2018 (1) TMI 1310 - HC - Income Tax

Court converts penalty under Income Tax Act to section 271AAA, assessee granted immunity for disclosing undisclosed income.

The High Court upheld the Tribunal's decision to delete the penalty imposed under section 271(1)(c) of the Income Tax Act and convert it to section ... Penalty u/s 271(1)(c) - immunity under section 271AAA - Held that:- In the present case, the assessee has admitted the undisclosed income in the statement given under subsection (4) of section 132. AO made the assessment on the basis of disclosure made by the partners of the assessee firm in their statements under section 132(4) and no further addition has been made in the assessment order. He has also provided all the details to that effect, and has offered an income of ₹ 3 crores. It was clearly explained in the statement dated 31.03.2011. No specific question was asked as regards the manner of earning the undisclosed income or substantiation thereof by the Assessing Officer. The assessee has also paid taxes as well as interest. Thus, the contention of the revenue that the assessee has not substantiated the manner in which the undisclosed income is derived, does not merit acceptance. No evidence was found which would suggest that the assessee had earned the undisclosed income from any other source instead of projects Conditions mentioned in section 271AAA(2) of the Act for granting immunity from the penalty are satisfied in the present case as the assessee in his statement under section 132(4) of the Act has made a disclosure of unaccounted income; the manner in which the same was earned was also clearly stated and the taxes were also paid. It is pertinent to note that the revenue did not raise any ground before the Tribunal challenging correctness of the Commissioner (Appeals') order converting the penalty from section 271(1)(c) to section 271AAA of the Act. - Decided against revenue Issues:Assessment of penalty under section 271(1)(c) of the Income Tax Act based on undisclosed income; Appeal against penalty order converting it to section 271AAA; Tribunal's decision confirming deletion of penalty.Analysis:1. The appeal before the High Court challenged the order of the Income Tax Appellate Tribunal regarding the penalty of Rs. 92,70,000 imposed under section 271(1)(c) of the Income Tax Act. The case involved search and seizure proceedings conducted at the residential premises of the partners of the assessee firm, leading to the disclosure of additional income of Rs. 3 crores. The Assessing Officer accepted the return and completed the assessment under section 143(3) of the Act.2. The Assessing Officer initiated penalty proceedings under section 271(1)(c) and levied the penalty. The Commissioner (Appeals) later allowed the appeal by converting the penalty to section 271AAA of the Act, which was challenged by the revenue before the Tribunal. The Tribunal dismissed the appeal of the revenue, leading to the current appeal before the High Court.3. The appellant argued that the undisclosed income of Rs. 3 crores, received as 'on money,' was unaccounted and was offered for tax only upon detection during the search. The appellant contended that by not disclosing details of the transactions, the assessee aided in tax evasion by unidentified persons. The appellant claimed that the assessee concealed crucial details and evidence, justifying the penalty under section 271(1)(c) of the Act.4. The appellant further argued that the Tribunal erred in observing that the assessee disclosed the income related to 'on money' in the return, without specifying the manner of receipt. The appellant emphasized that the appeal required reconsideration based on these grounds.5. The High Court noted that the assessee admitted the undisclosed income in the statement under section 132(4) of the Act. The assessment was based on this disclosure, and no further additions were made. The Court found that the assessee provided all relevant details and offered the income of Rs. 3 crores, which was explained in detail. The Court held that the revenue's contention of lack of substantiation did not merit acceptance, as the assessee had paid taxes and interest.6. The Court emphasized that the conditions for granting immunity under section 271AAA(2) were satisfied, as the assessee made a disclosure of unaccounted income, provided details on how it was earned, and paid taxes. The Court also noted that the revenue did not challenge the conversion of penalty to section 271AAA before the Tribunal. Ultimately, the High Court concluded that no error was committed by the Tribunal in confirming the deletion of the penalty, and no question of law arose from the order. Consequently, the appeal was dismissed as meritless.