Opinion Of Eminent Legal Luminaries On Controversial Issues

How To Prove In Search And Seizure Cases The Manner In Which Such Income Is Derived?

QUERY: In search cases, penalty is leviable at 10% of the undisclosed income u/s. 271AAB of the Act in certain cases, if the conditions mentioned therein are met. One of such conditions is that in the course of the search in which such income is disclosed, the assessee specifies the manner in which such income is derived and also substantiates the manner in which such income is derived. In case of cash transactions, sometimes there is no evidence to substantiate the manner of earning. Also in some cases, it may be difficult to so prove. For example, case of bogus expenses, etc. How such condition is to be fulfilled?
ANSWER: Exception 2 to Explanation 5 to section 271(1) also provides similar condition, while interpreting the said Explanation the Gujarat High Court in CIT v. Mahendra C. Shah [299 ITR 305] has held as under:

"In so far as the alleged failure on the part of the assessee to specify in the statement under section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorised officer it is incumbent upon the authorised officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the authorised officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek, in the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by the Allahabad High Court in the case of CIT v. Radha Kishan Goel 278 ITR 454. Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, to be specific and to the point regarding the conditions stipulated by exception No. 2 while making statement under section 132(4) of the Act. The view taken by the Tribunal as well as the Allahabad High Court to the effect that even if the statement does not specify the manner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception No. 2 in Explanation 5 is commendable.”

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