Undisclosed Income Source must be Specified and Substantiated u/s 271-AAA(2): SC upholds Penalty for Non-Compliance [Read Judgement]
Considering Section 271-AAA(2) mandates undisclosed income sources to be specified and substantiated, the SC upholds the penalty for non-compliance
Income Tax – Supreme Court – undisclosed income tax penalty – undisclosed income tax penalty – TAXSCAN
Income Tax – Supreme Court – undisclosed income tax penalty – undisclosed income tax penalty – TAXSCAN
In a recent ruling, the Supreme Court confirmed that Section 271-AAA(2) of the Income Tax Act, 1961 mandated that undisclosed income sources must be specified and substantiated and upheld the penalty for non-compliance.
In the High Court of Delhi, ITA 1251/2018 concerned the deletion of a penalty of INR 1,97,70,670 imposed under Section 271AAA of the Income Tax Act, 1961.
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Amul Gabrani, the petitioner declared an undisclosed income of Rs. 19.77 crores following a search operation under Section 132 of the Income Tax Act, 1961. The income was surrendered to avoid litigation.
The Assessing Officer (AO) imposed a penalty of Rs. 1.97 crores under Section 271AAA citing the petitioner’s failure to specify and substantiate how the undisclosed income was derived. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty which was upheld by the Income Tax Appellate Tribunal (ITAT).
The ITAT found that the penalty was initiated without substantiating why it was applicable. The assessee accepted the surrender of Rs. 19,77,06,696 as additional income without addressing specific statutory requirements.
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The Principal Commissioner of Income Tax appealed the decision. The Delhi High Court observed that for immunity under Section 271AAA(2), the assessee must (i) specify the manner of deriving undisclosed income, (ii) substantiate this manner, and (iii) pay applicable taxes and interest.
The Delhi High Court explained that mere disclosure of income during search proceedings does not automatically exempt the petitioner from penalty obligations unless statutory conditions are fully met.
The High Court reversed the Tribunal and CIT(A)'s decisions. Aggrieved, the petitioner approached the Supreme Court.
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The bench comprising Justice Abhay S. Oka and Justice Augustine George Masih heard the Special Leave Petition (SLP) challenging the Delhi High Court's judgment. The Supreme Court dismissed the SLP stating that the High Court’s interpretation of Section 271AAA(2) was correct and that statutory obligations were not fulfilled by the petitioner.
The Supreme Court upheld the Delhi High Court decision and the original penalty imposed by the Assessing Officer under the Income Tax Act.
To Read the full text of the Order CLICK HERE
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