ITAT upholds Penalty under Section 271AAA on Failure of Assessee to Substantiate Source and Manner of Undisclosed Income [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune Bench, has recently, in an appeal filed before it, on failure of the assessee to substantiate the source and manner of undisclosed income, upheld the penalty under Section 271AAA of the Income Tax Act, 1971.

The aforesaid observation was made by the Pune ITAT, when a pair of appeals were filed before it by the assessee, for assessment years 2011-2012 and 2012- 2013, as against the CIT(A), Pune’s separate Din & Order, involving proceedings under Section 271AAA of the Income Tax Act, respectively.

The assessees’ identical sole substantive grievance in both these appeals being the correctness of the  lower authorities’ action in imposing penalties under Section 271AAA of the Income Tax Act, Shri S. N. Puranik, the counsel for the assessee ,vehemently argued during the course of hearing that both the lower authorities have erred in law and on facts in imposing the impugned penalty, despite the fact that the taxpayer had duly admitted the undisclosed income during the course of search after explaining the manner, substantiation thereof followed by payment of taxes thereupon.

 He quoted various judicial precedents such as the cases of PCIT vs. Phoenix Mills Ltd., PCIT vs. Mukeshbhai Ramanlal Prajapati, and argued that it is incumbent on the part of the Authorised Officer during the course of search, to specifically put the relevant questions to the searched party, before the impugned penalty mechanism under Section271AAA of the Income Tax Act is sought to invoked at the department’s behest.

However, on the other hand, MS. Deepali Kalbandhe, on behalf of the Revenue, placed strong reliance on the CIT(A)’s detailed discussion affirming the impugned penalties.

Hearing the opposing of both sides, and perusing the materials available on record, the ITAT observed, “we are constrained to conclude that he has very well fallen short of substantiating the manner of having derived his undisclosed income in question i.e., the second limb in Section 271AAA of the Income Tax Act, penalty proceedings and therefore, there is hardly any reason for us to disturb both the lower authorities’ findings. The case law quoted at the assessee’s behest supports the Revenue’s case rather wherein their lordships’ hold in identical terms that an assessee has to substantiate the manner after the Authorised Officer puts specific queries to him regarding source and manner of the undisclosed income in issue.”

The Pune ITAT coram comprising of G.D Padmahshali, the Accountant Member, and Satbeer Singh Godara, the Judicial Member thus held:

“We thus affirm CIT(A)’s findings extracted in the penalty proceedings upholding the Assessing Officer’s action imposing the impugned penalties in these twin assessment years.”

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