The New Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently ruled that the penalty cannot be imposed under Section 271AAA(2) when the assessee disclosed undisclosed income in a statement under Section 132(4) of the Income Tax Act.
The Assessee R.J. Corp. Limited is a resident corporate entity. A search and seizure operation was conducted on the Assessee and other group entities. During the operation, a person connected to the group provided a statement admitting to additional income of Rs. 60 crores for various entities, including the Assessee.
In so far as the present assessee is concerned, an additional income of Rs.10.00 crores was offered on account of disallowance of expenses and others. However, in the return of income filed in response to notice issued under Section 153A of the Income Tax Act, Assessee offered additional income of Rs.1.75 crores, being interest income.
During the assessment proceedings, the Assessing Officer conducted a thorough examination and requested various details from the assessee. Eventually, the Assessing Officer made an addition of Rs. 17.57 crores to the assessee’s income. This addition was based on an estimation of the net profit after rejecting the books of account provided by the assessee.
The counsel for the revenue argued that the CIT (A) had given an erroneous conclusion that the penalty imposed is not based on any undisclosed income found as a result of search. He submitted, in the course of search and seizure operation, Assessee himself his statement recorded declaring income of Rs.10.00 crores on account of disallowance of expenses. However, in the return of income filed, Assessee did not follow up the declaration made of Rs.10.00 crores.
He pointed out that the definition of undisclosed income comes as per clause (a) (ii) under Explanation to section 271AAA of the Income Tax Act.
He also submitted that assessee’s case will not fall within the exception provided under sub-section (2) of section 271AAA of the Income Tax Act and the penalty imposed may be restored.
Counsel for Assessee submitted that the additional income of Rs.10.00 crores declared at the time of search and seizure operation was not because of any income representing any money, bullion, jewelry or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of search and seizure operation.
Thus, counsel for the assessee contended that there is no undisclosed income within the meaning of section 271AAA of the Income Tax Act. He submitted, even while completing assessment, the Assessing Officer has not made an addition of Rs.10.00 crores disclosed at the time of search and seizure operation.
He further added that the addition made by the Assessing Officer was on account of estimation of profit from business and disallowance under Section 14A of the Income Tax Act. Thus, he submitted, the additions made were not in the nature of the undisclosed income of Assessee. Thus, he submitted, since Section 271AAA of the Income Tax Act is not applicable to Assessee, the Commissioner (Appeals) has rightly deleted the penalty imposed.
The two Bench consisting of an Account Member Dr. B. R. R. Kumar and a Judicial Member Saktijit Dey observed that there was no undisclosed income relating to the previous year which could have enabled the Assessing Officer to invoke the provisions of section 271AAA of the Income Tax Act. Therefore, there was no valid reason to interfere with the decision of the Commissioner (Appeals). Grounds raised by the Revenue was dismissed.
On the basis of the facts, it is clearly established that whatever undisclosed income earned by Assessee was offered to tax in the manner specified in sub-Section (2) to Section 271AAA of the Income Tax Act. That being the case, assessee’s case falls within the exception provided under section 271AAA (2). Hence, no penalty can be imposed under Section 271AAA of the Income Tax Act.
In result, both appeals filed by revenue were dismissed.
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