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TMI Blog2025 (2) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... discretionary power is not unfettered, unbridled and uncanalised. Discretion means sound discretion guided by law. It must be governed by rule, not by humour, it must not be arbitrary, vague and fanciful. [See: Som Raj and Others vs. State of Haryana and Others, [1990 (2) TMI 306 - SUPREME COURT]. Section 271AAA(2) stipulates that Section 271AAA(1) shall not be applicable if the assessee-(i) in a statement under sub-section (4) of Section 132 in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. (See: Chaturvedi & Pithisaria's Income Tax Law Seventh Edition). Consequently, if the aforesaid conditions (i) and (ii) are satisfied and the tax together with interest on the undisclosed income is paid upto the date of payment, even with delay, in the absence of specific period of compliance, then penalty at the rate of 10% (Ten per cent) under Section 271AAA is normally not leviable. The expression 'Undisclosed Income' has been defined in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und in the assessee's premises alone during the search. At times, search of an assessee leads to a search of another individual and/or further investigation/interrogation of third parties. All these steps and recoveries therein would fall within the expression 'found in the course of search'.
Since income of Rs.2,49,90,000/- constitutes undisclosed income found during the search, penalty under Section 271AAA(1) of the Act 1961 is leviable on the said amount.
Also, as the said amount was not admitted in the declaration before the DDIT(Inv.) during the course of search but was disclosed by the Appellant only during the assessment proceedings, and that too, after the Assessing Officer had asked for copies of the sale deeds from the Society, this Court is of the view that the exception carved out in Section 271AAA(2) is not attracted to the said portion of the income. X X X X Extracts X X X X X X X X Extracts X X X X ..... einbelow:- "4. Declaration before the DDIT(Inv) during search proceedings: 4.1 Space Employees's Co-operative Housing Society Limited entered into an MOU on 26-09-2009 with Mr. Hashim Moosa for acquiring 120 acres (which was further extended to 150 acres) of lands in Hoskote Taluk for a consideration of Rs.74,26,980/- per acre. The Society will pay Mr. Moosa Rs.73,26,980/- per acre of registered land to and the balance Rs.1 lakh per acre shall be deposited in a Joint Escrow Account till the entire extent of 120 acres of land is registered in favour of the Society. 4.2. To procure lands for the Society, Mr. Hashim Moosa had entered into an MOU on 19-01-2009 with Mr. K. Krishna Murthy and P. Surendra Reddy for procuring lands @ Rs.70,00,000/- per acre. 4.3. Consequent to search action in your case, the assesse had admitted income for the Asst. Years 2010-11 and 2011-12 before the DDIT(Inv.) as under: For the Asst. Year 2011-12 Total area registered during the FY 2010-11 41 acres and 36 guntas Amount (in Rs.) Net Income from other sources 2,27,65,580 5. Transaction of lands belonging to Mr. Sharab Reddy and NHR Prasad Reddy: 5.1 Mr. Krishnamurt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271AAA of the Act 1961 and observing:- "5.1 It is very evident from the facts of the case that the penalty cannot be levied for AY 2010-11 and the action of the AO struck down" 11. ITA No.120 preferred against the Penalty Order dated 30th September, 2013 in respect of AY 2011-2012 was however rejected while solely relying on Section 271AAA(2) of the Act 1961 to hold: "8. With respect to penalty for AY 2011-12, it is very clear that the basic condition existing in the section has not been fulfilled i.e. to say the assessee has not met up with the liability prescribed under the section despite the time limits set by the AO........since the basic requirement of section 271AAA has not been satisfied, as the assessee has not met the liability after notices were issued and sufficient opportunities were granted. If the contention of the assessee is accepted then the penalty will never be leviable and the section 271AAA will have no meaning at all. Thus, I hold that the assessee is liable to be penalized u/s. 271AAA of the Act". 12. The Income Tax Appellate Tribunal ('ITAT') vide order dated 17th October, 2016 rejected the Appellant's appeal against the order dated 04th March, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 271AAA of the Act are mandatory. 15. Second question with regard to reduction of penalty commensurate with quantum of tax which the appellant has deposited, is also answered against the assessee and in favour of the revenue, because, admittedly, appellant had not disclosed the income at all. But for search, the same could not have been unearthed. Having filed the returns, the assessee did not comply with condition No.3 in Sub-Section (2). If the second question were to be answered in favour of assessee, it will amount to placing premium on a person w ho does not abide by law. 16. In view of the above, this appeal must fail and it is accordingly dismissed." 