The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the levy of penalty under Section 271AAB of the Income Tax Act, 1961 is not mandatory or automatic.
There was search action on the ‘Valuable Group’ and a consequential search was carried out at the premises of the assessee. During the search, jewellery of Rs. 2,14,53,102/- was found, and Rs.1,55,54,889/- and cash of Rs. 29.08 lakhs were found, out of which Rs. 27 Lakh was seized.
The assessee submitted bills for jewellery and also explained cash belongs to M/s Meghabites, a proprietary concern of his wife, and in support of the same he submitted a sales tax return of the said firm where cash sales duly reflected.
The Assessing Officer has not accepted the explanation and added the amount of Rs. 66,48,000/- as declared in the statement by Shri Narendra Hete. Thereafter, the Assessing Officer issued notice for penalty under Section 274 of the Income Tax Act for levying penalty under Section 271AAB (1) of the Income Tax Act.
The counsel submitted that the assessee has submitted all the documents to explain the source of jewellery found during the course of the search and produced bills for the same before the Assessing Officer as well as the Commissioner of Income Tax (Appeal) [CIT(A)].
It was further submitted that part of the jewellery to the extent of Rs. 14,88,464/- was explained as belonging to other family members who have received it as a gift on various family rituals and functions along with supporting documents. Merely because CIT(A) has not accepted the same and confirmed addition to that extent the same cannot be treated as undisclosed income for the purpose of Section 271AAB(1) of the Income Tax Act.
Similarly, for the cash found, the assessee has explained the same belongs to the proprietary concern of the wife where the sales were duly recorded in the books of the said entity and the assessee also submitted sales tax returns which were filed before the date of search and the said cash duly recorded in the said returns.
The Departmental Representative submitted that the disclosure of undisclosed income was in reference to the assets seized which were found during the course of search. Once the assessee has surrendered the undisclosed income based on the assets found and seized during the search, then the said income was rightly treated by the Assessing Officer as undisclosed income in terms of provisions of Section 271AAB of the Income Tax Act.
It was further stated that the penalty under Section 274AAB(1) of the Income Tax Act is automatic and once any addition is made in the specified year it will attract a penalty under Section 271AAB(1) of the Income Tax Act at the rate depending upon the category of the case.
The Two-member bench comprising of Amit Shukla (Judicial member) and Amarjit Singh (Accountant member) held that the levy of penalty under Section 271AAB of the Income Tax Act was not mandatory or automatic, the same needs to be examined, whether there is any basis for levy of penalty or non-levy thereof and the same will depend upon the facts and circumstances of the case. The bench held that the addition confirmed does not fall in the ambit of the definition of undisclosed income as contemplated in Explanation to Section 271AAB of the Income Tax Act. Accordingly, the penalty of Rs. 6,09,244/-. levied by the Assessing Officer and sustained by the CIT (A) was deleted. Thus, the appeal of the assessee was allowed.
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