Revenue's penalty appeal dismissed as tax officer failed linking disclosed income to seized materials under section 271AAB

The ITAT Delhi dismissed the Revenue's appeal regarding penalty under section 271AAB for unexplained cash commission expenses. The tribunal upheld CIT(A)'s finding that the AO failed to establish a direct link between the additional income disclosed by the assessee and any incriminating material found during the search proceedings. The court held that for imposing penalty under section 271AAB, the AO must demonstrate that the disclosed additional income correlates with seized materials from the search, which was not established in this case.

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Issues:
Assessment of undisclosed income under section 271AAB of the Income-tax Act, 1961 for Assessment Year 2021-22.

Detailed Analysis:

Issue 1: Assessment of undisclosed income
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the assessment of undisclosed income for the Assessment Year 2021-22. The assessment proceedings were initiated under section 153A of the Act after a search was conducted at the premises of Hans Group. The return of income was filed by the assessee declaring income of Rs. 6,54,15,120/-. The assessment was completed under section 143(3) of the Act, adding Rs. 2,27,000/- on account of unexplained cash commission expenses under section 69C of the Act.

Issue 2: Penalty proceedings under section 271AAB
In penalty proceedings under section 271AAB, the Assessing Officer (AO) imposed a penalty of Rs. 24,53,100/-, later rectified to Rs. 1,64,03,339/-, based on the alleged undisclosed income. The AO claimed that the assessee had taken bogus Long Term Capital Gains (LTCG) and undisclosed cash transactions, which were declared only after the search action under section 132 of the Act. The AO imposed the penalty at 30% of the undisclosed income, alleging that the assessee would not have disclosed the income if the search had not taken place.

Issue 3: Appeal before the CIT (A)
The assessee appealed before the Commissioner of Income Tax (Appeals) and submitted detailed arguments challenging the penalty imposed under section 271AAB. The CIT (A) deleted the penalty, stating that the additional income declared by the assessee did not fall under the definition of undisclosed income as per section 271AAB. The CIT (A) noted that the AO failed to provide any seized material to substantiate the claim of bogus LTCG and unexplained cash transactions. The CIT (A) emphasized that the onus was on the AO to establish a direct link between the undisclosed income and the incriminating material found during the search.

Issue 4: Appellate Tribunal's decision
The Revenue appealed before the Appellate Tribunal challenging the CIT (A)'s decision to delete the penalty under section 271AAB. The Tribunal observed that the income declared by the assessee did not have a direct link with any incriminating material found during the search. The Tribunal agreed with the CIT (A) that the penalty cannot be imposed under section 271AAB without evidence linking the undisclosed income to the search findings. The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision to delete the penalty.

In conclusion, the Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the penalty imposed under section 271AAB, emphasizing the lack of evidence linking the undisclosed income to the search findings.

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