2022 (11) TMI 203 - AT - Income Tax

Penalty levied by the AO u/s. 271AAB r.w.s. 274 - l evy penalty of 30% on undisclosed income - HELD THAT - Penalty u/s. 271(1)(c) and penalty u/s. 271AAB operates under different circumstances and further, penalty u/s. 271(1)(c) there is a provision for levy of penalty for two situations i.e., concealment of particulars of income and also furnishing inaccurate particulars of income, whereas, u/s. 271AAB in a case where search has been initiated u/s. 132 of the Act on or after 01.07.2012, the assessee shall pay by way of penalty in addition to tax, if any, payable by him, and said penalty ranges from 10% to 30% depending upon the conduct of the assessee. In this case, there is no dispute with regard to the fact that the assessee could not satisfactorily explain with necessary evidences, source for cash seized by Railway Police and therefore, the assessee had admitted additional income in the return of income filed in response to notice issued u/s. 153A of the Act. Therefore, in our considered view, the arguments of the ld. Counsel for the assessee that the penalty cannot be levied u/s. 271AAB of the Act is devoid of merits. We find that the reasons given by the AO to levy 30% penalty on undisclosed income is not backed by cogent reasons, because clause (c) of section 271AAB is applicable, if assessee does not admit undisclosed income in the statement recorded u/s. 132(4) and also not declared said income in the return of income furnished within the specified period and pays the tax altogether with interest, if any, in respect of the undisclosed income. In this case, the assessee has admitted undisclosed income in the return of income filed in response to notice u/s. 153A of the Act and also specified the manner in which said income has been derived by filing necessary bills for cash sales made during the period between 07.12.2012 to 11.12.2012. The assessee has admitted undisclosed income in the return of income and also paid tax together with interest, if any, in respect of the undisclosed income. Although, the AO has not accepted explanation furnished by the assessee on the manner in which said income has been derived, but on the basis of evidences filed by the assessee, we are of the considered view, that the assessee has specified the manner in which said income has been derived. Therefore, in our considered view clause (a) of section 271AAB of the Act is applicable in the given facts and circumstances of this case. Therefore, we direct the AO to restrict the penalty levied u/s. 271AAB of the Act @ 10% of the undisclosed income - Appeal filed by the assessee is partly allowed.

Summary

Issues:
Penalty under section 271AAB of the Income Tax Act - Validity of penalty proceedings and levy of penalty - Explanation for undisclosed income - Applicability of penalty clauses - Admissibility of undisclosed income in return filed - Manner of deriving undisclosed income.

Analysis:
The appeal was against the penalty levied under section 271AAB of the Income Tax Act, pertaining to the assessment year 2013-14. The assessee, a proprietor of a jewelry business, had cash seized by the Railway Police, leading to an assessment where the Assessing Officer (AO) made an addition of the seized cash as unexplained money. Subsequently, penalty proceedings were initiated, and the AO levied a penalty of 30% of the undisclosed income under section 271AAB. The assessee contended that the penalty order was invalid and should be quashed, arguing that the seized cash was recorded in the books and additional income was admitted in the return filed in response to a notice. The AO and the CIT(A) upheld the penalty, leading to the appeal.

The Tribunal considered the legal arguments in light of relevant judgments and provisions. It noted that penalty under section 271(1)(c) and section 271AAB operate under different circumstances, with section 271AAB applicable when a search is initiated post-July 2012. The Tribunal found no merit in the assessee's argument that the penalty could not be levied under section 271AAB, given the circumstances of the case. The assessee had failed to satisfactorily explain the source of the seized cash, leading to the admission of additional income in the return filed.

Regarding the manner of deriving undisclosed income, the Tribunal found that the AO's reasons for levying a 30% penalty were not justified. The AO had not provided cogent reasons for the high penalty, as the assessee had admitted the undisclosed income in the return and specified the manner of deriving it through necessary bills. The Tribunal held that the penalty under clause (c) of section 271AAB was not applicable in this case, directing the AO to restrict the penalty to 10% of the undisclosed income. Thus, the appeal was partly allowed, and the penalty was reduced accordingly.

In conclusion, the Tribunal's detailed analysis highlighted the importance of complying with the provisions of the Income Tax Act regarding undisclosed income and penalties. The judgment emphasized the need for proper explanation and documentation to support claims related to undisclosed income, ensuring fair and just application of penalty provisions.