2018 (3) TMI 946 - AT - Income Tax

Penalty under Section 271AAB cancelled where no undisclosed income or incriminating material found during search operations.

ITAT Visakhapatnam held that penalty u/s 271AAB was not leviable where no undisclosed income or incriminating material was found during search operations. ... Penalty u/s 271AAB - disallowance u/s 40(a)(ia) - nature of penalty under section 271AAB - Discretionary OR mandatory - provisions of section 271AAB as parimateria with that of section 158BFA of the Act relating to block assessment - Held that:- The cost of construction in the projections projected at ₹ 2177/- which is in synch with the statement given by the assessee. The AO was happy with the disclosure given by the assessee and did not verify the factual position with the books of accounts and projections and bring the evidence to unearth the undisclosed income. Neither the A.O. nor the investigation wing linked the cost of profit or cost of asset to the entries in the books of accounts or to the sales conducted by the assessee to the sale deeds. Therefore, we are unable to accept the contention of the revenue that the loose sheet found during the course of search indicates any undisclosed income or asset or inflation of expenditure. The Hon’ble ITAT Delhi Bench in the case of Ajay Sharma Vs. DCIT [2012 (5) TMI 785 - ITAT DELHI], held that with respect to the addition on account of alleged receivables as per seized paper, there is no direct material which leads and establishes that any income received by the assessee has not been declared by the assessee. An addition has been made on the basis of loose document, which did not closely prove any concealment or furnishing of inaccurate particulars by the assessee. Hence penalty u/s 158BFA (2) of the Act is not leviable. The facts of the assessee’s case shows that there was no undisclosed income found during the course of search and no incriminating material was found, hence we hold that there is no case for imposing penalty u/s 271AAB of the Act, accordingly, we set aside the order of the lower authorities and cancel the penalty u/s 271AAB of the Act. - Decided in favour of assessee Issues Involved:1. Imposition of penalty under section 271AAB of the Income Tax Act.2. Validity of incriminating material found during the search.3. Discretionary vs. mandatory nature of penalty under section 271AAB.4. Evaluation of evidence and material found during the search.Detailed Analysis:1. Imposition of Penalty under Section 271AAB of the Income Tax Act:The core issue revolves around the imposition of penalty under section 271AAB following a search under section 132. The assessee admitted additional income of Rs. 1,48,84,142/- for the assessment year 2013-14, part of a total additional income of Rs. 4.80 crores. The Assessing Officer (A.O.) imposed a penalty of 30% on the undisclosed income, amounting to Rs. 44,65,543/-, which was later scaled down to 10% by the Commissioner of Income Tax (Appeals) [CIT(A)].2. Validity of Incriminating Material Found During the Search:The CIT(A) referred to a loose sheet (page No.107 of Annexure A/GS/MA/1) found during the search, indicating a higher cost per sq.ft. than what was disclosed by the assessee. The CIT(A) deemed this as incriminating material and a clear case of concealment of income. However, the assessee argued that the loose sheet only showed projections and profitability, not actual expenditure, and no other incriminating material was found during the search.3. Discretionary vs. Mandatory Nature of Penalty under Section 271AAB:The assessee contended that the penalty under section 271AAB is discretionary, not mandatory, drawing parallels with section 158BFA of the Act. The Tribunal agreed, noting that the words 'may direct' in section 271AAB indicate discretion. The Tribunal emphasized that the imposition of penalty must consider the facts and merits of each case, and the assessee must be given a reasonable opportunity to explain their case, adhering to the principles of natural justice.4. Evaluation of Evidence and Material Found During the Search:The Tribunal found that the loose sheet did not conclusively prove any suppression of income or undisclosed income. The sheet was deemed a projection of profit rather than actual expenditure. No other material indicating undisclosed income, assets, or inflated expenditure was found during the search. The Tribunal referenced the case of Ajay Sharma Vs. DCIT, where it was held that a loose document without direct material evidence does not justify penalty for concealment or furnishing inaccurate particulars.Conclusion:The Tribunal concluded that there was no undisclosed income found during the search, and no incriminating material was presented. Consequently, the penalty under section 271AAB was not justified. The Tribunal set aside the orders of the lower authorities and cancelled the penalty. The appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was allowed.Result:- The appeal filed by the revenue is dismissed.- The cross-objection filed by the assessee is allowed.Pronouncement:The order was pronounced in the open court on 16th March 2018.