Agricultural income offered during search proceedings not undisclosed income under section 271AAB without seized materials linkage

The ITAT Rajkot held that penalty under section 271AAB was not sustainable where the assessee offered additional agricultural income during search proceedings. The tribunal found that additional income declared by the assessee could not be termed as "undisclosed income" under the statutory definition, which requires nexus with seized materials like money, bullion, jewellery or incriminating documents. Since no such materials were found linking to the additional income offered, and disclosures made during search proceedings under section 132(4) cannot automatically constitute undisclosed income, the penalty was deleted in favour of the assessee.

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Issues Involved:
1. Levy of penalty under section 271AAB(1)(b) of the Income Tax Act.
2. Levy of penalty under section 271AAB(1)(c) of the Income Tax Act.

Summary:

Issue 1: Levy of Penalty under Section 271AAB(1)(b):
The Assessee, deriving income from various sources, was subject to a search operation under section 132 of the Income Tax Act on 10.08.2016. Although no incriminating material was found, the Assessee disclosed additional income of Rs. 7,50,000/- in the return filed on 31.03.2018. The Assessing Officer (AO) levied a penalty of Rs. 1,50,000/- under section 271AAB(1)(b), which was confirmed by the Commissioner of Income Tax (Appeals). The Tribunal noted that the additional income disclosed did not meet the definition of "undisclosed income" under section 271AAB. The Tribunal emphasized that mere disclosure during a search does not automatically qualify as "undisclosed income" without tangible evidence. Thus, the penalty under section 271AAB(1)(b) was deleted.

Issue 2: Levy of Penalty under Section 271AAB(1)(c):
The AO also added Rs. 46,957/- as unexplained cash credit under section 68 of the Act, based on an estimation of agricultural income. A penalty of Rs. 14,087/- was levied under section 271AAB(1)(c), which was upheld by the Commissioner of Income Tax (Appeals). The Tribunal held that penalties cannot be imposed based on income estimation, as supported by the Jurisdictional High Court in Jumabhai Premchand (HUF) Vs. CIT 243 ITR 812. Consequently, the penalty under section 271AAB(1)(c) was also deleted.

Conclusion:
The Tribunal allowed the appeal filed by the Assessee, deleting the penalties levied under sections 271AAB(1)(b) and 271AAB(1)(c) of the Income Tax Act. The order was pronounced on 20-12-2023.

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