2018 (6) TMI 52 - AT - Income Tax

Tribunal deletes penalty for undisclosed income lacking substantiation

Sanotsh Kumar Garg Versus DCIT Central Circle-5 New Delhi

Sanotsh Kumar Garg Versus DCIT Central Circle-5 New Delhi - TMI Issues:Penalty under section 271AAA for undisclosed income during search and seizure operation.Analysis:The appeal was filed against the penalty order under section 271AAA of the Income Tax Act, 1961. The case involved a search and seizure operation on the assessee company, resulting in the surrender of a significant amount of undisclosed income. The Assessing Officer initiated penalty proceedings as the assessee failed to specify the manner in which the undisclosed income was derived and did not substantiate it. The penalty of Rs. 25,00,000 was imposed, leading the assessee to appeal before the CIT(A), who upheld the penalty.During the appeal, the assessee argued that complete details regarding the undisclosed income were provided during assessment proceedings. The assessee voluntarily declared and surrendered the amount to avoid further litigation, with the understanding that no penalty would be imposed. The assessee contended that penalty proceedings under section 271AAA can only be initiated if undisclosed income is found during a search action without an explanation. The assessee also highlighted a similar case involving the brother of the assessee, where the penalty was deleted by the Tribunal.The Departmental Representative argued that the penalty was justified as the assessee failed to substantiate the manner in which the undisclosed income was derived. They relied on a decision where the Tribunal upheld a penalty under section 271AAA for a similar reason.Upon review, the Tribunal noted that the assessee had declared the undisclosed income during the search, paid the due tax, but had not specified or substantiated the manner in which the income was derived. Citing various precedents, the Tribunal reversed the CIT(A)'s decision and directed the deletion of the penalty under section 271AAA.The Tribunal also referred to a High Court decision where a penalty under section 271AAA was deleted due to the absence of specific queries regarding the manner in which the undisclosed income was derived. The High Court concurred with the Tribunal's view, emphasizing the jurisdictional requirement of section 271AAA.Ultimately, the Tribunal allowed the appeal of the assessee, noting that the penalty provision under section 271AAA requires specifying the manner in which the income was derived to obtain immunity. Since the Revenue Authorities did not challenge the manner in which the income was derived, the penalty was deleted.In conclusion, the penalty under section 271AAA for undisclosed income during a search and seizure operation was deleted based on the failure to specify and substantiate the manner in which the income was derived, in line with precedents and jurisdictional requirements.