High Court upholds deletion of penalty under Section 271AAA for failure to disclose income source

The High Court upheld the deletion of a penalty under Section 271AAA of the Income Tax Act by the learned Tribunal. The court found that the assessee's failure to disclose the source of undisclosed income during a search did not warrant the penalty as the assessee was not questioned about the manner of deriving the income during the statement recording. The court relied on a previous ruling by the Division Bench and concluded that no substantial question of law arose, dismissing the Tax Appeal.

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Issues:
Challenge to deletion of penalty under Section 271AAA of the Income Tax Act by the learned Tribunal.

Analysis:
The case involves an appeal against the deletion of a penalty under Section 271AAA of the Income Tax Act by the learned Tribunal. The Assessing Officer imposed the penalty as the assessee did not disclose the source of undisclosed income found during a search. The Assessing Officer believed that for an exception under Section 271AAA, the assessee must admit the undisclosed income during the search and specify the manner in which it was derived. Since the assessee did not disclose this, the penalty was levied.

The learned CIT(A) deleted the penalty, a decision upheld by the learned Tribunal. This decision was based on a previous ruling by the Division Bench in a similar case. The court observed that the requirement to substantiate the manner in which the undisclosed income was derived is consequential to the base requirement of specifying the manner. If the revenue fails to question the assessee during the statement recording stage about the manner of deriving the income, they cannot later demand substantiation. The responsibility to substantiate arises only when the assessee specifies the manner of deriving the income during the statement recording.

In light of the Division Bench's decision and the principles outlined, the High Court found no error in the Tribunal's decision. It was concluded that no substantial question of law arose, and the Tax Appeal was dismissed accordingly.

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