2016 (11) TMI 1037 - AT - Income Tax

Tribunal cancels penalty under Income Tax Act for compliance with disclosure conditions

Late Smt. Sudha Patni, (Through Legal Heir Sh. Mahendra Kr. Patni) Versus The Assistant Commissioner of Income-tax

The Tribunal allowed the appeal, deleting the penalty of Rs. 27,19,188 imposed under section 271AAA of the Income Tax Act, 1961. The assessee's compliance ... Penalty u/s 271AAA - Held that:- As in course of search in the sworn statement recorded under section 132(4) of the Act, has admitted the undisclosed income, and clearly stated the manner in which the undisclosed income (within the meaning of Explanation (a)(i) of Section 271AAA) was derived and substantiated in statement recorded in course of search. Subsequently, the assessee paid tax, together with interest in respect of the undisclosed income and filed return of income, which stand accepted in assessment u/s 143(3) of the Act. On perusal of the above, it is seen that assessee has offered for tax his undisclosed income (Rs. 2,71,91,880/-) including jewellery. Penalty deleted - Decided in favour of assessee Issues Involved:1. Imposition of penalty under section 271AAA of the Income Tax Act, 1961.2. Compliance with conditions under section 271AAA(2) for exemption from penalty.3. Validity of the assessee's explanation for the undisclosed income.4. Judicial precedents relevant to the imposition of penalty under section 271AAA.Issue-wise Detailed Analysis:1. Imposition of Penalty under Section 271AAA:The primary issue revolves around the penalty of Rs. 27,19,188/- imposed under section 271AAA of the Income Tax Act, 1961. The penalty was related to the undisclosed income of Rs. 2,71,91,880/- discovered during a search operation. The assessee contended that the valuables and cash found were not from undisclosed income but were received as gifts and from sales proceeds of gold biscuits. However, due to lack of proof, the assessee surrendered the amount to avoid litigation.2. Compliance with Conditions under Section 271AAA(2):The assessee argued that all conditions under section 271AAA(2) were satisfied, thus exempting her from the penalty. These conditions include:- Admitting the undisclosed income during the search.- Specifying and substantiating the manner in which the income was derived.- Paying the tax and interest on the undisclosed income.The assessee claimed that she had admitted the income during the search, explained its derivation, and paid the due taxes. The AO did not record any failure on the assessee's part to specify or substantiate the income derivation.3. Validity of the Assessee's Explanation for the Undisclosed Income:The assessee explained that the valuables were received as gifts and the cash was from the sale of gold biscuits. Despite lacking documentary evidence, the assessee surrendered the amount to avoid litigation and disclosed it in her income tax return. The Tribunal found that the assessee had indeed disclosed the income and paid taxes, satisfying the conditions for exemption from penalty under section 271AAA(2).4. Judicial Precedents Relevant to the Imposition of Penalty under Section 271AAA:The assessee's counsel cited several judicial precedents to support the claim for exemption from penalty, including:- CIT vs. Mahendra C. Shah (Gujarat High Court): Emphasized that if the income is declared and tax paid, the specific manner of income derivation need not be detailed.- CIT vs. Radha Kishan Goel (Allahabad High Court): Supported the view that substantial compliance with the disclosure requirements is sufficient.- Various Tribunal decisions: Reinforced the principle that penalties should not be imposed if the assessee has substantially complied with the conditions under section 271AAA(2).The Tribunal found the case of the assessee similar to other cases where penalties were deleted due to substantial compliance with the disclosure requirements. The Tribunal cited decisions from coordinate benches, including DCIT vs. Shri Rahul Mangal & Others and ACIT (OSD) vs. M/s. Kanakia Spaces Pvt. Ltd., which supported the deletion of penalties under similar circumstances.Conclusion:The Tribunal concluded that the assessee had satisfied all conditions under section 271AAA(2) and was entitled to exemption from the penalty. The appeal was allowed, and the penalty of Rs. 27,19,188/- was ordered to be deleted. The Tribunal's decision was based on the substantial compliance by the assessee and supported by relevant judicial precedents.