The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that voluntary tax disclosure to avoid litigation is not proof of undisclosed income for imposing penalty.
The bench of Aby T. Varkey (Judicial Member) and Manoj Kumar Aggarwal (Accountant Member) has observed that a mere offer or disclosure by an assessee to pay tax on some additional amount with a view to avoid litigation cannot amount to discovery of undisclosed income for the purposes of levy of penalty under section 271AAB of the Income Tax Act.
The appellant/assessee has challenged confirmation of penalty under section 271AAB for Rs.342 Lakhs for Assessment Year (AY) 2019-20.
The assessee contended that stated that levy of penalty is not automatic. Though the quantum additions were accepted by the assessee, the same would not constitute undisclosed income and the same does not justify imposition of penalty. The assessee being resident corporate assessee was subjected to search based on which an assessment was framed.
During penalty proceedings, the assessee stated that the addition was accepted only to avoid protracted litigation and the addition do not fall within the definition of “Undisclosed Income”. The penalty u/s 271AAB was discretionary and would depend on the merits of each case. Finding or unearthing of undisclosed income in the course or as a result of search conducted u/s 132 of the Act and consequent assessment of undisclosed income is a condition precedent for levy of penalty u/s 271AAB of the Act. Every offer of the assessee to pay tax on his income in the course of recording of statement u/s 132 does not amount to finding of ‘undisclosed income’.
The assessee submitted that the income so surrendered has to qualify as undisclosed income as defined above which means that it should be represented either by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search which either have not been recorded before the date of search in the books of account or not disclosed to the Principal Chief Commissioner of Income Tax before the date of search.
The assessee contended that during search, some loose sheets were recovered and seized. The same merely contain information of ‘market adjustments’ made by the assessee with their stockists and the same is not in the nature of income. However, the assessee agreed for the addition and paid tax due thereon in order to buy peace with the department. Nevertheless, the addition does not fall within the definition of undisclosed income and the provisions of Section 271AAB are not attracted.
The tribunal held that during search, various incriminating items were found and the same were seized. Considering the same, the assessee surrendered certain income for the group. The same is not the case here since the amount as admitted by the assessee is not so represented by any unrecorded money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other document or transaction found in the course of search.
Case Details
Case Title: M/s. Future Gaming and Hotel Services Private Limited Versus ACIT
Case No.: IT A No.950/Chny/2024
Date: 03-02-2025
Counsel For Appellant: S. Sridhar
Counsel For Respondent: R. Clement Ramesh Kumar
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