Penalty u/s 271AAC deleted as income surrendered was declared in revised return

Penalty u/s 271AAC deleted by ITAT as income surrendered was declared in revised return substituting original return.

In a recent judgment, ITAT Jaipur deleted Penalty u/s 271AAC as income surrendered in survey u/s 133A by the assessee was declared in revised return filed which substituted the original return by a fresh return for the purpose of assessment.

ABCAUS Case Law Citation:
4642 (2025) (07) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming penalty under section 271AAC(1) of the Income Tax Act, 1961 (the Act).

The appellant assessee derived income from Trading on wholesale basis. It was found that during the demonetization period, the assessee had deposited large amount of cash in the bank account of his proprietorship firm.

Accordingly, a survey u/s 133A was carried out at the business premises of the assessee wherein it was found that the assessee had recorded cash sales on 08.11.2016 abnormally. However, the assessee couldn’t furnish the explanation and sources of cash deposits to the extent of Rs. 27,00,000/-.

Therefore, the assessee surrendered an amount of Rs.  27 lakhs. As a result, the assessee for the Assessment Year 2017-18 revised his original return of income u/s 139(5) of the Act.. In the revised return the assessee included the undisclosed income surrendered during the course of survey u/s 133A.

Subsequently, assessment proceedings u/s 147 r.w.s. 143(3) of the Act were completed for the said Assessment Year by assessing the total income as declared in the revised return.

Since the assessee paid the taxes u/s 115BBE of the Act on the undisclosed income detected during the course of survey, were paid after the end of the relevant previous year therefore, penalty proceedings u/s 271AAC of the Act were initiated separately.

During the penalty proceedings, AO held that since taxes were paid after end of relevant F.Y. i.e. 2016-17, the penalty was attracted. The argument that the assessee surrendered the amount during survey with the understanding that no adverse action shall be taken against him and no penal proceedings shall be initiated against him. This was the understanding between the assessee and the department was also not considered as tenable since no such power to waive penalty is available in the Act to the assessing officer.

The AO held that, the assessee had committed a default within the meaning and purview of section 271AAC(1) of the Act and as such liable to be penalized accordingly. Accordingly, a penalty u/s 271AAC(1) of the Act @ 10% of the tax payable u/s 115BBE(1) on the undisclosed income (surrendered during the course of survey and shown in the revised return and also in the return of income filed in response to notice u/s 148 was levied.

Before the Tribunal, the assessee inter alia contended that he filed the revised return in accordance with law within 15 days of the date of survey has also complied with the admission of income as per the statement of recorded during the course of survey. Considering the provisions of section 271AAC(1) of the Act the penalty cannot be levied as the assessee has paid the tax in the previous year wherein the survey took place and therefore, the penalty cannot be levied. Alternatively, it was argued that the AO while issuing the notice did not specified the section or limb or for which he wanted to levy penalty in the case of the assessee and even on that part no payment can be levied.

On the other hand the Revenue submitted that since the payment of taxes made by the assessee are not in the previous year but in the year the survey took place and the assessee filed revised return wherein that income has been disclosed and therefore, penalty u/s 271AAC(1) of the Act was correctly levied. 

The Tribunal observed that upon co joint reading of the provision of section 271AAC and 115BBE of the Act, the proviso deal with the section 139 and it does not speak any subsection on that section 139.

The Tribunal relied on the decision of the Gujarat High Court wherein the court dealt with the revised return and original return of income and held that there is a clear distinction between a revised return and a correction of return. Once a revised return is filed, the original return must be taken to have been withdrawn and substituted by a fresh return for the purpose of assessment.

Considering the said judgment and the fact of the case that the assessee had revised the return and the same had been accepted considering it as per provision of section 139 of the Act and also in view of the provisions of the section 271AAC and 115BBE of the Act, the Tribunal opined that there was no reason to sustain the penalty.

Accordingly, the penalty was directed to be deleted.

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