If assessee admits undisclosed income, substantiate manner & paid taxes on undisclosed income no penalty u/s 271AAA can be levied

Issue before tribunal:

Both assessee and revenue are in appeal against the action of deletion of penalty u/s 271AAA. CIT (A) has deleted part of penalty levied but another part of the penalty was retained by him. Assessee is in appeal against the retention order and revenue is against the deletion of penalty.

Brief facts:

• A search and seizure operation u/s 132 of the Act was conducted on the business and residential premises of SPS Group of cases on 14-02- 2008. During the course of search, one of the Director of SPS Steel & Power Ltd, disclosed an income of Rs.6.84 crores.
• The undisclosed income was duly declared in the return by assessee and tax was paid thereupon.
• This disclosure was explained by assessee by filing detailed working and manner of earning of the income. The AO considered the disclosure and accepted the disclosure of Rs.6.84 crores.
• In support of the disclosure made during the search, the assessee has submitted a detailed working with a cash flow statement which was considered and verified.
• The AO initiated penalty proceedings u/s271AAA and 271(1) (c) of the Act in respect to disclosure for the reason that assessee could not substantiate the manner of earning of income other than mere admission.
• On appeal CIT (A) has observed that assessee has declared its undisclosed income in his return and paid taxes. So he as per provision of section 271AAA deleted the penalty. He further observed that during assessment proceedings AO deducted some other undisclosed income. Hence CIT (A) confirmed penalty on this income only.

Contention of the revenue:

• Assessee has failed to provide any corroborative evidence whatsoever with regard to disclosed income amounting to Rs.6.84 crores which can be taken as substantiation of above specified manner of income. Though assessee has incorporated this amount as undisclosed income for the AY 2008-09, there is no substantiation other than mere admission. Therefore, it can be said that assessee has not been able to satisfy the condition laid down by Sec 271AAA(2)(ii).
• An addition of Rs.1,13,65,623/- was also made during assessment. This was detection of concealment of income borne out of seized material. So this form part of undisclosed income as defined in explanation of Sec. 271AAA(4).
• The undisclosed income of Rs. 1,13,65,623/-is neither admitted or disclosed u/s. 132(4) of the Act nor subsequently included in the return of income filed by the assessee. According to AO, this undisclosed income was merely detection by the Revenue.
• Applicability of penalty provisions 271AAA is invocable as the search was conducted after 1st June 2007. In this regard also, assessee could not give any substantiation of manner of income other than mere admission. Therefore, it can be said that assessee has not been able to satisfy the condition laid down by Sec. 271AAA(2)(ii).

Contention of the Assessee:

• The undisclosed income was admitted by assessee and declared in return on which tax was paid. Hence no penalty can be levied as per provision of section 271AAA.
• Assessee explained the that why he did not disclosed income of Rs.1,13,65,623/-. He explained that some of them are expenses which if included in the return would automatically reduce the income.

Held by the tribunal:

• The AO has not disputed that out of the total undisclosed income of Rs.7,97,65,623/-, a sum of Rs.6.84 crores was admitted as undisclosed income in the statement u/s 132(4) of the Act and duly included the same as undisclosed income in the return of income and also paid taxes.
• The AO has not disputed that out of the total undisclosed income of Rs.7,97,65,623/-, a sum of Rs.6.84 crores was admitted as undisclosed income in the statement u/s 132(4) of the Act and duly included the same as undisclosed income in the return of income and also paid taxes.
• It is clear that the undisclosed income was earned mainly by virtue of trading activities and income from other sources. This has not been disputed by the AO during the course of scrutiny assessment and accepted the same as it is.
• The Cuttak Bench of this Tribunal in the case of Ashok Kumar Sharma v. DCIT 149 TTJ 33, in similar circumstances, has held that the case of assessee fall under the purview of section 271AAA (ii).
• From the explanation of the assessee in regard to the addition of Rs.1,13,65,623/-, it is found that the same are more or less included in the disclosure petition of Rs.6.84 crores as against availability of cash.
• The items outside the disclosure of Rs.6.84 crores is only the expenses paid to Sampoorna Logistics and allegedly to received back in cash on account of discounts offered by Transport.
• On the basis of various judicial pronouncement tribunal held that it is clear that penalty cannot be levied merely on the admission of the assessee and there must be some conclusive evidence before the AO that entry made in the seized documents, represents undisclosed income of the assessee.

Conclusion:

Section 271 AAA provides that where assessee has admitted the undisclosed income, substantiate the manner & paid taxes regarding undisclosed income, penalty u/s 271 AAA cannot be levied. Also tribunal observed that there is no evidence which proves that the entries recorded in the documents found during the course of search is over and above the income as declared by the assessee at Rs.6.84 crores as undisclosed income and the same was accepted by Revenue.