposed by the Assessing Officer (AO) under Section 271AAB.

Issue-wise detailed analysis:

1. Validity of the penalty order under Section 271AAB of the Income Tax Act, 1961:

The assessee challenged the validity of the penalty order under Section 271AAB, arguing that the order was void ab initio. The Tribunal analyzed whether the penalty under Section 271AAB is mandatory or discretionary. It was noted that the penalty under this section is not automatic but requires the AO to issue a show cause notice and provide an opportunity for the assessee to explain their case. The Tribunal referred to the decision in the case of Ravi Mathur vs. DCIT, which clarified that the AO must take a decision after considering all facts and circumstances and ensure that the conditions specified under Section 271AAB are satisfied. The Tribunal concluded that the penalty under Section 271AAB is not mandatory but discretionary and must be based on a judicious decision by the AO.

2. Whether the income surrendered by the assessee qualifies as "undisclosed income" under Section 271AAB:

The Tribunal examined if the surrendered income of ?10.00 lacs qualifies as "undisclosed income" as defined under Section 271AAB. The definition of "undisclosed income" includes income represented by money, bullion, jewelry, or other valuable articles or things, or entries in books of accounts or other documents found during the search. The Tribunal found that the seized documents (Electric Plan and Site Map) did not reveal any undisclosed income or unaccounted expenditure. The documents were merely a design plan and did not indicate actual expenditure or unaccounted income. The Tribunal concluded that the surrendered income did not fall within the definition of "undisclosed income" under Section 271AAB.

3. Justification of the penalty imposed by the Assessing Officer (AO) under Section 271AAB:

The AO had imposed a penalty of ?3.00 lacs under Section 271AAB, arguing that the surrendered income was assessable under Section 69 and taxable at 30% as per Section 115BBE. The Tribunal noted that the AO must ensure that the conditions for levying the penalty under Section 271AAB are met, including the existence of "undisclosed income" as defined in the Act. The Tribunal found that the seized documents did not substantiate any unaccounted expenditure or undisclosed income. The Tribunal also referred to the decision in Ravi Mathur vs. DCIT, which emphasized the need for the AO to objectively analyze the facts and circumstances before imposing the penalty. Consequently, the Tribunal held that the penalty imposed by the AO was not justified as the surrendered income did not qualify as "undisclosed income."

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the penalty levied under Section 271AAB was not sustainable in law. The Tribunal emphasized that the AO must judiciously decide on the imposition of the penalty after considering all relevant facts and ensuring that the conditions under Section 271AAB are satisfied. The Tribunal deleted the penalty imposed by the AO, concluding that the surrendered income did not fall within the definition of "undisclosed income" under Section 271AAB.