Revenue's appeal dismissed as disclosed LTCG in return cannot be treated as undisclosed income for Section 271AAB penalty

ITAT Delhi dismissed Revenue's appeal against deletion of penalty u/s 271AAB. The assessee disclosed LTCG in return which was taxable income, not undisclosed income under Section 271AAB. The penalty provision requires admission of undisclosed income during search proceedings u/s 132(4), which was absent. The transactions were conducted through banking channels with advance tax paid before search. ITAT held that taxable LTCG cannot be treated as undisclosed income, and prerequisites of Section 271AAB(1A) were not satisfied. The decision was supported by precedent in identical circumstances involving assessee's family member.

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Issues:
1. Appeal against penalty order under Section 271AAB of the Income-tax Act concerning Assessment Year 2021-22.
2. Interpretation of undisclosed income as per provisions of Section 271AAB.
3. Challenge to the deletion of penalty by the CIT(A).
4. Assessment of LTCG income and its treatment as undisclosed income.
5. Comparison with a similar case handled by the Co-ordinate Bench of Tribunal.

Issue 1: Appeal against Penalty Order under Section 271AAB:
The appeal before the Tribunal stemmed from the Revenue's challenge against the penalty imposed under Section 271AAB of the Income-tax Act for Assessment Year 2021-22. The penalty was initiated by the Assessing Officer based on an amount included in the Return of Income (ROI) as 'undisclosed income,' leading to a penalty of 30% on the undisclosed amount.

Issue 2: Interpretation of Undisclosed Income under Section 271AAB:
The crux of the matter revolved around the definition of 'undisclosed income' as per the provisions of Section 271AAB. The CIT(A) found that the conditions outlined in the Act were not met in the case at hand, leading to the deletion of the imposed penalty. The absence of seized material during the search to substantiate the alleged undisclosed income played a pivotal role in this interpretation.

Issue 3: Challenge to Deletion of Penalty by CIT(A):
The Revenue challenged the relief granted by the CIT(A) in deleting the penalty. The Revenue contended that the CIT(A)'s decision was unjustified, emphasizing that the assessee would not have disclosed the income if the search had not occurred. However, the Counsel for the assessee argued that the provisions of Section 271AAB were not applicable in this scenario due to the lack of undisclosed income and the absence of admission during the search.

Issue 4: Assessment of LTCG Income and Treatment as Undisclosed Income:
The assessment of Long-Term Capital Gains (LTCG) income was a focal point, with the Revenue asserting that the LTCG income should be considered undisclosed income. The assessee, on the other hand, maintained that the LTCG income was not undisclosed as it was declared in the return of income and was not based on any incriminating material found during the search.

Issue 5: Comparison with Similar Case Handled by Co-ordinate Bench:
The Counsel for the assessee referenced a similar case handled by the Co-ordinate Bench of the Tribunal to support the argument that the penalty under Section 271AAB should not apply in this instance. The decision in the parallel case involving a family member of the assessee favored the assessee, further strengthening the argument against the imposition of the penalty.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the CIT(A) to delete the penalty imposed under Section 271AAB. The Tribunal's analysis focused on the lack of undisclosed income meeting the statutory requirements, the treatment of LTCG income, and the precedence set by a similar case. The decision underscored that the imposition of the penalty was not justified given the circumstances and statutory provisions governing undisclosed income.

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