15. On 06th January, 2023, this Court was pleased to issue notice confined to the second question urged before the High Court. ARGUMENTS ON BEHALF OF THE APPELLANT 16. Learned counsel for the Appellant submitted that the Revenue Authorities as well as the High Court, without expressly stating so, have proceeded on the erroneous presumption that the levy of penalty under Section 271AAA(1) of the Act 1961 is automatic and that the only exception thereto was sub-clause (2) of Section 271AAA of the Act 1961. 17. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, he submitted that unless there is undisclosed income in terms of the said provision in the specified previous year an order of levy of penalty cannot be issued by the Assessing Officer. 20. He submitted that the MOU dated 19th January, 2009 at the highest set out payments of Rs.10,00,000/- (Rupees Ten Lakhs Only) to the Appellant and therefore by itself could not have formed the basis for the Penalty Order dated 30th September, 2013. 21. He further submitted that the declaration before the DDIT(Inv.) during search proceedings was made voluntarily. There was no demonstrable, direct co-relation between the declaration in paragraph 4 of the Assessment Order and the MOU dated 19th January, 2009. Moreover, paragraph 5 of the Assessment Order also most certainly has no co-relation with the MOU dated 19th January, 2009 since as recorded in paragraph 5.2 itself, the transactions referred to therein have been found in "copies of sale deeds collected from the Society" and not the Appellant. Therefore, on both counts, he stated that a sum of Rs.4,78,02,616/- (Rupees Four Crores Seventy Eight Lakhs Two Thousand Six Hundred Sixteen Only) was not the undisclosed income of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly with the mandatory conditions of Section 271AAA (2) of the Act 1961. 26. He submitted that the assessee had failed to adhere to any of the conditions specified under the aforesaid Section as the assessee had never admitted to any undisclosed income and the income was detected only after a search and the assessee never disclosed or explained the manner in which that income was derived/earned and lastly, he did not pay the tax and the interest thereon until 2016 i.e. after three years of the assessment order. 27. He pointed out that the Delhi High Court in the case of PCIT vs. Amul Gabrani (ITA No.1251 of 2018 dated 24th July, 2024) has held that to claim the benefit of the Section 271AAA(2) of the Act 1961, the assessee has to satisfy the requirements/conditions of the said sub-Section. He pointed out that the judgment of the Delhi High Court in Amul Gabrani (supra) was carried in Appeal before this Court by the assessee vide Special Leave Petition (Civil) Dy. No.43696 of 2024, wherein this Court upholding the High Court judgment and while dismissing the Special Leave Petition observed as under:- "We concur with the view taken by the Delhi High Court about the interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulates that the Assessing Officer may, notwithstanding anything contained in any other provisions of the Act 1961, direct the Assessee, in a case where search has been carried out to pay by way of a penalty, in addition to the tax, a sum computed at the rate of 10% (Ten per cent) of the undisclosed income of the specified previous year. However, the imposition of penalty is not mandatory. Consequently, penalty under this Section may be levied if there is undisclosed income in the specified previous year. 31. This Court is of the view that though under Section 271AAA(1) of the Act 1961, the Assessing Officer has the discretion to levy penalty, yet this discretionary power is not unfettered, unbridled and uncanalised. Discretion means sound discretion guided by law. It must be governed by rule, not by humour, it must not be arbitrary, vague and fanciful. [See: Som Raj and Others vs. State of Haryana and Others, (1990) 2 SCC 653]. SECTION 271AAA(2) 32. Section 271AAA(2) of the Act 1961 stipulates that Section 271AAA(1) shall not be applicable if the assessee-(i) in a statement under sub-section (4) of Section 132 in the course of the search, admits the undisclosed income and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Only) as income for AY 2011-12 during the search before DDIT (Inv.) as well as substantiated the manner in which the said undisclosed income was derived and paid tax together with interest thereon, albeit belatedly. 38. Consequently, all the conditions precedent mentioned in Section 271AAA(2) stand satisfied and, therefore, penalty under Section 271AAA(1) is not attracted on the said amount of Rs.2,27,65,580/- (Rupees Two Crores Twenty Seven Lakhs Sixty Five Thousand Five Hundred Eighty Only). HOWEVER, PENALTY AT THE RATE OF 10% IS LEVIABLE ON Rs.2,49,90,000/- 39. However, in the assessment order dated 15th March, 2013 passed under Section 143(3) of the Act 1961, which has attained finality, it is an admitted position that the Appellant had not offered in the declaration before the DDIT(Inv.) any income on land transactions belonging to Mr. Sharab Reddy and Mr. NHR Prasad Reddy. From the assessment order dated 15th March, 2013 (reproduced hereinabove), it is apparent that the Appellant offered Rs.2,49,90,000/- (Rupees Two Crores Forty Nine Lakhs Ninety Thousand Only) under the head income from other sources on account of these land transactions during the course of assessment ..... 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