ACIT Vs Incredible India Projects Private Limited (ITAT Hyderabad)
Penalty u/s 271AAB Upheld on Search-Detected Cash Expenditure Routed Outside P&L: ITAT Hyderabad Dismisses Revenue Appeal
Hyderabad Bench of the ITAT dismissed the Revenue’s appeal and upheld deletion of penalty levied u/s 271AAB in the case of Incredible India Projects Pvt. Ltd. for AY 2018-19, following the principle of consistency with assessee’s own case for AY 2017-18.
The case arose out of a search u/s 132, during which cash vouchers evidencing substantial cash payments for purchase of land and development expenses were found. The assessee had recorded these payments in the balance sheet as “advance/pre-paid development expenses” and not routed them through the Profit & Loss account. Upon confrontation, the assessee admitted the cash payments, voluntarily disallowed the expenditure u/s 40A(3), and offered the amount to tax in the return filed for the specified year.
The Assessing Officer treated the amount as “undisclosed income” and levied penalty u/s 271AAB. The CIT(A) deleted the penalty, holding that:
- the transactions were recorded in the books, though in the balance sheet and not in P&L,
- the disallowance arose only due to the deeming fiction of section 40A(3), and
- there was no false entry or fictitious expenditure, a sine qua non for penalty.
Before the Tribunal, the assessee also raised a Rule 27 plea challenging the penalty notice as vague. The ITAT rejected this plea, holding that in cases of admitted undisclosed income during search, specific limb-wise charge is not mandatory for levy of penalty u/s 271AAB where the statutory rate applies.
On merits, however, the Tribunal followed its earlier decision in assessee’s own case for AY 2017-18, holding that:
