Income tax penalties for unregistered chit fund receipts: misreporting penalty sustained, books maintenance penalty deleted.

Penalty liability for undisclosed receipts disclosed in returns filed after search was sustained on the basis that post search disclosure does not negate misreporting for penalty purposes; consequence: penalty under the misreporting provision confirmed for the specified assessment years. Conversely, where transactions were recorded in accounting software during the normal course of business before year end and a return filed under the regular procedure was accepted in assessment, the statutory requirement for imposing the separate books maintenance penalty was not met; consequence: that penalty deleted for the later assessment year.

---

---

Issues: (i) Whether penalty under Section 270A of the Income-tax Act, 1961 is sustainable for A.Ys 2017-18 and 2018-19 where undisclosed income from unregistered chit funds was included in returns filed in response to notices under Section 153A; (ii) Whether penalty under Section 271AAB of the Income-tax Act, 1961 is sustainable for A.Y. 2019-20 where return was filed under Section 139(1) within due date and transactions were recorded in the software before the end of the financial year.

Issue (i): Whether penalty under Section 270A is leviable where undisclosed income revealed during search was disclosed in returns filed under Section 153A and accepted in assessment.

Analysis: Section 153A(1A) treats a return filed in response to a notice under Section 153A as a return under Section 139. Section 270(9)(e) classifies failure to record any receipt in books of account affecting total income as misreporting. Disclosure of previously undisclosed income in a return filed consequent to a search does not, by itself, negate misreporting for purposes of penalty under Section 270A. Authorities cited confirm that voluntary or post-search disclosure does not automatically absolve assessees from penal consequences.

Conclusion: Penalty under Section 270A is upheld for A.Ys 2017-18 and 2018-19; conclusion is against the assessee.

Issue (ii): Whether penalty under Section 271AAB is leviable where return for A.Y. 2019-20 was filed under Section 139(1) within the due date and transactions regarding unregistered chits were recorded in the accounting software before the financial year end.

Analysis: Section 271AAB penalizes failure to maintain books of account where required. If transactions are recorded in the software maintained in the normal course of business and the financial year had not concluded at the time of search, and the return was filed within the due date under Section 139(1) and accepted in assessment under Section 143(3), the statutory requirement for imposing penalty under Section 271AAB is not satisfied.

Conclusion: Penalty under Section 271AAB is deleted for A.Y. 2019-20; conclusion is in favour of the assessee.

Final Conclusion: The appeals are partly dismissed and partly allowed - penalties under Section 270A confirmed for A.Ys 2017-18 and 2018-19, and penalty under Section 271AAB deleted for A.Y. 2019-20.

Ratio Decidendi: Disclosure of previously undisclosed income in a return filed pursuant to a search under Section 153A does not preclude imposition of penalty for misreporting under Section 270A(9)(e); conversely, penalty under Section 271AAB is not sustainable where the assessee has maintained transaction records in accounting software before year-end and filed an accepted return under Section 139(1) within the due date.

---