2019 (6) TMI 756 - HC - Income Tax

Gujarat High Court Upholds Immunity from Penalty under Income Tax Act

PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT 2 Versus RAVANI DEVELOPERS

The Gujarat High Court affirmed the decisions of the CIT(A) and ITAT, dismissing the Revenue's appeal. It was held that the assessee fulfilled all ... Penalty u/s 271AAA(2) - alleged that the assessee neither specified the manner of undisclosed income nor substantiated the manner in which the income was derived - assessee is not subjected to the question by the manner of earning and substantiating thereon, then and the AO did not raise such query at the time recording his statement u/s 132(4) - HELD THAT:- Clause 2 of Section 271AAA makes it very clear that if the three conditions stipulated therein are fulfilled then nothing contained in sub-section (1) would apply. We take notice of the fact that the CIT appeals as well as the Appellate Tribunal has recorded the concurrent findings that all the three conditions as stipulated in sub-section (2) of Section 271AAA are fulfilled. Having heard Ms. Kalpanak Raval, the learned senior standing counsel appearing for the Revenue and having gone through the materials on record, we are of the view that the issue is squarely covered by the decision of this Court in the case of Mahendra C. Shah [2008 (2) TMI 32 - GUJARAT HIGH COURT]. In such circumstances referred to above, this appeal fails and is hereby dismissed. - Decided in favour of assessee. Issues Involved:1. Whether the ITAT erred in confirming the order of the CIT(A) deleting the penalty by ignoring the fact that the assessee has not fulfilled the conditions laid down u/s 271AAA(2).2. Whether the ITAT can delete the penalty when the assessee has not specified the manner of undisclosed income nor substantiated the manner in which the income was derived.3. Whether the ITAT erred in confirming the order of the CIT(A) deleting the penalty by recognizing the tax paid after filing return as payment made before the specified/due date.Issue-wise Detailed Analysis:1. Fulfillment of Conditions under Section 271AAA(2):The Revenue contended that the assessee did not fulfill the conditions stipulated under Section 271AAA(2) of the Income Tax Act, 1961. Specifically, the Revenue argued that the assessee failed to specify and substantiate the manner in which the undisclosed income was derived. However, the CIT(A) and ITAT found that the assessee had indeed specified and substantiated the manner of earning the undisclosed income during the search proceedings. The statement recorded under Section 132(4) indicated that the unaccounted income represented net taxable income from the projects undertaken by the appellant firm. The Tribunal noted that the authorized officer did not ask for further substantiation during the search, and thus the assessee's explanation was deemed sufficient.2. Specification and Substantiation of Undisclosed Income:The ITAT upheld the CIT(A)'s finding that the assessee had specified the manner of earning the undisclosed income and had substantiated it. The Tribunal referred to the statement recorded during the search where the partner of the firm, Shri Dilipbhai K. Ravani, explained that the unaccounted income was in the form of receivables from business income of construction projects. The Tribunal also noted that the authorized officer did not specifically ask the assessee to substantiate the manner of earning the income during the search, which was a critical point in the Tribunal's decision to uphold the CIT(A)'s order.3. Recognition of Tax Payment Timing:The Revenue argued that the tax on the undisclosed income was paid after the filing of the return, which should not qualify for immunity from penalty under Section 271AAA. However, the ITAT, relying on precedents including the Supreme Court's decision in ACIT vs. Gebilal Kanhailal (HUF) and the Gujarat High Court's decision in CIT vs. Mahendra C. Shah, held that the payment of tax before the conclusion of the assessment proceedings was sufficient to fulfill the conditions for immunity from penalty. The Tribunal found that the assessee had paid the due taxes and interest before the assessment was made, thereby satisfying the third condition under Section 271AAA(2).Conclusion:The Gujarat High Court dismissed the appeal by the Revenue, affirming the concurrent findings of the CIT(A) and ITAT that all three conditions under Section 271AAA(2) were fulfilled by the assessee. The Court emphasized that the issue was covered by the precedent set in the case of Mahendra C. Shah, where the conditions for immunity from penalty were interpreted similarly. The appeal was thus dismissed, upholding the deletion of the penalty imposed under Section 271AAA.