The Income Tax Appellate Tribunal (ITAT) Delhi Bench delivered a significant verdict on March 28, 2023, in the case of A2Z Infra Engineering Limited versus Deputy Commissioner of Income Tax (Central Circle-2, Faridabad). This case, filed under ITA No. 944/DEL/2019 concerning the Assessment Year 2013-14, revolves around a penalty imposed by the Income Tax Department for undisclosed income during the said assessment year.
The case began with a search and seizure operation by the Income Tax Department in April 2012, which led to the discovery of unaccounted transactions. Subsequently, the Assessing Officer imposed a penalty under Section 271AAA of the Income Tax Act, 1961, asserting that the appellant failed to disclose income adequately. The appellant, A2Z Infra Engineering Limited, challenged this penalty, leading to the appeal in the tribunal.
The tribunal’s decision, penned by Shri Pradip Kumar Kedia and Shri Anubhav Sharma, was informed by several preceding legal arguments and rulings. Noteworthy among these were the contentions about the imposition of the penalty and the appellant’s right to offset this undisclosed income against business losses.
The tribunal found merit in the appellant’s arguments, referencing a Central Board of Direct Taxes (CBDT) circular that allowed such set-offs. The judges ruled that the penalty imposed was not legally sustainable, leading to its cancellation.
This ruling has significant implications for the treatment of undisclosed income and penalties under the Income Tax Act. It clarifies the conditions under which income disclosed during searches can be set off against business losses, thereby impacting future cases with similar circumstances.
The ITAT’s decision in favor of A2Z Infra Engineering Limited sets a precedent on the handling of undisclosed income and penalties. This case highlights the importance of proper legal advice and documentation when dealing with search and seizure operations by the tax authorities.
Appeal Against Penalty by A2Z Infra Engineering Limited in ITA 944/DEL/2019
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