2021 (9) TMI 387 - AT - Income Tax

Tribunal Limits Penalty to Undisclosed Income Found in Search

Deputy Commissioner of Income Tax, Central Circle-3, Surat Versus M/s Star Rays Shivam Chambers

The Tribunal upheld the CIT(A)'s decision to restrict the penalty under section 271AAB to Rs. 33,32,725/-, applicable only to the undisclosed income found ... Penalty levied u/s 271AAB - conversion of survey action into search - detection of undisclosed income u/s 133A or u/s 132 - disclosure of additional income - excess stock of diamond and its incomplete record in the books of account and other documents maintained in the normal course of assessee’s business - HELD THAT:- CIT(A) was of the view that there was excess stock of finished diamond of 137.01 carat only, which was not recorded in regulars books of account maintained nor in the document maintained at regular course of business CIT(A) held that income which is detected during the survey under section 133A is neither covered in the section 271AAB nor in Explanation5A filed to section 271(1)(c) of the Act. The penalty has not been imposed under section 271(1)(c) and therefore whether penalty was imposable on income detected during the survey but disclosed in return of income filed under section 139(1) of the Act (as time for filing return was available) itself is academic. CIT(A) also held that the penalty under section 271(1)(c) imposing only in the furnishing inaccurate particulars of concealment of particulars in the return of income filed. CIT(A) finally held that the total undisclosed income found as per the definition for the purpose of penalty under section 271AAB of the Act is only ₹ 3,33,27,250/- and not ₹ 34,99,87,344/- as considered by Assessing Officer. The penalty imposable under the said section on the facts of this case is 10% of ₹ 3,33,27,250/-. CIT(A) worked out the penalty of ₹ 3,33,275/- and deleted remaining penalty. The Ld. CIT(A) took absolutely correct view, which we affirm. No contrary fact or law is brought to our notice to take other view. We have affirm the order of Ld. CIT(A) on the primary submissions of the learned Senior Counsel for the assessee, therefore, adjudication on other submissions of the assessee have become academic. So far as objection of ld. CIT-DR for the revenue is concern that the Ld. CIT(A) when survey proceedings at one premise has been converted into search, it became a search case and the entire disclosure made by assessee-firm on the basis of excess stock not recorded in their books of account to be considered at undisclosed income for the purpose of section 271AAB. The objection of the ld CIT-DR is not convincing to us as survey action at Delhi office only has been converted in to search action. No case law to support such view, is brought to our notice. The ld. CIT(A) while partly confirming the penalty has considered the undisclosed income found at Delhi office for the purpose of penalty under section 271AAB. Appeal of the Revenue is dismissed. Issues Involved:1. Applicability of penalty under section 271AAB of the Income Tax Act.2. Validity of the survey proceedings and its conversion into search proceedings.3. Determination of 'undisclosed income' for the purpose of penalty.4. Correctness of the penalty amount levied by the Assessing Officer and modified by the CIT(A).Issue-wise Detailed Analysis:1. Applicability of Penalty under Section 271AAB:The appeal by the Revenue was primarily against the CIT(A)'s decision to restrict the penalty levied under section 271AAB from Rs. 3,49,98,734/- to Rs. 33,32,725/-. The Revenue contended that the CIT(A) erred in not appreciating that once a survey proceeding at one premise is converted into a search, it becomes a search case, and the provisions applicable to search cases should apply to the total disclosure made by the assessee. The CIT(A) held that the penalty under section 271AAB is applicable only to the undisclosed income found during the search at the Delhi office, which included cash of Rs. 25 lakh and excess stock of diamonds valued at Rs. 3.08 Crores, totaling Rs. 3,33,27,250/-. The Tribunal upheld the CIT(A)'s view, stating that the penalty under section 271AAB applies only to the undisclosed income found during the search and not the income disclosed during the survey.2. Validity of Survey Proceedings and Conversion into Search:The assessee argued that the survey proceedings were initiated at three locations (Surat, Mumbai, and Delhi), and only the survey at the Delhi office was converted into a search. The CIT(A) noted that the survey at the Delhi office was converted into a search, and the only incriminating assets found were cash and excess stock of diamonds. The Tribunal affirmed the CIT(A)'s finding that the survey at the Delhi office was converted into a search, and the provisions of section 153A were applicable only to the Delhi office. The Tribunal rejected the Revenue's argument that the entire disclosure made by the assessee should be considered as undisclosed income for the purpose of section 271AAB.3. Determination of 'Undisclosed Income':The CIT(A) examined the evidence related to the physical stock of polished diamonds found at the Delhi office and concluded that there was an excess stock of 137.01 carats, valued at Rs. 3.08 Crores, along with cash of Rs. 25 lakh, totaling Rs. 3,33,27,250/-. The CIT(A) held that the definition of 'undisclosed income' as per section 271AAB applies only to the income found during the search and not during the survey. The Tribunal upheld this view, stating that the penalty under section 271AAB applies only to the undisclosed income found during the search at the Delhi office.4. Correctness of the Penalty Amount:The Assessing Officer initially levied a penalty of Rs. 3.49 Crores, which was 10% of the total disclosure of Rs. 34.99 Crores. The CIT(A) restricted the penalty to 10% of Rs. 3,33,27,250/-, which amounted to Rs. 33,32,725/-, and deleted the remaining penalty. The Tribunal affirmed the CIT(A)'s decision, stating that the penalty under section 271AAB should be levied only on the undisclosed income found during the search at the Delhi office. The Tribunal found no contrary facts or law to take a different view and dismissed the Revenue's appeal.Conclusion:The Tribunal upheld the CIT(A)'s decision to restrict the penalty under section 271AAB to Rs. 33,32,725/-, applicable only to the undisclosed income found during the search at the Delhi office. The Tribunal dismissed the Revenue's appeal, affirming that the provisions of section 271AAB apply only to the undisclosed income found during the search and not to the income disclosed during the survey.