2017 (11) TMI 1760 - AT - Income Tax

Tribunal Upheld Reduced Penalty Under Tax Law Section 271AAB, Confirmed Jurisdiction

Sh. Mahesh Kumar Jain, The DCIT, Central Circle, Ajmer, Sh. Jai Kumar Bakliwal, Sh. Prakash Chand Jain, Suresh Chand Mittal, Dinesh Kumar Mittal, Smt. Alka Jain, Sh. Puneet Jain Versus The ACIT, Central Circle, Ajmer.

Sh. Mahesh Kumar Jain, The DCIT, Central Circle, Ajmer, Sh. Jai Kumar Bakliwal, Sh. Prakash Chand Jain, Suresh Chand Mittal, Dinesh Kumar Mittal, Smt. ... Issues Involved:1. Legality of the penalty order under section 271AAB.2. Appropriateness of the penalty rate applied under section 271AAB(1)(a) versus 271AAB(1)(c).3. Jurisdiction and powers of the CIT(A) in modifying the penalty under section 271AAB.4. Compliance with the conditions specified under section 271AAB(1)(a).Detailed Analysis:1. Legality of the Penalty Order under Section 271AAB:The assessee argued that the penalty order under section 271AAB was 'bad in law as well as on facts.' The Assessing Officer (AO) levied a penalty of 30% under section 271AAB(1)(c) on the grounds that the assessee failed to substantiate the manner in which the undisclosed income was derived. The CIT(A) modified this to a 10% penalty under section 271AAB(1)(a), acknowledging the assessee's compliance with the conditions specified in section 271AAB(1)(a), such as admitting the undisclosed income in the statement recorded under section 132(4), paying taxes, and filing the return.2. Appropriateness of the Penalty Rate Applied:The AO imposed a 30% penalty under section 271AAB(1)(c), arguing that the disclosure was not voluntary but based on seized documents. The CIT(A) reduced this to 10% under section 271AAB(1)(a), noting that the assessee had admitted the undisclosed income during the search, specified the manner of earning such income, and paid the due taxes. The Tribunal upheld the CIT(A)'s decision, agreeing that the conditions for a 10% penalty under section 271AAB(1)(a) were met.3. Jurisdiction and Powers of the CIT(A) in Modifying the Penalty:The CIT(A) has the power under section 251 to confirm, reduce, enhance, or annul the penalty. The Tribunal noted that the CIT(A) acted within his jurisdiction by varying the penalty from 30% under section 271AAB(1)(c) to 10% under section 271AAB(1)(a), as both clauses fall under the same section 271AAB, which deals with penalties in search cases. The CIT(A) was found to have correctly applied his co-terminus powers to invoke the appropriate provisions for the levy of penalty.4. Compliance with the Conditions Specified under Section 271AAB(1)(a):The Tribunal examined whether the assessee met the conditions under section 271AAB(1)(a), which include admitting the undisclosed income during the search, specifying and substantiating the manner in which such income was derived, and paying the taxes along with filing the return. The Tribunal found that the AO did not ask specific questions about the manner of earning the income during the search, and the assessee had complied with other conditions such as paying taxes and filing the return. Thus, the Tribunal upheld the CIT(A)'s decision to apply a 10% penalty under section 271AAB(1)(a).Conclusion:The Tribunal upheld the CIT(A)'s decision to reduce the penalty from 30% to 10% under section 271AAB(1)(a), finding that the assessee met the necessary conditions. The Tribunal also confirmed the CIT(A)'s jurisdiction to modify the penalty under section 271AAB, emphasizing that the provisions of section 271AAB(1)(a) and 271AAB(1)(c) pertain to the same charge but differ in the quantum of penalty based on specific conditions. The Tribunal dismissed the appeals of both the revenue and the assessee, affirming the CIT(A)'s order.