2022 (2) TMI 39 - AT - Income Tax

Levy of penalty u/s 271AAA - need to specify the manner in which the undisclosed income had been derived - HELD THAT - As on the statements of the Assessee and her husband recorded by the AO, nothing appears qua putting an specific query by referring the provisions of section 271AAA of the Act and drawing the attention of the Assessee to the same while asking her to specify the manner in which the undisclosed income had been derived, hence as per judgment of M/s Emirates Technologies Pvt. Ltd. 2017 (8) TMI 387 - DELHI HIGH COURT wherein it has been affirmed when no specific query had been put to the Assessee by drawing his attention to Section 271 AAA of the Act asking him to specify the manner in which the undisclosed income, surrendered during the course of search, had been derived, the jurisdictional requirement of Section 271AAA was not met the penalty is not leviable. Even Hon‟ble Gujarat High Court in the case of CIT vs. Mahendra C shah 2008 (2) TMI 32 - GUJARAT HIGH COURT and case of Radha Kishan Geol 2005 (4) TMI 47 - ALLAHABAD HIGH COURT dealt with the identical situation and deleted the penalty. We are inclined to delete the penalty imposed by the AO and confirmed by the ld.CIT(A) u/s 271AAA - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271AAA of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The Assessee filed a return of income declaring ?15,11,496, but during a search, ?13 lakhs in cash was found in lockers jointly maintained by the Assessee and her husband. The revenue alleged that the cash belonged solely to the Assessee. The AO made an addition of ?13 lakhs u/s 69A of the Act and initiated penalty proceedings u/s 271AAA. The CIT(A) confirmed an addition of ?6,60,000 out of the total ?13 lakhs. The Assessee argued that the addition pertained to other receipts, not unexplained cash, and since the addition was under challenge, no penalty should be imposed. However, the AO imposed a penalty as the Assessee failed to prove the source of the cash, considering it unaccounted income. The CIT(A) affirmed the penalty, leading to the Assessee's appeal.

The Assessee contended that no specific query was raised regarding section 271AAA during assessment, citing a High Court judgment. The Tribunal noted that the AO did not ask the Assessee to specify how the undisclosed income was derived, as required by section 271AAA. Citing judgments by the Gujarat and Allahabad High Courts, the Tribunal emphasized that the authorized officer must fully explain the provisions to the Assessee during recording of statements. Failure to do so renders the penalty unsustainable. Accordingly, the Tribunal deleted the penalty imposed by the AO and confirmed by the CIT(A) u/s 271AAA, allowing the Assessee's appeal.