Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
This appeal filed by the Revenue is directed against order of the learned Commissioner of Income Tax (Appeals)- 18, Chennai, dated 31.05.2018 and pertains to assessment year 2014-15.
2. The Revenue has raised following grounds of appeal:-
“1. The order of the learned Commissioner of Income Tax(Appeals) is erroneous on facts of the case and in law,. 2. The learned CIT(A) erred in directing the AO to Ievy penalty @ 10% of the undisclosed income as per the provisions of section 271AAB(1)(a) the IT. Act, 1961. 2.1 The Id. CIT(A) ought to have appreciate the fact that the assesee is squarely covered by clause (c) of section 271AAB(1) of the IT. Act,1961, as the assessee has failed to pay taxes on the undisclosed income.
The brief facts of the case are that a search and seizure operation u/s.132 of the Act, was conducted in the SRM group of cases on 18th June 2013. As part of the search operation, the office premises of the assesse M/s. Vendor Movies was also searched. During the course of search, one notebook containing certain jotting seized. A statement was recorded from Sri B. Balagurunathan, one of the partners of the firm and in response to specific question, he had deposed that jotting is contained in the notebook pertains to unexplained expenditure incurred for the movie ‘Thalaivaa’ and further he had agreed to offset a sum of Rs.7,00,00,000/- as additional income of the firm for the assessment year 2014-15. Consequent to search, the case has been taken up for scrutiny and during the course of assessment proceedings, it was noticed by the Assessing Officer that although, the assessee had credited additional income of Rs.7,00,00,000/- into the profit and loss account, but offset income against expenditure for subsequent period and has declared loss. Therefore, the assessee was called upon to explain the loss declared for the year after considering undisclosed income of Rs.7,00,00,000/-. The Assessing Officer, after considering relevant submissions of the assessee
observed that although the assessee has offered additional income of Rs.7,00,00,000/-, but claimed various expenditure in income & expenditure for subsequent period, however failed to justify expenditure incurred for the subsequent period, therefore rejected arguments of the assessee and made additions of Rs.7,00,00,000/- to the total income.
Thereafter, the Assessing Officer has initiated penalty proceedings u/s.271AAB(1) of the Act and after considering relevant submissions of the assessee levied penalty @ 30% of undisclosed income under clause (c) of section 271AAB(1) of the Income Tax Act, 1961. The relevant findings of the Assessing Officer are as under:-
“6. The question now to be decided is as to what percentage of undisclosed income the penalty is payable. The provisions of section 271AAB are as below:
'271AAB. Penalty where search has been initiated.—(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date—
(A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein;
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date—
(A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income;
(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).
6.1 In the present case, the assessee though admitted undisclosed income during the course of search but however the same was not admitted in the return of income filed as the undisclosed income admitted was neutralized by booking expenditure which was not substantiated. Therefore, the assessee is to be covered by clause (c) mentioned above which requires levy of penalty at the rate of thirty percent but not exceeding ninety percent of the undisclosed income.
6.2 Considering the facts and circumstances of the case, penalty at the 30% of the undisclosed income of Rs7,00,00,000/- is levied which comes Rs.2,10,00,000/-.” 5. Being aggrieved by the penalty order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee contended that undisclosed income offered during the course of search has been considered in the return of income filed for the relevant assessment year and also substantiated such undisclosed income and thus, if at all penalty can be levied, penalty @ 10% u/s.271AAB(1) of the Income Tax Act, 1961, can be levied.
The learned CIT(A), after considering relevant submissions of the assessee and also taken note of provisions of section 271AAB of the Income Tax Act, 1961 restricted penalty levied by the Assessing Officer to 10% of undisclosed income by applying clause (c) of section 271AAB(1) of the Act. The relevant findings of the learned CIT(A) are as under:-
“7. I have considered the submission of the appellant and also gone through the provisions of Section 271AAB and noted that this section specifies three different situations under which the penalty can be imposed on the assessee under different clauses (a), (b) and (c) the penalty has to be imposed on different rate.
