No Penalty u/s 271AAA on post search voluntarily disclosed income

Brief of the case:

The ITAT Kolkata in the above cited case held that if the additional income disclosed by assessee u/s 132(4) voluntarily without being any incriminating material found during the course of search , then department cannot levy penalty u/s 271AAA on such voluntarily disclosed income.

Facts of the case:

• A search operation was conducted in the business premises of the assessee on 11.9.2009.In the course of search some transaction books of the assessee broking co. were seized. The assessee filed its return of income on 25.9.2009 declaring total loss of Rs. 6,71,01,221/-Pursuant to the search, notice u/s 153A of the Act was served upon the assessee. The assessee filed the return of income in response to notice issued u/s 153A of the Act on 31.5.2010 declaring total loss of Rs. 4,71,01,221/- wherein the assessee included the disclosure made during the course of search operations of Rs. 2,00,00,000/-.
• Pursuant to the search, the assessee filed a disclosure petition before the ADIT (Investigation), Unit-III(4), disclosing additional income of Rs. 2,00,00,000/- for AY 09-10 and AY 10-11 as the assessee may not be able to instantly produce all the relevant documentation required by the department with regard to monies received from various parties including advances, margin money and deposits.
• The assessment was completed u/s 153A / 143(3) of the Act on 11.5.2011 by treating the share trading loss as speculation loss in terms of Explanation to Section 73 of the Act and after making minor disallowances and determining total income of Rs. 1,73,55,290/-. Penalty proceedings u/s 271AAA of the Act was initiated by the AO for additional income disclosed in return filed u/s 153A.
• CIT(A) decided the case in favour of assessee. Aggrieved revenue is in appeal before ITAT.

Contention of the Assessee:

• The learned counsel for the assessee contended that in order to avail the immunity provided in section 271AAA(2) of the Act, it is not necessary that the disclosure u/s 132(4) should be included in the return filed u/s 139(1). It was argued that it would suffice if the additional income disclosed u/s 132(4) was included in the return filed u/s 153A of the Act and tax along with interest was paid thereon.
• It was also argued that it would be sufficient enough if the additional income disclosed u/s 132(4) was included in the return filed u/s 153A of the Act and tax along with interest was paid thereon.
• It was also argued that there was absolutely no reference to any seized material brought on record by the Learned AO with regard to the additional income offered by the assessee and hence the entire addition has been accepted by the Learned AO only based on the offer made voluntarily by the assessee and not with reference to any seized materials.
• Further , in the disclosure petition made u/s 132(4) assessee explained that additional income being offered represent various advances and margin money collected which might not be instantly proved by assessee  to the satisfaction of department due to lack of proper documentation. Thus, in order to buy peace with the litigations that may take place assessee is offering such additional income.

Held by ITAT Kolkata:

• The ITAT observed that the assessee had not disclosed the additional income in the return filed u/s 139(1) of the Act for the Asst Year 2009-10 for the reason that the assessee had filed return u/s 139(1) of the Act prior to the date of disclosure u/s 132(4) of the Act. In disclosure petition filed u/s 132(4) assessee explained that it is offering an amount of Rs. 2crores representing advances and margin monies collected as additional income because it is not possible for assessee to arrange the documentation instantly to prove the same to the satisfaction of the department.
• In return filed u/s 153A assessee had duly offered the additional income of Rs. 2 crores and paid taxes thereon. In the disclosure petition itself, we find that the assessee had clearly demonstrated the inability to substantiate the manner of deriving the undisclosed income.
• Further, offer has been voluntarily by the assessee without any incriminating materials found during the course of search and accordingly the argument of the departmental counsel that only as a result of search such additional income of Rs. 2 crores were offered to tax  does not hold any water and deserves to be dismissed.
• Hence in view of the above, tribunal hold that the levy of penalty is not automatic and assessee is clearly entitled for immunity from levy of penalty u/s 271AAA(2).