2016 (8) TMI 207 - AT - Income Tax

Tribunal affirms deletion of penalty under Section 271AAA based on substantial compliance and voluntary disclosure.

ACIT, CC-7, Mumbai Versus M/s Wizcraft International Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271AAA, stating that the assessee substantially complied with the ... Penalty u/s. 271AAA - failure to explain the manner in which undisclosed income is derived as required u/s. 271AAA(2)(ii) - CIT(A) deleted the penalty - Held that:- If we examine the answer of the questions of specifying the manner in which the income has been derived, the answer is yes. No question was posed by authorised officer while recording the statement of Subash Vincent u/s132(4) in respect income of ₹ 1.33Crore (approx) . Thus the alleged failure on the part of the assessee to specify and substantiate in respect of undisclosed income of ₹ 1.33 Crore(approx) , was due to the reason that no such question was posed to Subash Vincent. So it was not expected from the person who has once voluntarily offered the income and substantiated part of it, so far as confronted to him and remaining was neither pose to him nor he voluntarily substantiated. The argument of AR of assessee that the amount surrendered has been accepted suo-moto by the Revenue itself leads to the irrefutable conclusion that the question of specifying and substantiating the manner in which it has earned has been answered to the satisfaction of the authorised person as well as assessing officer. Moreover it needs to be understood that in absence of any specific procedure prescribed in the Act, for specifying and substantiating the undisclosed income, the fact that the same has been accepted without any variation by the AO is by itself enough evidence of the said criteria is having been met and satisfied. And this of our view is duly supported with the decision of Delhi tribunal in Ritu Singhal case (2015 (3) TMI 310 - ITAT DELHI ) - Decided in favour of assessee Issues Involved:1. Justification of CIT(A) in deleting the penalty under Section 271AAA.2. Distinction and independence of conditions under Section 271AAA(2)(ii).Detailed Analysis:Issue 1: Justification of CIT(A) in Deleting the Penalty under Section 271AAAFacts: The Revenue challenged the CIT(A)'s decision to delete the penalty of Rs. 13,29,634/- imposed under Section 271AAA. A search and seizure action under Section 132(1) was conducted on the assessee on 20.01.2011, leading to the discovery of incriminating material and a disclosure of Rs. 3,00,00,000/- as additional income. The assessee filed a return declaring a total income of Rs. 26,13,92,237/-, which was accepted without further additions.Arguments: The AO issued a show cause notice for initiating penalty proceedings under Section 271AAA, citing that Rs. 1,32,96,340/- of the undisclosed income was not substantiated. The CIT(A) deleted the penalty, leading to the Revenue's appeal.Decision: The Tribunal noted that the assessee substantiated Rs. 1.67 Crore of the undisclosed income with documents seized during the search. The remaining Rs. 1.33 Crore was offered voluntarily to avoid future disputes. The Tribunal held that the CIT(A) was justified in deleting the penalty as the assessee had substantially complied with the requirements under Section 271AAA. The Tribunal referenced multiple case laws, including decisions from ITAT, Chennai, and ITAT, Delhi, which supported the view that substantial compliance and voluntary disclosure without specific questioning suffices to meet the conditions under Section 271AAA.Issue 2: Distinction and Independence of Conditions under Section 271AAA(2)(ii)Facts: The Revenue argued that the CIT(A) failed to appreciate that the conditions under Section 271AAA(2)(ii) are distinct and independent, and the assessee did not explain the manner in which the undisclosed income was derived.Arguments: The Revenue cited a decision from ITAT, Mumbai, in ACIT vs. Prakash Steelage Ltd., arguing that the assessee did not specify the manner of earning the undisclosed income. The assessee countered that no specific question was posed regarding the Rs. 1.33 Crore, and thus they had no opportunity to substantiate it.Decision: The Tribunal observed that the AO did not ask specific questions about the Rs. 1.33 Crore during the statement recorded under Section 132(4). The Tribunal held that the absence of specific questioning meant that the assessee could not be expected to provide further substantiation. The Tribunal also noted that the voluntary nature of the disclosure and the acceptance of the return by the AO without any variation were sufficient to meet the conditions under Section 271AAA. The Tribunal concluded that the CIT(A)'s order did not require interference and dismissed the Revenue's appeal.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271AAA, emphasizing that the assessee had substantially complied with the requirements and that the voluntary disclosure was sufficient in the absence of specific questioning. The conditions under Section 271AAA(2)(ii) were deemed to be met, leading to the dismissal of the Revenue's appeal.Order pronounced in the open court on this 24th June, 2016.