2018 (10) TMI 1117 - AT - Income Tax

Tribunal upholds CIT(A) decision to delete penalty under Section 271AAA

The Tribunal upheld the CIT(A)'s decision to delete the penalty of Rs. 2,20,00,000/- imposed by the AO under Section 271AAA. The appeal by the Revenue was ... Penalty levied u/s 271AAA - basic requirement of the section 271AAA is not fulfilled i.e. the assessee failed to elaborate the manner in which the undisclosed income was derived - diversified views - Held that:- It is the settled position of law that when two views are possible on an issue the view which is favourable to the assessee has to be accepted in view of the decision of Hon'ble Supreme Court in the case of Vegetable Products Ltd.[1973 (1) TMI 1 - SUPREME COURT]. Since the assessee in the instant case has surrendered additional income and paid the taxes due thereon and no specific query was raised by the search party at the time of search to substantiate the manner of earning such income, therefore, following the decision of PR. COMMISSIONER OF INCOME TAX SURAT 2 VERSUS M/S SHAHLON SILK MILLS PVT LTD. [2018 (2) TMI 1287 - GUJARAT HIGH COURT] and various other decisions relied on by the CIT(A), we are of the considered opinion that the penalty u/s 271AAA is not leviable in the instant case. The order of the ld. CIT(A) is accordingly upheld and the grounds raised by the Revenue are dismissed. Issues Involved:1. Deletion of penalty levied under Section 271AAA.2. Fulfillment of conditions under Section 271AAA, specifically the substantiation of the manner in which undisclosed income was derived.Issue-wise Detailed Analysis:1. Deletion of Penalty Levied Under Section 271AAA:The Revenue appealed against the order of the CIT(A) which deleted the penalty levied under Section 271AAA. The primary contention was that the assessee failed to substantiate the manner in which the undisclosed income was derived, which is a requirement under Section 271AAA.2. Fulfillment of Conditions Under Section 271AAA:Facts of the Case:- The assessee, an individual deriving income from business, was subject to a search and seizure action under Section 132(1) of the I.T. Act, 1961.- During the search, the assessee surrendered Rs. 23,00,00,000/- as undisclosed income in his statement recorded under Section 132(4).- The surrendered amount was included in the assessee's return of income and taxes were duly paid.- The Assessing Officer (AO) levied a penalty of Rs. 2,20,00,000/- under Section 271AAA, arguing that the assessee did not substantiate the manner in which the undisclosed income was earned.Arguments by the Assessee:- The assessee argued that the surrendered amount was admitted under Section 132(4), disclosed in the return, and taxes were paid.- It was contended that the surrender was made to buy peace and avoid litigation.- The assessee claimed that no specific question regarding substantiation was asked during the search, fulfilling all conditions under Section 271AAA.CIT(A)'s Observations:- The CIT(A) noted that the additional income was surrendered under Section 132(4) and taxes were paid.- The CIT(A) observed that the AO did not draw any adverse inference except for the lack of substantiation.- The CIT(A) relied on various judgments, including those of the ITAT Chandigarh, Delhi, and the Allahabad High Court, which supported the assessee's contention.Tribunal's Analysis:- The Tribunal observed that the AO levied the penalty because the assessee did not substantiate the manner of earning the undisclosed income.- The Tribunal noted that the CIT(A) deleted the penalty, emphasizing that the income was declared during the search, taxes were paid, and no specific query regarding substantiation was raised during the search.- The Tribunal found no infirmity in the CIT(A)'s order, agreeing that the assessee declared the income, paid the taxes, and no specific query was raised by the search party regarding the manner of earning the income.Relevant Judgments:- The Tribunal referred to the Hon'ble Gujarat High Court's decision in Pr.CIT vs. Shahlon Silk Mills Pvt. Ltd., which held that if no question regarding the manner of earning the income was put during the search, penalty under Section 271AAA cannot be levied.- The Tribunal also considered the Hon'ble Delhi High Court's contrary view in Pr. CIT vs. Smt. Ritu Singal but noted that the assessee falls under the jurisdiction of the Hon'ble Punjab & Haryana High Court.- The Tribunal followed the principle that when two views are possible, the view favorable to the assessee should be adopted, as per the Hon'ble Supreme Court's decision in CIT vs. Vegetable Products Ltd.Conclusion:- The Tribunal upheld the CIT(A)'s order, deleting the penalty of Rs. 2,20,00,000/- levied by the AO.- The appeal filed by the Revenue was dismissed, affirming that the assessee fulfilled the conditions under Section 271AAA by declaring the income, paying the taxes, and not being specifically queried about the manner of earning the income during the search.Order Pronounced:- The appeal filed by the Revenue was dismissed, and the order was pronounced in the open Court on October 15, 2018.