2024 (11) TMI 355 - AT - Income Tax

Penalty levied u/s 271(1)(c) - additional income been offered voluntarily in the statement recorded u/s 132(4) - HELD THAT - As no reference has been made to any corroborative incriminating material found during the course of search and penalty has been levied on the additional income been offered voluntarily in the statement recorded u/s 132(4). We are inclined to hold that the learned CIT (A) erred in confirming the penalty levied by AO u/s 271(1)(c) of the Act. - Decided in favour of assessee. Penalty u/s 271AAB - undisclosed income / additional income surrendered by the assessee voluntarily - HELD THAT - Undisclosed income is defined in clause (c) of the explanation to section 271AAB (1) of the Act and the same means any income of the specified previous year represented, either wholly or partly by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found during the course of a search, which are not recorded on or before the date of search in the books of account maintained in the normal course. But under the given facts of the case, we find that no such incriminating material has been referred having nexus with the undisclosed income offered during the course of search. Now, this being the first step, which is sine qua non for proceeding ahead for visiting the assessee with the penalty under Section 271AAB of the Act and since the same is absent in the given case there is no jurisdiction left with the learned Assessing Officer to proceed with the initiation of penalty under Section 271AAB of the Act. As decided in Shri Paras mal Jain 2023 (7) TMI 1080 - ITAT JAIPUR where it has been held that income surrendered is not to be construed as an undisclosed income specified in clause (c) to explanation of Section 271AAB(1) of the Act - Thus delete the impugned penalty of ₹5 lacs levied u/s 271AAB - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the penalty under Section 271(1)(c) of the Income Tax Act for A.Y. 2014-15 was correctly levied.
2. Whether the penalty under Section 271AAB of the Income Tax Act for A.Y. 2015-16 was correctly imposed.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) for A.Y. 2014-15:

The primary issue is whether the Commissioner of Income-tax (Appeals) erred in confirming the penalty levied by the Assessing Officer under Section 271(1)(c) for the assessment year 2014-15. The assessee, a private limited company, was subjected to a search under Section 132 of the Act, leading to an assessment under Section 153A. The assessee voluntarily disclosed an income of Rs. 50 lacs, which was accepted by the Assessing Officer without any reference to incriminating material. The penalty of Rs. 15,45,000 was levied for the undisclosed income declared during the search.

The assessee argued, supported by judicial precedents, that where no incriminating material is found during search proceedings and additional income is voluntarily surrendered, it cannot be construed as concealment of income. The Tribunal cited decisions from the Jaipur Bench and the Delhi High Court, which held that penalties under Section 271(1)(c) cannot be levied when the income surrendered is included in the return filed under Section 153A and accepted by the Assessing Officer without further additions. The Tribunal concluded that the CIT(A) erred in confirming the penalty, as no incriminating documents were found, and thus, the penalty under Section 271(1)(c) was not sustainable. The penalty was deleted, and the appeal was allowed.

2. Penalty under Section 271AAB for A.Y. 2015-16:

The issue here is the imposition of a penalty of Rs. 5 lacs under Section 271AAB for A.Y. 2015-16. The penalty was levied at 10% of the undisclosed income of Rs. 50 lacs, which the assessee voluntarily disclosed during the search. The assessee contended that the Assessing Officer failed to specify whether the case fell under sub-clause (a), (b), or (c) of Section 271AAB(1) and argued that no incriminating material was found during the search to justify the penalty.

The Tribunal noted that the penalty under Section 271AAB requires the presence of undisclosed income as defined in the Act, which involves incriminating material found during the search. In this case, no such material was referred to by the Assessing Officer. The Tribunal cited precedents from the Jaipur Bench, which held that income surrendered in a statement during a search does not constitute undisclosed income under Section 271AAB. Consequently, the Tribunal found no jurisdiction for the Assessing Officer to levy the penalty and deleted the penalty of Rs. 5 lacs. The appeal was allowed.

Conclusion:

Both appeals were allowed, with the penalties under Sections 271(1)(c) and 271AAB being deleted based on the absence of incriminating material and the voluntary nature of the income disclosure during the search. The Tribunal followed judicial precedents and found errors in the CIT(A)'s confirmation of the penalties.