2021 (10) TMI 1250 - AT - Income Tax

Tribunal upholds penalty for undisclosed income in tax appeal

Mr. N. Santhanam Versus The Assistant Commissioner Income Tax, Central Circle-1 (2) Chennai

The Tribunal upheld the CIT(A)'s decision and dismissed the appeal, affirming the mandatory and justified penalty under section 271AAB. The assessee's ... Penalty proceedings u/s.271AAB - During the course of search operation assessee in his sworn deposition recorded u/s.132(4) had offered undisclosed income - As argued admission of undisclosed income without any reference to incriminating material does not warrant levy of penalty - HELD THAT:- The facts borne out from records clearly indicate that the assessee has undisclosed income, which was offered to tax in the sworn statement recorded u/s.132(4) of the Act. The assessee had also filed revised return and declared undisclosed income offered to tax during course of search and paid taxes. As per provisions of section 271AAB, penalty is mandatory, where the assessee has admitted undisclosed income during the course of search in the statement recorded u/s.132(4) of the Act and specifies manner in which such income has been derived. In this case, the assessee has admitted undisclosed income in the statement recorded u/s.132(4) of the Act and substantiates the manner in which undisclosed income was derived. Therefore, we are of the considered view that reasons given by the Assessing Officer to levy penalty of 30% of undisclosed income is in accordance with law and thus, we are inclined uphold order of the learned CIT(A) and dismiss appeal filed by the assessee. Issues Involved:1. Dismissal of the appeal by CIT(A) without considering the adjournment application.2. Failure to afford a final opportunity of being heard.3. Voluntary admission of additional income without incriminating materials.4. Non-specification of the manner in which income was earned.5. Applicability of additional income under Explanation (C) to section 271AAB.6. Legality of penalty notice under section 271AAB.Detailed Analysis:1. Dismissal of the Appeal by CIT(A) Without Considering the Adjournment Application:The assessee contended that the CIT(A) erred in dismissing the appeal without considering the adjournment application filed for the hearing on 23.12.2019. The CIT(A) noted that multiple opportunities were provided to the appellant to present their case, but the appellant repeatedly sought adjournments without presenting any substantial information. Consequently, the CIT(A) decided the matter on merits based on the available records.2. Failure to Afford a Final Opportunity of Being Heard:The assessee argued that the CIT(A) did not afford a final opportunity of being heard, which was against the principles of natural justice. The CIT(A) observed that despite several notices and adjournments, the appellant failed to appear or provide any written submissions. Therefore, the CIT(A) proceeded with the adjudication based on the merits and available materials.3. Voluntary Admission of Additional Income Without Incriminating Materials:The assessee claimed that the additional income was voluntarily admitted without any incriminating materials found during the search. However, the Assessing Officer (AO) and CIT(A) noted that the undisclosed income was admitted during the search under section 132(4), and the revised return filed by the assessee included this income. The AO emphasized that the penalty under section 271AAB is mandatory when undisclosed income is admitted during the search.4. Non-Specification of the Manner in Which Income Was Earned:The assessee contended that the CIT(A) did not appreciate that the manner in which the additional income was earned was not specified. The CIT(A) and AO referred to the sworn statement of the assessee during the search, where the manner of earning the undisclosed income was substantiated. The penalty was levied based on the admission of undisclosed income and the manner in which it was derived.5. Applicability of Additional Income Under Explanation (C) to Section 271AAB:The assessee argued that the additional income admitted did not fall under the definition of income as per Explanation (C) to section 271AAB. The CIT(A) and AO held that the undisclosed income fell within the ambit of the definition provided in Explanation (C), as it was not recorded in the books of account before the search and was admitted during the search proceedings.6. Legality of Penalty Notice Under Section 271AAB:The assessee challenged the legality of the penalty notice, stating that it did not specify whether the penalty was initiated under section 271AAB(1)(a), (b), or (c). The CIT(A) and AO concluded that the penalty under section 271AAB was justified as the assessee admitted the undisclosed income during the search and failed to declare it in the original return. The penalty was levied at 30% of the undisclosed income as per section 271AAB(1)(c).Conclusion:The Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the assessee. The Tribunal concluded that the penalty under section 271AAB was mandatory and justified, as the assessee admitted the undisclosed income during the search and substantiated the manner in which it was derived. The appeal was dismissed, and the penalty of Rs. 30 lakhs was upheld.