In a recent ruling, Commissioner of Income Tax vs. Ritu Singal, the Delhi High Court has confirmed the penalty since the Assessee has not disclosed the source of Income.
The assessee in the instant case Ritu Singal has filed her return of income for the relevant assessment year. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee had reported undisclosed income earned during the financial year to the extent of Rs.20 crores and material records regarding the undisclosed income were also found during the course of search proceedings.
The AO further observed that provisions of section 271AAA of the Income Tax Act 1961 were applicable in respect to the undisclosed income found during the course of search and declared by the assessee in her return of income for the assessment year. Therefore he imposed initiated the penalty proceedings while completing the assessment under Section 271AAA during assessment proceedings on the ground that assessee had not specified the manner in which the undisclosed income was earned and failed to substantiate it.
On appeal, the CIT(A) granted relief to the Assessee by deleting the penalty imposed by the AO and the Tribunal was also upheld the order of the authority. Thereafter, the Revenue carried the matter before the Court by the appeal against the order passed by the lower authorities.
Before the Court counsel for the Assessee submitted that that Section 271AAA of the Income Tax Act is phrased identically to Explanation 5 (2) to Section 271 of the Act and he further argued that all other parties searched by the revenue, the explanation is given was accepted. In the present case, the revenue was not justified in singling out the assessee and imposing the penalty, but the tribunal was justified in the circumstances of the case, given that the assessee had made the appropriate disclosures.
After considering rival submissions and analyzing the above narrated facts and circumstances, the division bench comprising of Justice S.Ravindra Bhat and Justice A.K.Chawla observed that it is an admitted fact that the AO has found certain documents regarding the undisclosed income during the search and the same was escaped from tax and it can be considered as concealment of income from the returns filed by the Assessee.
The Court further observed that the income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, the source of the money etc). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement under Section 132 (4) substantiates the manner in which the undisclosed income was derived. It reveals that the Assessee has failed to disclose the source of undisclosed income and the lower authorities were deleted the penalty by mistake.
Subsequently, the Court confirmed the penalty imposed by the AO while allowing the appeal filed by the Revenue.
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