2013 (6) TMI 762 - AT - Income Tax

Assessee granted penalty exemption under Income Tax Act

NEERAJ SINGAL Versus ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-13, NEW DELHI

The Tribunal found that the assessee met the conditions for exemption from penalty under Section 271AAA of the Income Tax Act, 1961. It concluded that the ... Penalty u/s 271AAA - absence of query raised by the authorized officer during the course of recording of statement u/s 132(4) - Held that:- As during the course of search proceedings the authorized officer of the department had not raised any specific query regarding the manner in which the undisclosed income has been derived and on the contrary the assessee has tried to explain the earning of the undisclosed income in question in its reply during the course of recording of his statement u/s 132(4) of the Act and thereafter. Thus in absence of query raised by the authorized officer during the course of recording of statement u/s 132 (4) about the manner in which the undisclosed income has been derived and about its substantiation, the AO was not justified in imposing penalty u/s 271AAA of the Act specially when the offered undisclosed income has been accepted and due tax thereon has been paid by the assessee. We thus while setting aside orders of the authorities below in this regard direct the AO to delete the penalty levied u/s 271AAA of the Act. - Decided in favour of assessee Issues Involved:1. Imposition of penalty under Section 271AAA of the Income Tax Act, 1961.2. Specification and substantiation of the manner in which undisclosed income was derived.3. Compliance with the conditions for exemption from penalty under Section 271AAA.Detailed Analysis:1. Imposition of Penalty under Section 271AAA:The primary issue revolves around the imposition of a penalty of Rs. 12,50,00,000/- under Section 271AAA of the Income Tax Act, 1961. The penalty was imposed by the Assistant Commissioner of Income Tax and upheld by the CIT(A). The assessee challenged this imposition before the Tribunal.2. Specification and Substantiation of the Manner in Which Undisclosed Income Was Derived:The Tribunal examined whether the assessee had specified and substantiated the manner in which the undisclosed income was derived, a crucial condition for exemption from the penalty under Section 271AAA. The relevant facts include:- A search operation under Section 132 was carried out at the assessee's premises on 3.3.2010.- The assessee surrendered Rs. 125 crore as undisclosed income, which was declared in the return for AY 2010-11, and due taxes were paid.- The assessee stated that the income was derived from forward/speculative and property transactions during FY 2009-10.- The AO, dissatisfied with the explanation, imposed a penalty of 10% of the undisclosed income.3. Compliance with Conditions for Exemption from Penalty under Section 271AAA:The Tribunal considered whether the conditions for exemption from penalty under Section 271AAA were satisfied. These conditions are:- The assessee admits the undisclosed income in a statement recorded during the search.- Specifies and substantiates the manner in which the income was derived.- Pays the tax together with interest on the undisclosed income.The Tribunal noted the following:- The assessee had answered queries during the recording of the statement under Section 132(4), specifying the manner in which the income was derived.- The assessee provided further details in letters dated 03/06/2010, 25/2/2011, 8/6/2012, and 20/6/2012, explaining the source and manner of the undisclosed income.- The documents seized and the subsequent surrender were accepted by the department.Tribunal's Findings:The Tribunal found that the assessee had indeed specified and substantiated the manner in which the undisclosed income was derived. It was noted that:- The authorized officer did not ask specific questions regarding the manner of derivation during the search.- The assessee's replies and subsequent letters provided sufficient explanation.- The department accepted the income declared in the return and the taxes paid thereon.Legal Precedents:The Tribunal referred to several judicial decisions to support its findings, including:- Asstt. CIT v. Gebilal Kanhaialal (HUF) [2012] 210 Taxman 244 (SC)- CIT v. Mahendra C. Shah [2008] 299 ITR 305 (Guj.)- CIT v. Radha Kishan Goel [2005] 278 ITR 454 (All)- Mothers Pride Education Personna (P.) Ltd. v. Dy. CIT ITA Appeal No. 3372 (Delhi) of 2011, dated 12-10-2012Conclusion:The Tribunal concluded that the assessee had met the conditions for exemption from penalty under Section 271AAA. It held that the AO was not justified in imposing the penalty, especially when the undisclosed income was accepted, and due taxes were paid. The Tribunal set aside the orders of the lower authorities and directed the AO to delete the penalty of Rs. 12,50,00,000/-. The appeal was allowed in favor of the assessee.