Section 271AAA – Penalty u/s. 271AAA cannot be levied in a case where the revenue had not asked the assessee the manner of earning undisclosed income.

12   [2017] 83 taxmann.com 231 (Ahmedabad – Trib.)

ACIT  vs. Shreenarayan Sitaram Mundra

ITA No. : 2878 (Ahd) of
2013

A. Y. : 2010-11                                                   

Date of Order:  18^th May, 2017

FACTS  

In the course of search,
the assessee, an individual engaged in the business of manufacturing and
trading of textiles admitted an unaccounted income of Rs. 2 crore and included
the said amount of Rs. 2 crore in the total income of Rs. 2.21 crore declared
in the return of income filed in response to notice issued u/s. 153A.  The returned income was assessed to be total
income. 

The Assessing Officer (AO)
imposed a penalty u/s. 271AAA on the ground that the assessee had not specified
the manner in which income declared was earned which is one of the conditions
u/s. 271AAA for being exonerated from penalty. 

Aggrieved, the assessee
preferred an appeal to the CIT(A) who noted that the assessee had in his
statement mentioned that the said sum of Rs. 2 crore was earned by him from taxable
business and moreover, it was also substantiated by the assessee in his
statement and the  declaration of the
said undisclosed income earned was based on entries as mentioned in the
impounded documents inventorised in the form of `receivables’ and due taxes had
been paid on the said declared income while filing return of income.  The CIT(A) held that the conditions required
to be satisfied for non-imposition of penalty had been satisfied by the
assessee.  He allowed the appeal filed by
the assessee.

Aggrieved, the revenue
preferred an appeal to the Tribunal.

HELD  

The Tribunal noted that 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 u/s.271AAA
is that the assessee in the statement recorded u/s.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. The
Tribunal held that s/s.(2)(ii) finds its genesis from s/s. 2(i) of the Act. It
noted that admittedly, the Revenue is not aggrieved by the condition stipulated
in s/s. 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, 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 u/s.
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. The Tribunal noted 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.  It stated that the revenue has not pointed
out any query which remained unreplied or evaded in the course of search or
post search investigation. The Tribunal held that looking from any angle, it is
difficult to hold in favor of the revenue. The Tribunal upheld the order passed
by CIT(A).

The Tribunal dismissed the appeal filed by the assessee.