Clause (a) deals with the rate often per cent of the undisclosed income of the specified previous year, if such assessee— (I) in the course of the search, in a statement under sub-section (4) of section 132. admits the undisclosed income and specifies the manner in which such income has been derived; (H) substantiates the manner in which the undisclosed income was derived; (iii) on or before the specified date— (A pays the ax, together with interest, if any, in respect of the undisclosed income and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; ‘2. Clause (b) deals with the rate of twenty percent of the undisclosed income of the specified previous year, if such assessee— in the course of the search, in a statement under sub-section .4) of section 132 does not admit the undisclosed income; and (ii) on or before the specified date— (A) declares such income in the return of specified previous year; and (B) pays tie tax, together with interest if any, in respect of the undisclosed income. 7.3 clause (c) makes it clear that, if it is not covered by the provisions of clauses (a) and (b) the rate of penalty shall not be less than thirty percent but which shall not exceed ninety percent of the undisclosed income. 7.4 From the above provisions, it may be seen that the assessee has fulfilled the following ingredients for levy of minimum penalty @ 10% 1. - Search action u/s 132 of the l.T.Act, 1961 should he initiated u/s 132 on or after 01.06.2012.
The assessee has made disclosure of undisclosed income during the course of search action, has paid the tax together with interest and has filed the return of income.
3. The assessee substantiates the manner in which he has earned the undisclosed income. 7.5 In the instant case, admittedly a search and seizure operation is carried out in which the assesses have voluntarily disclosed an amount of Rs. 7,00,00000/- as per the statement given u/s 132(4) of the l.T.Act 1961 and the Return of Income was filed accordingly. 7.6. The appellant had also specified the manner in which such Income have been derived i.e., towards the additional cost of purchase of the movie “Thalaiva. The appellant had filed the Return declaring a net loss and hence the question of payment of tax does not arise. 8. As a result, I find that explanation of the assesee is satisfactory and I am of the considered opinion that penalty is leviable @ 10% of the undisclosed income in view of the provisions of Section 271AAB(1)(a) of the Act . Accordingly, the AO. is directed to levy minimum penalty @ 10% of the undisclosed income for the specified previous year. This ground is partly allowed.”
The learned DR submitted that the learned CIT(A) has erred in directing the Assessing Officer to levy penalty @ 10% of undisclosed income as per provisions of section 271AAB(1) the Act, without appreciating fact that the assessee’s case is squarely covered by clause (c) of section 271AAB(1) of the Act.
The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the (a) of section 271AAB(1) of the Act, and thus, the learned CIT(A) has rightly restricted penalty to the extent of 10% of undisclosed income and their order should be upheld.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to applicability of provisions of section 271AAB of the Act, because assessment year in question is involved specified previous year and as such as per provisions of section 271AAB of the Act, in case where in the course of search, in statement under sub-section (4) of section 132 , the assessee admits undisclosed income and specifies manner in which such sum has been derived and further, substantiates manner in which undisclosed income was derived and on or before specified date pays tax together with interest, and furnished return of income for specified previous year declaring such undisclosed income therein, then penalty @ 10% of undisclosed income is leviable. In this case, the assessee has declared undisclosed income in the statement recorded u/s.132(4) of the Income Tax Act, 1961
and further, substantiated manner in which such undisclosed income was derived. Further, the assessee had also furnished return of income for the specified previous year declaring such undisclosed income therein. However, no tax has been paid, because even after inclusion of undisclosed income, profit declared for the year under consideration was negative. From the above, it is very clear that the assessee’s case is covered under clause (a) of section 271AAB of the Act. The learned CIT(A), after considering relevant facts has rightly directed the Assessing Officer to levy penalty under clause (a) of section 271AAB of the Act @ 10% of undisclosed income. Hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue.