2019 (6) TMI 47 - AT - Income Tax

Tribunal rules LTCG not undisclosed income under section 271AAB, deletes penalty. Upholds penalty on discovered cash.

Smt. Aparna Agrawal Versus The Deputy Commissioner of Income-tax, Central Circle, Kota

The Tribunal concluded that the Long Term Capital Gain (LTCG) was not undisclosed income under section 271AAB, resulting in the deletion of the penalty ... Penalty u/s 271AAB - assessee filed return of income u/s 139(1) declaring total income which includes surrendered income on account of Long Term Capital Gain and cash found during the course of search - HELD THAT:- The primary condition for treating an income as undisclosed income is that it should represent inter alia any entry in the books of account or other documents found during the search but the said income is not recorded in the books of account. In the case in hand, the document found during the search is not an incriminating material when the entry and the income were duly recorded in the books of account. Therefore, the statement of the assessee recorded u/s 132(4) would not constitute incriminating material. Therefore, the said income disclosed by the assessee cannot be considered as undisclosed income in terms of section 271AAB. We hold that the income surrendered on account of Long Term Capital Gain by the assessee in the statement recorded u/s 132(4) does not fall in the ambit of definition of undisclosed income as contemplated in Explanation to section 271AAB. Regarding cash found during the course of search, there cannot be any dispute that the same falls in the definition of undisclosed income and the same is subject to penalty u/s 271AAB. Accordingly, the penalty levied by the AO and sustained by the ld. CIT (A) on LTCG is deleted and penalty sustained by the ld CIT(A) on cash found during the course of search is upheld. - Decided partly in favour of assessee. Issues Involved:1. Validity of the penalty order under section 271AAB without specifying the clause.2. Application of section 271AAB(1)(a) versus 271AAB(1)(c) without proper notice.3. Legitimacy of penalty on Long Term Capital Gain (LTCG) and cash found during search.4. Mandatory nature of penalty under section 271AAB.5. Mens rea and intention of wrongdoing by the assessee.6. Reduction of penalty percentage by CIT (A).Issue-wise Analysis:1. Validity of the Penalty Order:The assessee argued that the penalty order was invalid as the AO did not specify under which clause of section 271AAB the penalty was initiated. The conditions for imposing penalties under clauses (a), (b), and (c) are separate and distinct, requiring clear specification.2. Application of Section 271AAB(1)(a) vs. 271AAB(1)(c):The CIT (A) applied section 271AAB(1)(a) instead of 271AAB(1)(c) without issuing a requisite notice under section 251(2). The assessee contended that the penalty should not apply to LTCG as it was not undisclosed income per section 271AAB.3. Legitimacy of Penalty on LTCG and Cash:The assessee maintained that the LTCG was not undisclosed income since it was recorded in the books of accounts and supported by documentary evidence. The AO, however, treated the LTCG as undisclosed income based on the statement recorded under section 132(4) during the search. The Tribunal held that the LTCG recorded in the books of accounts does not fall under the definition of undisclosed income as per section 271AAB. However, the cash found during the search was undisputedly undisclosed income and subject to penalty.4. Mandatory Nature of Penalty:The CIT (A) held that the penalty under section 271AAB is mandatory. The Tribunal, however, clarified that the penalty is not automatic and the AO must consider the conditions and circumstances before imposing it. The use of the word 'may' in section 271AAB indicates discretion rather than compulsion.5. Mens Rea and Intention of Wrongdoing:The assessee argued that there was no finding on mens rea or intention of wrongdoing. The Tribunal noted that the AO must consider the explanation and reply of the assessee before deciding on the penalty.6. Reduction of Penalty Percentage:The CIT (A) reduced the penalty from 30% to 10% of the undisclosed income. The Revenue challenged this reduction, arguing that the assessee did not substantiate the manner of earning the undisclosed income. The Tribunal upheld the reduction for LTCG, stating it was not undisclosed income, but maintained the penalty on the cash found.Conclusion:The Tribunal concluded that the LTCG was not undisclosed income under section 271AAB, and the penalty on it was deleted. However, the penalty on the cash found during the search was upheld. The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed.