Case Note & Summary
Constitution of India (COI) – Code of Criminal Procedure (CrPC) – Income Tax Act, 1961 (Act 1961): – Section 271AAA – Penalty for undisclosed income during search operations Compliance with all three conditions under Section 271AAA(2) mandatory to avoid penalty – Para 14. Undisclosed income admitted during search, manner of derivation substantiated, and tax paid with interest – No penalty – Para 37-38. c. Undisclosed income discovered post-search during assessment – Penalty @10% imposed – Para 39-42.
Subjects: Income Tax Penalty – Search Operations – Undisclosed Income – Specified Previous Year – Assessment Order – Tax Compliance – Land Transactions – MOU Payments – Section 271AAA Interpretation.
Facts:
Nature of Litigation – Appeal against High Court judgment dismissing challenge to penalty under Section 271AAA imposed by Deputy Commissioner of Income Tax – Para 2.
Remedy Sought – Appellant sought relief from penalty imposed on entire returned income for AY 2011-2012 – Para 13.
Reason for Filing – Appellant challenged the penalty as being erroneous, claiming partial compliance with tax payment and denial of penalty waiver – Para 16-20.
Previous Decisions – CIT(A) allowed appeal for AY 2010-2011 but upheld penalty for AY 2011-2012; ITAT and High Court upheld penalty for AY 2011-2012 – Para 10-14.
Issues: a. Whether compliance with all conditions under Section 271AAA(2) is mandatory to avoid penalty – Para 13-14. b. Whether penalty can be reduced if tax is partially paid with delay – Para 15.
Submissions/Arguments: Appellant: a. Penalty not automatic under Section 271AAA(1); requires AO’s satisfaction – Para 16-19. b. Undisclosed income definition and specified previous year not met – Para 22-23.
Respondent: a. Non-compliance with Section 271AAA(2) conditions; penalty justified – Para 24-26. b. Delhi High Court judgment in Amul Gabrani case applied – Para 27.
Decision:
Penalty not mandatory; AO’s discretion not absolute – Para 30-31.
Compliance with Section 271AAA(2) conditions exempts penalty – Para 33.
Rs. 2,27,65,580/- exempt from penalty due to compliance – Para 37-38.
Rs. 2,49,90,000/- subjected to 10% penalty due to post-search discovery – Para 39-42.
Ratio: “Penalty under Section 271AAA(1) is discretionary and not automatic; compliance with Section 271AAA(2) conditions exempts penalty, but failure to disclose income during search invites penalty even if disclosed during assessment.” – Para 30-42.
Issue of Consideration: K. KRISHNAMURTHY VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX
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