No Penalty u/s 271AAB for undisclosed income declared if no incriminating material found

Penalty u/s 271AAB for undisclosed income declared deleted for no incriminating material found during search and also for notice non specifying the specific limb

ABCAUS Case Law Citation:
ABCAUS 2876 (2019) (04) ITAT

Important Case Laws Cited/relied upon by the parties
SSA’s Emerald Meadows, (2016) 73 taxmann.com 248(SC)
Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar)
ACIT Vs Marvel And Associates (2018) 170 ITD 353

The assessee had challenged the order passed by the CIT(A) whereby he affirmed the penalty imposed u/s 271AAB by the Assessing Officer (AO).

A search and seizure operations was carried out at the residential premises of the assessees and thereafter survey was also carried out, at the business premises of which the assessee was a proprietor.

As per Asseeee, the assessees made the voluntary disclosure of income u/s 132(4) of the Act and surrendered an amount voluntarily but subject to no penalty. Thereafter assessments had been framed and penalty proceedings had also been initiated u/s 271AAB of the Act which resulted into imposition of penalty @ 30% of the undisclosed income in the assessee’s case.

The assessee preferred the first appeal before the CIT(A) challenging the penalty who affirmed the levy of penalty.

The assessee approached the Tribunal and challenged the penalty on the legal grounds as well as on merits and raised various issues contesting the penalty u/s 271AAB.

It was contended that the penalty imposed and confirmed u/s 271AAB of the Act was illegal and bad in law since there was no specific charge in the notice issued u/s 271AAB of the Act. Notice did not specify whether penalty had been initiated u/s 271AAB (1)(a) or 271AAB(1)(b) or 271AAB(1)(c) which made the penalty imposed illegal and bad in law.

The Hon’ble members of the Tribunal have though concurred in decision, gave different reasonings.

The Hon’ble Judicial members observed that at the time of initiating the penalty, the assessing officer simply stated that penalty proceedings u/s 271AAB were being initiated separately, without specifying the limb such as clause a or b or c of section 271AAB of the act, and issued the notice by simple mentioning that as to why an order imposing penalty upon you should not be made under section 271AAB of the Act.

The Hon’ble Judicial Member opined that the conduct of the AO  showed that the assessing officer at the time of initiating penalty and while issuing the notice under section 271AAB read with section 274 of the act was not decisive qua penalty to be imposable.

Following the judgment of the Karnataka High Court against which the SLP of the Department was dismissed by the Hon’ble Supreme Court, the Hon’ble Judicial Member deleted the penalty levied by the Assessing Officer and affirmed by the CIT(A).

On the other hand, as stated, the Hon’ble Accountant Member gave the concurrent decision that penalty under section 271AAB was not sustainable in the instant case but for a different reason.

The Hon’ble Accountant Member observed that the meaning of “unclosed income” shows that the same must emanate or sprung up from the incriminating material found during the course of search. Therefore, for levying penalty under section 271AAB Assessing Officer must show that the amount of alleged undisclosed income was arrived at on the basis incriminating material found during the course of search. Thus, without recording such a clear finding in the penalty order the penalty levied is unsustainable and bad in law.

He pointed out that the impugned penalty order showed that no “undisclosed income” on the basis of any incriminating material found during the course of the search could be shown to have existed by the Assessing Officer. The Coordinate Bench had held that penalty under section 271AAB attracts on “undisclosed income” but not on an admission made by the assessee under section 132(4). The assessing Officer must establish there is “undisclosed income” on the basis of incriminating material found during the course of search. Thus, merely because the assessee has admitted additional income under section 132(4) and/or in the Return of Income it cannot be held that such additional income was “undisclosed income” within the meaning of section 271AAB of the Act.

In the instant case in the impugned penalty order apart from stating that the assessee made declaration of additional income under section 132(4) and included the said income in the Return of Income, absolutely had not referred to any incriminating material found during the course of search.

The Hon’ble Judicial Member, therefore deleted the penalty imposed under section 271AAB as bad in law and unsustainable which is hereby deleted.

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