Tribunal overturns penalty under Income Tax Act, emphasizing Assessee's explanation requirement

The Tribunal overturned the penalty imposed under section 271AAA of the Income Tax Act for the Assessment Year 2012-13. The Assessee's argument that the addition pertained to other receipts, not unexplained cash, was accepted. The Tribunal emphasized that the authorized officer must fully explain the provisions to the Assessee during recording of statements to sustain the penalty. Consequently, the penalty imposed by the AO and confirmed by the CIT(A) was deleted, allowing the Assessee's appeal.

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Issues:
Levy of penalty u/s 271AAA of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The Assessee filed a return of income declaring Rs. 15,11,496, but during a search, Rs. 13 lakhs in cash was found in lockers jointly maintained by the Assessee and her husband. The revenue alleged that the cash belonged solely to the Assessee. The AO made an addition of Rs. 13 lakhs u/s 69A of the Act and initiated penalty proceedings u/s 271AAA. The CIT(A) confirmed an addition of Rs. 6,60,000 out of the total Rs. 13 lakhs. The Assessee argued that the addition pertained to other receipts, not unexplained cash, and since the addition was under challenge, no penalty should be imposed. However, the AO imposed a penalty as the Assessee failed to prove the source of the cash, considering it unaccounted income. The CIT(A) affirmed the penalty, leading to the Assessee's appeal.

The Assessee contended that no specific query was raised regarding section 271AAA during assessment, citing a High Court judgment. The Tribunal noted that the AO did not ask the Assessee to specify how the undisclosed income was derived, as required by section 271AAA. Citing judgments by the Gujarat and Allahabad High Courts, the Tribunal emphasized that the authorized officer must fully explain the provisions to the Assessee during recording of statements. Failure to do so renders the penalty unsustainable. Accordingly, the Tribunal deleted the penalty imposed by the AO and confirmed by the CIT(A) u/s 271AAA, allowing the Assessee's appeal.

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