2018 (5) TMI 1591 - AT - Income Tax

Tribunal overturns penalty under Section 271AAB, emphasizes strict interpretation of penalty provisions.

The Tribunal allowed the appeal, ruling that the penalty under Section 271AAB was unjustified as the commodity profit did not constitute 'undisclosed ... Imposition of penalty u/s 271AAB on account of income from commodity profit that has been found during search u/s 132 - Held that:- commodity transactions are not carried out by the assessee in the course of his business and hence he is not required to maintain the books of account - assessee has admitted u/s 132(4), the income from commodities trading and later returned the same as his income under the head 'Income from Other Sources' - hence the amount of ₹ 1,32,44,000/- offered by the assessee does not fall in the ken of 'undisclosed income' u/s 271AAB - thus no penalty can be levied against the assessee - Decided in favor of assessee. Issues Involved:1. Legitimacy of penalty proceedings under Section 271AAB of the Income-tax Act, 1961.2. Applicability of penalty under Section 271AAB versus Section 271AAA.3. Classification of commodity profit as 'undisclosed income.'4. Requirement for maintaining books of account under Section 44AA.5. Interpretation of the term 'undisclosed income' under Section 271AAB.Detailed Analysis:1. Legitimacy of Penalty Proceedings under Section 271AAB:The appeal was filed against the order of the CIT(A) which upheld the penalty imposed under Section 271AAB. The penalty was initially initiated under Section 271AAA but later corrected to Section 271AAB. The Tribunal noted that the penalty under Section 271AAB was levied on the ground that the income from commodity profit was found during a search operation. The Tribunal agreed with the assessee's contention that Section 271AAB is not mandatory but discretionary, as indicated by the use of the word 'may' instead of 'shall.'2. Applicability of Penalty under Section 271AAB versus Section 271AAA:The assessee argued that the penalty proceedings should not have been initiated under Section 271AAA since the search was conducted after 1.7.2012, making only Section 271AAB applicable. The Tribunal acknowledged this correction and noted that the penalty was ultimately imposed under the correct section, Section 271AAB.3. Classification of Commodity Profit as 'Undisclosed Income':The Tribunal examined whether the commodity profit of Rs. 1,32,44,000/- could be classified as 'undisclosed income.' It was found that the profit was recorded in documents retrieved during the search and was declared in the return of income. The Tribunal concluded that since the profit was recorded in 'other documents' maintained by the assessee, it did not qualify as 'undisclosed income' under Section 271AAB.4. Requirement for Maintaining Books of Account under Section 44AA:The assessee contended that he was not required to maintain books of account as per Section 44AA since his income sources included salary, house property, short-term capital gains, and income from other sources. The Tribunal agreed, noting that the commodity profit was offered under 'income from other sources' and not as business income, thus exempting the assessee from the requirement to maintain books of account under Section 44AA.5. Interpretation of the Term 'Undisclosed Income' under Section 271AAB:The Tribunal referred to the definition of 'undisclosed income' under Section 271AAB, which includes income not recorded in books or documents maintained in the normal course before the date of the search. Since the commodity profit was recorded in documents retrieved during the search, it did not fall under the definition of 'undisclosed income.' Consequently, the penalty under Section 271AAB was deemed inapplicable.Conclusion:The Tribunal concluded that the penalty under Section 271AAB was not justified as the commodity profit did not qualify as 'undisclosed income.' The appeal was allowed, and the penalty was deleted. The judgment emphasized the discretionary nature of Section 271AAB and the importance of strict interpretation of penalty provisions. The Tribunal also highlighted that the assessee was not required to maintain books of account under Section 44AA, reinforcing that the commodity profit was not 'undisclosed income.'Order Pronounced:The appeal was allowed, and the order was pronounced in the court on 23.05.2018.