2023 (12) TMI 978 - AT - Income Tax

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 ... Levy of penalty u/s 271AAB - assessee has inflated his agricultural income, which would have been otherwise offered under any other head of income - Whether additional income declared in the return of income cannot be termed as “undisclosed income”? - difference between “undisclosed income” or “concealed income” - assessee replied that the addition was made on account of estimation of yield of cotton crops grown during that period, which by no means can be termed as undisclosed income as there is no nexus between additional income declared by the assessee and seized materials by the department - HELD THAT:- A plain reading of the explanation and definition of “undisclosed income” clearly shows that the undisclosed income could be represented money, bullion, jewellery or other valuable articles or things or any unrecorded entry as per documents found or any false entry recorded in the books of accounts, etc. There is no such reference of money, bullion, jewellery or any other items mentioned in the above definition of “undisclosed income” were mentioned either in the assessment order or in the penalty order by the A.O. The assessee’s offer of additional income, which does not amount to undisclosed income as per the above definition. The A.O. has not brought on record any material which points to the “undisclosed income” as defined u/s. 271AAB. Whereas CIT(A) in his order refers to the questions stated in the statements recorded u/s. 132(4) of the Act, namely assessee’s son marriage expenses. In our considered view, any disclosures made in the course of search and statement recorded u/s.132(4) itself cannot be construed as “undisclosed income” as per the definition provided in the Act. There is no incriminating material found by the Revenue on the alleged additional income offered by the assessee. Thus the levy of penalty u/s. 271AAB is against the provisions and inbuilt definition in the Act. Therefore the same is not sustainable in law. We hereby delete the levy of penalty levied u/s. 271AAB(1)(b) - Decided in favour of assessee. 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.