2019 (1) TMI 1405 - AT - Income Tax

Tribunal upholds penalty under section 271AAA for 2009-10, except for non-undisclosed income. Limits penalty enhancement.

The Tribunal upheld the penalty imposed under section 271AAA for the assessment year 2009-10, except for certain items of income that did not qualify as ... Penalty u/s. 271AAA - undisclosed income of the ‘specified previous year’ - 'Sakhare” is a person different from the assessee - Held that:- In the absence of any specific prefix used to the term ‘search’ in clause (b) of the Explanation defining ‘specified previous year’, we can assign only one meaning to the word ‘search’ in both the sub-clauses. Going with our interpretation, the year in which search is conducted has also to be seen as the year in which the search is initiated and not the year in which it is concluded. The word 'conduct’ means to execute. A search is conducted when it actually takes place. We cannot say that a search is conducted on its conclusion. The ‘specified previous year’ under clause (b)(ii) of the Explanation to section 271AAA means the previous year in which the search was initiated. As the search in this case was initiated on 11-02-2009, which falls in the previous year ending 31-03-2009, the assessment year 2009-10 becomes the relevant previous year. It is thus held that the assessment year 2009-10 under consideration is the ‘specified previous year’ in terms of Explanation (b)(ii), being, the previous year in which the search was conducted. In that view of the matter, we do not find any infirmity in the passing of the instant penalty order u/s.271AAA for the assessment year 2009-10. The contention raised by the assessee in this regard is thus repelled. AO did not impose any penalty u/s 271AAA on the income ₹ 2.07 crore. Further, there is no whisper whatsoever on this score in the penalty order passed by the AO u/s 271AAA of the Act. In fact, the AO considered such income of ₹ 2.07 crore in his penalty order separately passed u/s 271(1)(c) of the Act. Under such circumstances, the enhancement power of the ld. CIT(A) cannot be extended to income of ₹ 2.07 crore. This legal issue is settled in favour of the assessee. It is observed from the relevant seized document that the income, representing figures which appear under the name of the assessee totaling up to ₹ 2.77 crore, was promptly offered for taxation. Then there are certain figures appearing under the name of 'Sakhare’, which total up to ₹ 2.07 crore. It is this item of income on which the assessee has disputed the imposition of penalty on the ground that it did not pertain to him. There is no dispute on the fact that 'Sakhare’ is a person different from 'Kakade’, namely, the assessee. Page number 57 onwards of the paper book is a copy of registered Transfer deed dated 20th September 2011 in respect of a bungalow at Jalbaug Co-operative Housing Society Mumbai. This Transfer deed has been executed between “Sakhare” and the 'Kakade’, namely, the assessee on one hand and one Shrimati Anita J. Suri, on the other. This Transfer deed also mentions Permanent Account Number of Sh. Sakhare as distinct from the assessee. Not only that, even photographs of Shri Sakhare and the assessee have been incorporated on such a Transfer deed. It thus becomes crystal clear that “Sakhare” is a person different from the assessee. If there is certain undisclosed income pertaining to “Sakhare”, the same cannot be included in the income qualifying for penalty imposable on the assessee u/s 271AAA even though such an income got assessed in his hands. We therefore, order to delete penalty on income of ₹ 2.77 crore. Appeal of the assessee is partly allowed. Issues Involved:1. Determination of the 'specified previous year' under section 271AAA.2. Entitlement to immunity under sub-section (2) of section 271AAA.3. Recording of proper satisfaction by the Assessing Officer before imposing penalty.4. Imposition of penalty on merits.Issue-wise Detailed Analysis:1. Determination of the 'specified previous year' under section 271AAA:The primary issue was whether the assessment year 2009-10 could be considered the 'specified previous year' for imposing a penalty under section 271AAA. The Tribunal examined the definitions and provisions under section 271AAA, specifically focusing on the terms 'date of search' and 'specified previous year.' The Tribunal concluded that the 'date of search' refers to the 'date of initiation of search,' which in this case was 11-02-2009. Consequently, the 'specified previous year' was the year ending 31-03-2008, making the relevant assessment year 2008-09. However, the Tribunal also considered sub-clause (ii) of clause (b) of Explanation to section 271AAA, which defines 'specified previous year' as the year in which the search was conducted. Since the search was initiated on 11-02-2009, falling in the previous year ending 31-03-2009, assessment year 2009-10 was deemed the 'specified previous year.' Thus, the Tribunal upheld the penalty for assessment year 2009-10.2. Entitlement to immunity under sub-section (2) of section 271AAA:The assessee argued for immunity under sub-section (2) of section 271AAA, which requires the assessee to admit undisclosed income in a statement under section 132(4), specify and substantiate the manner in which it was derived, and pay taxes with interest. The Tribunal found that although the assessee initially admitted to undisclosed income, he later retracted his statement, thereby failing to meet the first condition. Additionally, the assessee did not specify or substantiate the manner in which the income was derived. Moreover, the taxes were not paid within a reasonable time, as they were not settled even by the time the penalty order was passed. Consequently, the Tribunal held that the assessee did not fulfill the conditions for immunity under section 271AAA(2).3. Recording of proper satisfaction by the Assessing Officer before imposing penalty:The assessee contended that the Assessing Officer (AO) did not record proper satisfaction before imposing the penalty. The Tribunal noted that section 271AAA does not require the AO to record satisfaction before directing the imposition of penalty, unlike section 271(1)(c). The Tribunal found that the AO had mentioned the initiation of penalty proceedings multiple times in the assessment order, which sufficed as proper satisfaction. Therefore, the Tribunal rejected the assessee's argument on this issue.4. Imposition of penalty on merits:The Tribunal examined the penalty imposed on various items of income. It found that the penalty on Rs. 5.86 lakh, which the assessee declared suo motu, could not be sustained as it was not 'undisclosed income' found during the search. However, the penalty on other items totaling Rs. 5.71 crore was upheld, except for Rs. 70 lakh paid to Crocus Properties and Rs. 8 lakh introduced as capital in M/s Kakade Jewellers, as these did not qualify as 'undisclosed income.' The Tribunal also held that the CIT(A) could not enhance the penalty on an income of Rs. 2.07 crore, as it was not considered by the AO under section 271AAA but under section 271(1)(c). Consequently, the Tribunal deleted the penalty on these disputed items.Conclusion:The Tribunal upheld the penalty imposed under section 271AAA for the assessment year 2009-10, except for certain items of income that did not qualify as 'undisclosed income.' The assessee's arguments for immunity under section 271AAA(2) and lack of proper satisfaction by the AO were rejected. The Tribunal also restricted the CIT(A)'s power to enhance the penalty to items considered by the AO under section 271AAA. The appeal was partly allowed.