Case Law Details
As per section 271AAA(2)(i), one of the conditions for obtaining relief from the imposition of penalty under section 271AAA is that the assessee in the statement recorded under section 132(4) of the Act admits the undisclosed income and ‘specifies the manner’ in which such income has been derived. Section 271AAA(2)(ii) casts obligation on the part of the assessee to ‘substantiate the manner’ in which the undisclosed income was derived. Thus, sub-section (2)(ii) finds its genesis from sub-section 2(i) of the Act. Admittedly, the Revenue is not aggrieved by the condition stipulated in sub-section 2(ii) of the Act. Impliedly, the Revenue admits that the assessee has not failed to substantiate the manner in which the undisclosed income derived. This being so, it follows by necessary implication that the assessee has not failed to specify the manner at the first place when substantiation thereof has not been called into question by the Revenue. Thus, the case of the Revenue requires to be summarily dismissed on this ground alone. Notwithstanding, we further note that the assessee has replied to the query raised while recording the statement as called for. The revenue does not appear to have quizzed the assessee for satisfying the manner in which the purported undisclosed income has been derived. The income considered as an undisclosed income in the statement under section 132(4) has been duly incorporated in the return filed pursuant to search. Therefore, the revenue in our view now cannot plead deficiency on the part of the assessee to specify the manner which has not been called into question at the time of search. We simultaneously note that no where in the assessment order or in the penalty order, the revenue has made out a case that the manner of earning undisclosed income was enquired into post search stage either. The revenue has not pointed out any query which remained unreplied or evaded in the course of search or post search investigation. Therefore looking from any angle, it is difficult to hold in favour of the revenue. Accordingly, we decline to interfere in the order of the Commissioner (Appeals).
Full Text of the ITAT Order is as follows:-
The present appeal by the Revenue is directed against the order of the Commissioner (Appeals)-II, Ahmedabad [CIT(A) in short] dated 30-9-2013 for the assessment year (AY) 2010-11 wherein penalty imposed under section 271AAA of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) Rs. 20 lakhs was deleted by the Commissioner (Appeals).
2. Briefly stated, the assessee is an individual engaged in the business of manufacturing and trading of textiles. A search action under section 132 of the Income Tax Act was carried out on 11-3-2010 in the case of assessee. During the course of search, the assessee admitted an unaccounted income of Rs. 2 crores and included the aforesaid unaccounted income while filing the return of income pursuant to notice under section 153A of the Act. The income returned at Rs. 2,21,69,566 under section 153A of the Act was assessed at the same figure and penalty under section 271AAA was imposed by the assessing officer (AO) for assessment year 2010-11 vide order dated 29-5-2012 on the ground that conditions specified in section 271AAA for exoneration from penalty has not been satisfied by the assessee. He accordingly imposed penalty of Rs. 20 lakhs on the undisclosed income found as a result of search at Rs. 20 lakhs.
3. The assessee preferred appeal against the aforesaid penalty order of the assessing officer before the Commissioner (Appeals).
4. The Commissioner (Appeals) answered the appeal in favour of the assessee with outright deletion of penalty under section 271AAA of the Act. The Commissioner (Appeals) found that exception provided in section 271AAA for non-imposition of penalty has been duly fulfilled. The relevant para of the order of the Commissioner (Appeals) reads as under :–
“6. I have carefully perused the penalty order as well as written submissions made by the A.R. on behalf of the appellant and other material on record. It is observed that during the course of search in the case of the appellant group of cases, Rs. 6 crores was admitted under section 132(4) as undisclosed income of the appellant group wherein the appellant’s share was Rs. 2 crore. It was admitted in the statement that the income was derived from the taxable business. It is seen that the provisions of section 271AAA clearly specify that —
Section 271AAA(2) —
271AAA. (1) The assessing officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1-6-2007 [but before the 1-7-2012], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.
(2) Nothing contained in sub-section (1) shall apply if the assessee, —
(i) in the course of the search, in a statement under sub-section (4) of section 132 admits the undisclosed income and specifies the manner in which such income has been derived;
(i) substantiates the manner in which the undisclosed income was derived; and
(iii) pays the tax, together with interest, if any, in respect of the undisclosed income.
6.1 In the case of the appellant, it is seen that the undisclosed income of Rs. 2 crore was admitted during the course of search and it was mentioned by the assessee in his statement that it was earned from taxable business. It was also admitted that this income of Rs. 6 crores was unaccounted income of the group and the same was not reflected in any books of accounts of any person or concern of the appellant group. Moreover, it has also been clearly substantiated by the appellant in his statement that the declaration of said undisclosed income earned was based on entries as mentioned in the impounded documents inventorized as Annexure B1-1, B1-2 & B-1-3 in the form of ‘receivables’ and due taxes have been paid on said declared income while filing the return of income. Therefore, in my considered view, the pre requisites as mentioned in section 271AAA are seen to have been fulfilled in the case of the appellant.
6.2 Various court decisions have also adjudicated on this issue e.g. —
(a) In the case of CIT v. Mahendra C. Shah (2008) 299 ITR 305 (Guj.)
Though this decision was on penalty under section 271(1)(c), it was held by the Hon’ble court that it was incumbent upon the authorized officer to explain the provisions Explanation 5 in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such lapse in the statement and it was not possible to expect from an assessee whether literate or illiterate, to be specific and to the point regarding conditions stipulated by Exception No. 2 while making the statement under section 132(4) of the Act.
According to the Hon’ble Court that even if the statement does not specify the manner in which the income is derived, if the income is declared and the tax thereon is paid, there would be substantial compliance not warranting any further denial under Exception 2 of Explanation 5.
