Appellant's Compliance with Tax Disclosure Rules Upheld

M/s Naval Kishore Agarwal, Nagpur Versus Asstt. Commissioner of Income-tax, Central Circle-1 (1), Nagpur

M/s Naval Kishore Agarwal, Nagpur Versus Asstt. Commissioner of Income-tax, Central Circle-1 (1), Nagpur - TMI Issues Involved:
1. Legality of the penalty imposed under Section 271AAA of the Income Tax Act, 1961.
2. Justification and substantiation of the manner in which undisclosed income was derived.
3. Compliance with the procedural requirements of Section 271AAA.

Issue-Wise Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271AAA:
The appellant challenged the legality of the penalty imposed under Section 271AAA, arguing that it was illegal, invalid, and bad in law. The penalty was imposed following a search and seizure operation conducted on January 28, 2009, at the appellant's business premises. The Assessing Officer (AO) observed that the appellant disclosed additional income of Rs. 2,21,00,000 on various accounts and subsequently levied a penalty of Rs. 22,10,000, being 10% of the undisclosed income. However, the appellant contended that the penalty was unjustified and excessive.

2. Justification and Substantiation of the Manner in which Undisclosed Income was Derived:
The appellant argued that during the search, the undisclosed income was admitted, and the manner in which it was derived was substantiated in a letter dated February 27, 2009, to the Additional Director of Income-tax (ADIT). The appellant provided details of the undisclosed income, including amounts related to share application money, cash sales, excess cash, and non-verifiable sundry creditors. The appellant also paid the taxes along with interest on the undisclosed income. The learned CIT(Appeals) upheld the penalty, noting that the appellant did not specify the manner of earning the unaccounted income in the statement recorded under Section 132(4) during the search.

3. Compliance with the Procedural Requirements of Section 271AAA:
The tribunal examined the provisions of Section 271AAA, which stipulates that no penalty shall be levied if the assessee, during the course of the search, admits the undisclosed income, specifies and substantiates the manner in which such income was derived, and pays the tax along with interest. The tribunal found that the appellant disclosed the undisclosed income during the search period and provided details to the ADIT. The tribunal noted that the authorities did not ask the appellant to further specify or substantiate the manner of earning the undisclosed income during the search or assessment. The tribunal referred to various case laws, including decisions from the Hon'ble Supreme Court, Hon'ble High Courts, and ITAT benches, which supported the appellant's case.

Conclusion:
Upon careful consideration of the facts and relevant case laws, the tribunal concluded that the appellant had complied with the requirements of Section 271AAA by disclosing the undisclosed income, specifying the manner in which it was derived, and paying the taxes along with interest. The tribunal held that the authorities' inference that the appellant did not disclose the income at the time of the search was unsustainable. Consequently, the tribunal set aside the orders of the authorities below and deleted the penalty imposed under Section 271AAA. The appeal by the appellant was allowed.

Order:
The appeal by the assessee is allowed, and the penalty imposed under Section 271AAA is deleted. The order was pronounced in the Open Court on March 29, 2017.