By TIOL News Service

NEW DELHI, JUNE 01, 2018: THE ISSUE BEFORE THE BENCH IS - Whether benefits u/s 271AAA(2) can be availed by the assessee merely because it had admitted an additional income during search proceeding however, failed to substantiate the source of such income. AND THE ANSWER IS NO.

Facts of the case:

The assessee company, engaged in the business of rice milling and processing. A search and seizure operation was conducted at the business and residential premises of the assessee u/s 132(1) wherein, certain documents were seized. During the search proceeding, the assessee had surrendered an additional income of Rs.21 crores. Accordingly, the assessee had filed its return for the AY 2010-11 declaring its undisclosed income. It was noted that out of the declared undisclosed income, Rs.9.25 crores was on account of excess stock and income of Rs.11.75 crores was from other sources. The assessee submitted that it had already paid tax along with interest on the said surrendered income. The assessee had also expressed its inability to explain the seized documents. Subsequently, the AO declined to accept the assessee's contention that it had surrendered the said additional income during search proceeding to buy peace and to avoid any protracted litigation and thus, levied penalty u/s 271AAA. On appeal, the CIT(A) deleted the penalty.

Tribunal held that,

++ under Sec. 271AAA(2)(i), penalty @ 10% of the undisclosed income shall not be imposed if the assessee, "in the course of the search, in a statement u/s 132(4), admits the undisclosed income and specifies the manner in which such income has been derived" substantiates the manner in which the undisclosed income was derived and pays the tax together with interest if any on the undisclosed income. During the course of search, a specific question was put to Shri Anil Mittal, MD of the assessee company to explain certain seized documents and discrepancies in the stock who has answered the same;

++ the CIT(A) has deleted the penalty on the premise that if no specific question was put to assessee u/s 132(4), it cannot be concluded that the assessee has failed to reply or specify/ substantiate the manner of concealment. It is settled principle of law that assessee has to specify the manner in which income has been derived and substantiated the manner in which the undisclosed income was derived at the time of search in its statement recorded u/s 132(4) and not thereafter. However, answer to the said specific question categorically goes to prove that the assessee has shown his inability to reconcile the discrepancy in the stock found and failed to substantiate the manner in which income has been derived by the search team during the course of search, however has made the disclosure only in order to buy peace of mind and to avoid litigation. So, we are of the considered view that the assessee has failed to satisfy the conditions laid down u/s 271AAA(2) so as to get the general amnesty u/s 271AAA(2) because the assessee has neither specify the manner nor substantiate the manner in which the undisclosed income was derived;

++ the instant case is on better footing than Smt. Ritu Singhal's case because in reply to the specific query raised by the AO during search proceedings, assessee has expressed his inability to explain the discrepancy in the stock in order to substantiate the manner in which income in question has been derived rather categorically stated that he has made voluntary surrender of Rs.21 crores in order to buy peace of mind and avoid litigation. So, when the assessee has failed to specify the manner and substantiate the manner in which the undisclosed income was derived rather embark upon the mercy plea that he is making surrender to buy peace of mind and avoid litigation, he is not entitled for benefit of Sec. 271AAA(2). Case laws relied upon by the assessee is not applicable to the facts and circumstances of the case. Following the decision rendered by Delhi High Court in case cited as Smt. Ritu Singal, we are of the considered view that CIT (A) has erred in deleting the penalty of Rs.2,10,00,000/- u/s 271AAA, hence appeal filed by the Revenue is hereby allowed and penalty order passed by the AO is restored.

(See 2018-TIOL-782-ITAT-DEL)