ITAT Delhi Removes Tax Penalty Due to Lack of Opportunity to Clarify Undisclosed Income U/S 271AAA

Introduction-ITAT Delhi Removes Penalty under section 271AAA 

In a recent development, the Income Tax Appellate Tribunal (ITAT) Delhi bench delivered a significant ruling by waiving the penalty under section 271AAA of the Income Tax Act, 1961. The decision was motivated by the lack of an opportunity given to the taxpayer to elucidate the origin of undisclosed income during the search proceedings.

Background of the Case

The individual involved, Mr. Vikram Dhirani, voluntarily disclosed the income uncovered during the search and included it in the Income Tax Return (ITR) for the Assessment Year 2012-13, duly paying the required taxes. However, the Assessing Officer imposed a penalty under Section 271AAA without providing the necessary opportunity for the taxpayer to clarify.

Upon appeal to the Commissioner of Income Tax (Appeals), the appeal was dismissed. Subsequently, Mr. Dhirani filed a second appeal with the ITAT Delhi against the CIT(A)’s decision.

Submission of the parties

Mr. P. C. Yadav, the counsel for Mr. Dhirani, argued that considering the voluntary disclosure and tax payment, the assessing officer should not have made any penalty additions in the assessment order.

Moreover, it was highlighted that the Assessing Officer 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 revenue’s counsel, Mr. Anuj Garg, contended that the taxpayer did not specify 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 taxpayer.

Judgement of ITAT Delhi

Since the taxpayer 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.

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

Case Title: Vikram Dhirani Vs. DCIT; Citation: ITA No. 5610/Del/2016; Date of Order: 22.09.2023

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To know more about the provisions U/S. 271AAA Click Here

To access the article on CBDT Circular No.17/2023 Click Here

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