Revenue appeal denied for penalty under Section 271AAA of Income Tax Act; Rs. 5 crores penalty deleted.

The appeal filed by the revenue against the deletion of the penalty imposed under Section 271AAA of the Income Tax Act was dismissed. The penalty of Rs. 5 crores was related to the surrender of Rs. 50 crores of undisclosed income by the assessee during a search and seizure operation. The CIT(A) deleted the penalty, citing the ITAT Delhi Bench's decision in a similar case. The Tribunal upheld the deletion, emphasizing that the assessee had admitted the undisclosed income, specified its derivation, and paid the due taxes, meeting the requirements of the law.

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Issues Involved:
1. Deletion of penalty imposed under Section 271AAA of the Income Tax Act.
2. Substantiation of undisclosed income and its manner of derivation.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271AAA:

The appeal was filed by the revenue against the order of the CIT(A)-I, New Delhi, which deleted the penalty of Rs. 5 crores imposed by the AO under Section 271AAA of the Income Tax Act. The penalty was related to the surrender of Rs. 50 crores of undisclosed income by the assessee during a search and seizure operation conducted on 3.3.2010. The AO imposed the penalty on the grounds that the assessee had not specified or substantiated the manner in which the undisclosed income was earned. The CIT(A) deleted the penalty by relying on the ITAT Delhi Bench's decision in the case of Neerat Singal vs ACIT, which was upheld by the Tribunal.

2. Substantiation of Undisclosed Income and its Manner of Derivation:

The revenue argued that the CIT(A) erred in deleting the penalty as the assessee had not provided corroborative evidence to substantiate the manner in which the undisclosed income was derived. The assessee, on the other hand, contended that similar facts and circumstances were considered in the case of Neerat Singal, where relief was granted.

The Tribunal noted that the CIT(A) had followed its own decision in the case of Neerat Singal, which was upheld by the ITAT. The Tribunal compared Explanation 5 to Section 271(1)(c) of the Act with Section 271AAA and found similarities, particularly regarding the conditions for non-attraction of penal provisions. Both sections require the assessee to admit the undisclosed income, specify and substantiate the manner in which it was derived, and pay the due tax and interest. The Tribunal observed that the additional requirement under Section 271AAA is the substantiation of the manner in which the income was derived.

The Tribunal referred to several judicial precedents, including the Supreme Court's decision in ACIT vs. GEBILAL Kanhialal (HUF) and the Allahabad High Court's decision in CIT vs. Radha Kishan Goel, which held that mere non-statement of the manner in which undisclosed income was derived would not make the provisions inapplicable. The Tribunal also noted that the Gujarat High Court in CIT vs. Mahendra G. Shah held that if the income is declared and tax paid, substantial compliance with the provisions is achieved.

In the present case, during the search, the assessee admitted to undisclosed income and specified the manner in which it was derived. The assessee also paid the due taxes. The Tribunal found that the authorized officer did not ask specific questions regarding the manner of derivation during the recording of the statement under Section 132(4). The assessee later explained the manner of earning the undisclosed income in his replies during the assessment proceedings.

The Tribunal concluded that in the absence of specific queries by the authorized officer about the manner in which the undisclosed income was derived, the AO was not justified in imposing the penalty under Section 271AAA. The Tribunal upheld the CIT(A)'s decision to delete the penalty, finding no valid reason to interfere with it.

Conclusion:

The appeal of the revenue was dismissed, and the order pronounced in the open court on 09.03.2015 confirmed the deletion of the penalty imposed under Section 271AAA, as the assessee had substantially complied with the requirements by admitting the undisclosed income, specifying the manner of derivation, and paying the due taxes.

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