2021 (2) TMI 1067 - AT - Income Tax

Penalty u/s.271(1)(c) OR 271AAA - unexplained cash deposits - HELD THAT - It is not in dispute that unexplained cash deposits of ₹ 51,63,987/- has been treated as undisclosed income by the ld. AO for the A.Y.2008-09. Hence, the said addition shall not be eligible for levy of penalty u/s.271(1)(c) of the Act in view of specific provisions contained in Section 271AAA(3) of the Act. Moreover, we also find that penalty in the instant case u/s.271(1)(c) of the Act has been levied by the ld. AO @200% of the tax sought to be evaded on the undisclosed income of ₹ 51,63,987/-. We find that the rate of penalty @ 200% is contemplated only u/s.271(1)(c) of the Act and not u/s.271AAA of the Act. It is elementary that the provisions of Section 271AAA and Explanation 5A to Section 271(1)(c) are distinct and separate and totally operate on two independent fields for different assessment years containing different provisions altogether. Hence, we hold that the lower authorities grossly erred in levying and confirming the penalty u/s.271(1)(c) of the Act in the facts and circumstances of the case for the A.Y. 2008-09 , being the year of search. No hesitation in directing the ld. AO to delete the said penalty for the A.Y.2008-09. Accordingly, the ground Nos. 1-5 raised by the assessee are allowed.

Summary

Issues involved:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2008-09 instead of section 271AAA.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) vs. Section 271AAA:
The primary issue in this case revolved around whether the penalty under section 271(1)(c) of the Income Tax Act could be levied for the assessment year 2008-09, which was the year of search, instead of under section 271AAA. The Appellate Tribunal noted that a search and seizure operation was conducted under section 132 of the Act in the case of the Phoenix Group, which included the assessee as a family member. The assessment for the assessment year 2008-09 was framed under section 153A r.w.s. 143(3) of the Act, and penalty proceedings were initiated under section 271(1)(c) for concealment of income. However, the Tribunal observed that the provisions of section 271AAA should have been applied in this case, as it specifically deals with cases where a search has been initiated. The Tribunal highlighted that section 271AAA mandates a penalty of 10% of undisclosed income for the specified previous year, which includes the year of search. Therefore, the Tribunal held that the penalty under section 271(1)(c) was incorrectly imposed for the assessment year 2008-09, and directed the Assessing Officer to delete the penalty.

2. Distinction between Section 271AAA and Section 271(1)(c):
The Tribunal emphasized the clear distinction between the provisions of Section 271AAA and Section 271(1)(c) of the Act. It pointed out that while Section 271AAA specifically addresses cases related to searches and prescribes a penalty rate of 10% of undisclosed income for the specified previous year, Section 271(1)(c) pertains to general cases of concealment of income and allows for a penalty at a different rate. The Tribunal highlighted that the penalty imposed by the Assessing Officer at 200% of the tax sought to be evaded on the undisclosed income was inapplicable for the assessment year 2008-09, as it was governed by the provisions of Section 271AAA. Therefore, the Tribunal concluded that the lower authorities erred in confirming the penalty under section 271(1)(c) for the year of search, and directed the deletion of the penalty.

3. Decision and Outcome:
In its final decision, the Appellate Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to delete the penalty imposed under section 271(1)(c) for the assessment year 2008-09. The Tribunal clarified that the penalty should have been levied under section 271AAA, considering the specific provisions applicable to cases involving searches. The Tribunal's ruling emphasized the importance of applying the correct penalty provisions based on the circumstances of the case, particularly when it pertains to undisclosed income discovered during a search operation.

This comprehensive analysis of the judgment highlights the key legal issues, the Tribunal's reasoning, and the ultimate decision regarding the imposition of penalties under the Income Tax Act for the assessment year 2008-09.