2018 (4) TMI 1777 - AT - Income Tax

Tribunal rules penalty inapplicable without search under Income-tax Act

The Tribunal ruled in favor of the assessee, holding that the penalty under section 271AAA of the Income-tax Act was not applicable as no search was ... Penalty levied u/s 271AAA - assessee offered undisclosed income in the return of income filed in response to notice u/s 142 - assessment proceedings were initiated u/s 153C - HELD THAT:- On mere perusal of the provisions of section 271AAA, it is clear that the provisions of section 271AAA can be invoked only in case where search has been initiated u/s 132 and undisclosed income is found as a result of such action. In the present case, return of income was filed in response to notice u/s 142. There is no material on record suggesting that search has been initiated in the assessee’s case. It is stated that search was initiated in the case of M/s. ILC Industries during the course of which certain documents stated to be belonging to the assessee were seized. There was no notice issued u/s 153A against the assessee. From the perusal of the order of assessment for assessment year 2011-12 it is clear that the assessment proceedings were initiated u/s 153C in which case provisions of section 271AAA cannot be invoked. Therefore, the order imposing penalty us/ 271AAA cannot be sustained in the eyes of law. Appeal filed by the assessee is allowed. Issues:1. Penalty under section 271AAA of the Income-tax Act, 1961.2. Invocation of penalty without a search being initiated under section 132.Analysis:1. The appeal was against the penalty imposed under section 271AAA of the Income-tax Act, 1961 for the assessment year 2011-12. The assessee, a partnership firm, had additional income of Rs. 25 lakhs declared based on documents seized during a search and seizure action in another company related to the firm. The Assessing Officer (AO) proposed a penalty of 10% of the undisclosed income. The assessee contended that the additional income was offered to settle matters with the department, and the seized documents did not belong to them. However, both the AO and the Commissioner of Income-tax (Appeals) upheld the penalty, stating the explanation lacked supporting documents.2. The Tribunal analyzed the provisions of section 271AAA, which allows for penalties in cases where a search under section 132 reveals undisclosed income. In this instance, the return was filed in response to a notice under section 142, not as a result of a search. The search had occurred in a different company, and no notice under section 153A was issued to the assessee. As the assessment was initiated under section 153C, the Tribunal concluded that section 271AAA could not be invoked. Therefore, the penalty imposed under section 271AAA was deemed unsustainable in law, leading to its deletion and allowing the appeal filed by the assessee.In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the penalty under section 271AAA was not applicable in the absence of a search being initiated under section 132 in the assessee's case. The decision highlighted the importance of the legal requirements for invoking penalties under specific sections of the Income-tax Act, ensuring the proper application of the law in penalty proceedings.