ITAT Delhi Removes Tax Penalty Due to Lack of Chance to Explain Unreported Income U/S 271AAA

The penalty under section 271AAA of the Income Tax Act, 1961 was removed by the Income Tax Appellate Tribunal (ITAT) Delhi bench due to the lack of an opportunity to clarify the source of unrevealed income during the search proceedings.

The assessee, Vikram Dhirani, voluntarily submitted the income found during the search and included it in their income tax return (ITR), along with paying the applicable taxes.

However, the Assessing Officer imposed a penalty under Section 271AAA of the Income Tax Act without giving the assessee a proper opportunity to explain.

The assessee appealed the order before the Commissioner of Income Tax (Appeals) [CIT(A)], but the body dismissed the appeal. Subsequently, the assessee filed another appeal against the CIT(A)’s decision with the tribunal.

The assessee’s counsel, P. C. Yadav, argued that since the contested cash was voluntarily disclosed and taxes were paid, the assessing officer did not make any additions to the assessment order for the assessment year 2012-13.

Furthermore, it was argued that the Assessing Officer (AO) did not specifically inquire about the manner in which the undisclosed income, surrendered during the search, was derived, as per the provisions of section 271AAA.

The counsel for the revenue, Anuj Garg, contended that the assessee had not specified the manner in which the undisclosed income was derived in the statement recorded in accordance with Section 132(4) of the Income Tax Act, justifying the imposition of the penalty by the Assessing Officer.

The officer recording the reasons failed to inquire about the specific method by which the undisclosed income was obtained from the assessee.

Therefore, since the assessee was not provided with a specific query or question to explain how the undisclosed income was obtained, despite being aware of the relevant provisions of Section 271AAA(2), the penalty under that section was deemed invalid.

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Following a thorough examination of the presented facts and circumstances, the penalty under section 271AAA of the Income Tax Act was removed by a two-member bench consisting of Dr B. R. R. Kumar (Accountant Member) and C.M. Garg (Judicial Member). This decision was based on the absence of an opportunity for the assessee to clarify the source of undisclosed income during the search proceedings, as well as the assessee’s adherence to all the stipulations outlined in subsection (2) of Section 271AAA. Consequently, the bench accepted the appeal.