2015 (4) TMI 1245 - AT - Income Tax

Revenue appeal dismissed, penalty deleted under Section 271AAA. Tribunal upholds CIT(A)'s decision.

The DCIT Versus Harmohinder Singh Chadha

The appeal of the Revenue was dismissed, and the penalty under Section 271AAA was deleted. The Tribunal upheld the decision of the CIT(A), ruling that ... Penalty u/s. 271AAA - assessee failed to substantiate the manner in which undisclosed income has been derived - question regarding manner of earning income - Held that:- Referring to observation in case of CIT v. Mahendra C. Shah [2008 (2) TMI 32 - GUJARAT HIGH COURT] it becomes clear that if no question is asked during the statement recorded u/s.132(4) then the assessee cannot be expected to further substantiate the manner of earning of income. In the present case also Revenue never asked any question regarding manner of earning the income therefore following above order we decide this issue against the revenue. Accordingly we set aside the order of Ld. CIT(A) and delete the penalty. - Decided in favour of assessee. Issues Involved:1. Deletion of penalty under Section 271AAA due to failure to substantiate the manner in which undisclosed income was derived.Issue-wise Detailed Analysis:1. Deletion of Penalty under Section 271AAA:The primary issue in this appeal is whether the CIT(A) was correct in deleting the penalty of Rs. 12,50,000/- under Section 271AAA, despite the assessee's failure to substantiate the manner in which the undisclosed income was derived. The Revenue contends that this is a mandatory condition under sub-section 2 of Section 271AAA.Search and Surrender:A search was conducted in the Chadha Group of cases, leading to the discovery and seizure of incriminating documents. The assessee made a surrender of Rs. 1.25 crores, which was included in the return of income. Despite this, the assessee failed to disclose the manner of earning the surrendered income, prompting the initiation of penalty proceedings under Section 271AAA.Assessee's Argument:In response to the show-cause notice for the levy of penalty, the assessee argued that since the undisclosed income was admitted, surrendered, included in the return of income, and taxes were paid, the assessee was entitled to immunity under Section 271AAA. However, the Assessing Officer (AO) observed that the assessee did not substantiate the manner of earning the income, resulting in a penalty of Rs. 12.50 lakhs under Section 271AAA.CIT(A)'s Decision:On appeal, the CIT(A) relied on various decisions, including those of the Chandigarh benches of the Tribunal, such as ACIT, CC Patiala v. Gian Chand Gupta/Mohinder Gupta/Sanjay Kumar Gupta in ITA No. 1005/1006/1007/Chd/2013, and deleted the penalty.Tribunal's Analysis:The Tribunal considered the rival submissions and noted that identical issues were decided in the case of Sunil Kumar Bansal v. DCIT, Central Circle-I, ITA No. 874 & 875/Chd/2013. The Tribunal referred to the observations of the Hon'ble Gujarat High Court in CIT v. Mahendra C. Shah, emphasizing that if the statement recorded under Section 132(4) does not specify the manner in which the income is derived, but the income is declared, and taxes are paid, there would be substantial compliance, not warranting the denial of the benefit.Further Consideration:The Tribunal also considered the case of DCIT v. Amarjit Goyal and others, ITAs No. 1080, 1081 & 1082/Chd/2013, where similar issues were decided. The Tribunal reiterated that if the Revenue did not ask the assessee about the manner of earning the income during the statement recorded under Section 132(4), the assessee could not be expected to substantiate it further. Since taxes were paid, the penalty could not be levied.Conclusion:The Tribunal concluded that the Revenue never asked any question regarding the manner of earning the income. Therefore, following the precedent set in previous cases, the Tribunal decided the issue against the Revenue and upheld the deletion of the penalty by the CIT(A).Final Judgment:The appeal of the Revenue was dismissed, and the order pronounced in the Open Court on 30/04/2015 confirmed the deletion of the penalty under Section 271AAA.