2022 (3) TMI 1076 - AT - Income Tax

Penalty u/s. 271AAA - additional income admitted by the assessee in its statement u/s. 132(4) and which was declared in the return of income - HELD THAT - It is noted that assessee in its disclosure petition has conditionally offered to cover any other undisclosed income which has been unearthed during search. This action of assessee was out of abundant caution and conditional (provided there is material suggesting any undisclosed income un-earthed during search). However, finding that there was no other undisclosed income to identify with the seized materials/Panchanama, the assessee while filing the return of income pursuant to section 153A notice did not offer ₹ 40 lakhs. AO in the assessment order dated 30.03.2015, added ₹ 40 lakhs since assessee admitted ₹ 3.78 cr. during search. And the Ld. CIT(A) deleted penalty in respect of ₹ 3.38 cr. but sustained ₹ 40 lakhs, which we do not countenance because, the addition of ₹ 40 lakhs, was not based on any material discovered during search in any form described therein the definition of un-disclosed income u/s 271AAA of the Act. It is noted that based on the bald statement of Shri Bubna ₹ 3.78 cr. (out of ₹ 34 cr.) was admitted which includes ₹ 40 Lakhs. Since ₹ 40 lakhs cannot be attributed to any money, bullion, jewellery, article or transaction or entry or documents which has not been recorded in the books for the previous year (AY 2012-13) when searched on 29.05.2012, the same cannot fall in the ken of the definition of undisclosed income for the purpose of levying penalty u/s. 271AAA - Having taking note that the amount has been brought to tax by the AO though not shown by the assessee in the Return of Income, the penalty u/s. 271 AAA of the Act cannot be legally sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under Section 271AAA of the Income Tax Act, 1961.
2. Satisfaction of conditions under Section 271AAA(2) to avoid penalty.
3. Definition and applicability of "undisclosed income" under Section 271AAA.

Detailed Analysis:

1. Confirmation of Penalty under Section 271AAA:
The primary issue in this appeal was the confirmation of a penalty amounting to ?4 lakhs under Section 271AAA of the Income Tax Act, 1961. The assessee contested the penalty imposed by the Assessing Officer (AO) and partially upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Satisfaction of Conditions under Section 271AAA(2):
The assessee argued that the conditions stipulated in Section 271AAA(2) were satisfied, which should exempt them from the penalty. The conditions are:
- Admission of undisclosed income during the search.
- Specification and substantiation of the manner in which such income was derived.
- Payment of tax along with interest on the undisclosed income.

The assessee contended that they had admitted the undisclosed income during the search, specified the manner (false claims of commodity and saree losses), and paid the requisite tax and interest. The AO, however, imposed a penalty of 10% on the total undisclosed income of ?3,78,57,991/-, amounting to ?37,85,799/-. The CIT(A) reduced this penalty to ?4 lakhs (10% of ?40 lakhs), which was the difference between the total disclosed income and the amount admitted in the return.

3. Definition and Applicability of "Undisclosed Income":
The assessee argued that the additional ?40 lakhs could not be termed as "undisclosed income" under Section 271AAA. The definition of "undisclosed income" includes:
- Income represented by money, bullion, jewelry, or other valuable articles or transactions not recorded before the date of search.
- Income not disclosed to the Principal Commissioner or Commissioner before the search.

The Tribunal noted that the ?40 lakhs was a conditional offer made by the assessee to cover any discrepancies or technical adjustments. It was not based on any specific material or evidence discovered during the search. Therefore, it did not qualify as "undisclosed income" under the Act.

Conclusion:
The Tribunal concluded that the assessee had satisfied all conditions under Section 271AAA(2) for the amount of ?3,38,57,991/-. The remaining ?40 lakhs, being a conditional offer without specific evidence, did not fall under the definition of "undisclosed income." Consequently, the penalty of ?4 lakhs imposed by the CIT(A) was not legally sustainable. The appeal was allowed, and the penalty was set aside.

Order Pronouncement:
The order was pronounced in the open court on 23rd March 2022.