I-T - Mere statement that sum surrendered during Search is undisclosed income but not disclosing source of such income, is not to be construed as satisfaction of conditions u/s 271AAA: HC
By TIOL News Service
NEW DELHI, MARCH 13, 2018: THE issue is - Whether mere statement that the sum surrendered during the Search was undisclosed income but not disclosing the source of such income, is to be construed as the satisfaction of the conditions u/s 271AAA. NO is the verdict.
Facts of the case:
The Assessee, an individual, had filed her e-return for the relevant AY declaring an income. The Bhushan Steel Group of companies were subjected to search u/s 132 wherein, the Assessee was also covered. The AO had issued notice u/s 143(2) and the same was served on the Assessee. Again within a span of not even a month, notice u/s 143(2) was issued. In the course of the assessment proceeding, the AO noted that the Assessee had reported undisclosed income earned during the FY 2009-10 during the course of search and after the search proceedings. The AO also found that the provisions of sec. 271AAA was applicable towards the undisclosed income found during the search procedure and as declared by the Assessee in her return for the relevant AY. Accordingly, the AO initiated the penalty proceeding u/s 271AAA stating that the Assessee failed to specify the manner in which the said undisclosed income was earned and also failed to substantiate with the same. On Assessee's appeal, the CIT(A) deleted the penalty imposed by the AO. On Revenue's appeal, the Tribunal, relying upon the order in the case of Neeraj Singal, affirmed the reasoning of the CIT(A) and granted relief to the Assessee.
the High Court held that,
++ the provision of sec. 271AAA was brought into force w.e.f. 01.04.2007. Its scope and effect was explained by CBDT Circular No.3 dated 12.03.2008. Sec. 271AAA was amended by the Finance Act, 2012 w.e.f. 01.04.2012 afterwhich, it became applicable in all cases where search was initiated u/s 132 on or after 01.06.2007 but before 01.07.2012. Sec. 271AAA and its amendments are part of series of amendments with respect to the effect of presumption in the case of search cases u/s 132(4A). These were introduced simultaneously with the omission of Explanation 5 to Section 271(1)(c) on the one hand and insertion of Explanation 5A as well as Sec. 292C. The provision applies to income of the specified period, i.e. period for which return had not yet become due and the broken periods starting from the beginning of the financial years till the date of the search. It provides for 10% penalty of such income through a statutory inference or presumption that such amount or income was not intended to be disclosed as they were not reflected in the books, soon at the time of the search;
++ one of the conditions that results in the inapplicability of Sec. 271AA is payment of tax. Since the assessability and quantification of the amount of undisclosed income can be legitimately computed only at the stage of assessment, it was held by the Tribunal concurring with the FAA, that the outer time limit for payment of tax is not prior to the conclusion of assessment proceedings. Where there was a short payment by way of self-assessment tax but made good in response to the notice of demand on completion of the assessment, it was held that there was no scope for penalty u/s 271AAA as was held in the case of Mahendra C. Shah while interpreting Explanation 5 to Sec. 271(1)(c);
++ in the present case, during the course of the statement made by the Assessee, during the course of the search on 4 March, 2010, that she had lent Rs. 16 crores in aggregate to three individuals during FY 2009-2010. This was in response to a query by the Revenue officials during the course of search. To the next question, the Assessee replied that the said amount of "Rs. 16 crores is my unaccounted income for the FY 2009-2010 relevant for AY 2010-2011". However, the requirement of the Assessee having to "(ii) substantiates the manner in which the undisclosed income was derived" was satisfied. Although a general statement that the undisclosed income was the source of Rs. 16 crores was disclosed, no "substantiation" of the "manner" of deriving such undisclosed income was revealed. Further, the Assessee, while declaring the "undisclosed income" also stated, that "the surrender is being made subject to no penal action of Sec. 271(1)(c)";
++ the Assessee merely stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, source of the money). Unless such facts are mentioned with some specificity, it cannot be said that the Assessee has fulfilled the requirement that she, in her statement (u/s 132(4)) "substantiates the manner in which the undisclosed income was derived". Such being the case, this Court is of opinion that the lower appellate authorities misdirected themselves in holding that the conditions in Sec. 271AAA(2) were satisfied by the Assessee.
(See 2018-TIOL-438-HC-DEL-IT)