It is also noticed that the spirit of ratio of Hon’ble High Court in the case of Mahendra C. Shah, is clear and by analogy, the penalty under section 271AAA is not leviable in the ease of the appellant as the facts in the instant case are applicable all the more, applying with the exemption provisions of sub-section (2) of section 271AAA.
(b) There are few more court decisions where the Hon’ble courts have held that —
(i) Sulochanadevi A. Agrawal (ITA No. 1052/Ahd/2012)
In this case, the assessee had voluntarily disclosed a sum of Rs. 50 lacs during the search with a request that the penalty should not be levied and the the post search proceedings, the specific question regarding manner of earning of undisclosed income or substantiation thereof was not putforth by the Revenue and the taxes were duly paid.
(ii) Similar view has been held by the Hon’ble ITAT, Mumbai in the case of Gulabrai V. Gandhi v. ACIT (2003) 84 ITD 370 (Mum.). It said that if the authorized officer has not raised any query regarding manner of earning income, the assessee not being blamed later on for not specifying the manner in which the income had been derived.
6.3 In view of the above facts and circumstances of the case and the settled views of various Hon’ble Courts especially jurisdictional ITAT & High Court which has been followed by other Commissioner (Appeals) in other cases also, as referred to by the learned A.R. in his submissions (supra), I am of the considered view that since all the pre requisites of section 271AAA(2) have been fulfilled, i.e. there was disclosure of the amount during the search, the manner of which was clearly specified and it was substantiated also by way of supporting documents and the due tax was paid. Hence, there was no case for levy of penalty under section 271AAA of the Act which is hereby deleted.’
5. Aggrieved by the order of the Commissioner (Appeals), the Revenue is in appeal before the Tribunal.
6. The learned DR for the Revenue submitted that the conditions prescribed under section 271AAA(2) of the Act has not been satisfied by the assessee. The assessee failed to satisfy the pre-requisites laid down in section 271AAA(2) and therefore the assessee is not eligible to claim exception from penalty under the aforesaid provision.
7. The learned AR, on the other hand, relied upon the order of the Commissioner (Appeals) and decision of the Co-ordinate Bench of the Tribunal in ITA No. 1147/Ahd/2012 order dt. 6-11-2015. The learned AR submitted that no specific question has been put in the statement recorded under section 132(4) about the manner in which the undisclosed income has been derived. The so-called undisclosed income as per statement under section 132(4) of the Act was included in the return of income and taxes due thereon has been paid along with return of income. Therefore, there is no warrant for the assessing officer to invoke section 271AAA and impose penalty of Rs. 20 lakhs on the assessee. The learned AR submitted that the Commissioner (Appeals) appreciated the facts in perspective and deleted the penalty.
8. We have carefully considered the rival submissions.
9. The ground of appeal raised by Revenue reads as under :–
The learned Commissioner (Appeals) has erred in law and on facts in deleting the penalty of Rs. 20,00,000 imposed under section 271AAA of the Income Tax Act, 1961, even though the assessee has failed to satisfy the prerequisite laid down in section 271AAA(2)(i) of the Act for being eligible to be exempted from penalty under this section.
9.1 We find from the ground of appeal raised by the Revenue noted above that the Revenue has challenged the order of the Commissioner (Appeals) on the ground that pre-requisites as specified under section 271AAA(2)(i) has not been satisfied. As a corollary, the Revenue is not aggrieved by non-fulfillment of other conditions stipulated in clause (ii) & (iii) of section 271AAA(2).
9.2 For the sake of convenience, relevant portion of section 271AAA(2) is reproduced hereunder :–
(i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and
(iii) …………………….
9.3 As observed earlier, the Revenue is aggrieved by non-compliance of the section 271AAA(2)(i) of the Act. As per section 271AAA(2)(i), one of the conditions for obtaining relief from the imposition of penalty under section 271AAA is that the assessee in the statement recorded under section 132(4) of the Act admits the undisclosed income and ‘specifies the manner’ in which such income has been derived. Section 271AAA(2)(ii) casts obligation on the part of the assessee to ‘substantiate the manner’ in which the undisclosed income was derived. Thus, sub-section (2)(ii) finds its genesis from sub-section 2(i) of the Act. Admittedly, the Revenue is not aggrieved by the condition stipulated in sub-section 2(ii) of the Act. Impliedly, the Revenue admits that the assessee has not failed to substantiate the manner in which the undisclosed income derived. This being so, it follows by necessary implication that the assessee has not failed to specify the manner at the first place when substantiation thereof has not been called into question by the Revenue. Thus, the case of the Revenue requires to be summarily dismissed on this ground alone. Notwithstanding, we further note that the assessee has replied to the query raised while recording the statement as called for. The revenue does not appear to have quizzed the assessee for satisfying the manner in which the purported undisclosed income has been derived. The income considered as an undisclosed income in the statement under section 132(4) has been duly incorporated in the return filed pursuant to search. Therefore, the revenue in our view now cannot plead deficiency on the part of the assessee to specify the manner which has not been called into question at the time of search. We simultaneously note that no where in the assessment order or in the penalty order, the revenue has made out a case that the manner of earning undisclosed income was enquired into post search stage either. The revenue has not pointed out any query which remained unreplied or evaded in the course of search or post search investigation. Therefore looking from any angle, it is difficult to hold in favour of the revenue. Accordingly, we decline to interfere in the order of the Commissioner (Appeals).
10. In the result, Revenue’s appeal is dismissed.
