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2009 (8) TMI 120

..... alty levied under s. 158BFA(2) of the Act. The-appeal relates to the block period 1st April, 1995 to 14th June, 2001. The CIT(A)-I, Kochi vide his order dt. 19th June, 2006 reduced the penalty from Rs. 81,33,192 to Rs. 13,99,216. 2. We have heard the learned chartered accountant for the assessee and the learned Departmental Representative at length. The assessee is a private limited company engaged in the real estate business of construction and sale of residential and business complexes. A search under s. 132 of the IT Act was conducted in the business premises of the assessee and its sister concerns and the residential premises of managing director on 14th June, 2001. 3. A return for the block period 1st April, 1995 to 14th June, 2001 was filed by the assessee declaring a total undisclosed income of Rs. 79,10,187 and the tax and surcharge payable thereon was computed at Rs. 48,41,034. However, while initiating the penalty proceedings, the AO imposed minimum penalty of Rs. 81,33,192. The maximum penalty leviable in this case, according to the AO is Rs. 2,43,99,576. However, the AO levied only minimum penalty. According to the AO, the tax and surcharge payable under s. 140A as per .....

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..... rst appellate authority to decide the issue. This cannot be a ground for reducing the penalty by the CIT(A), as the penalty in this case is mandatory provision and the AO has brought out a case that there is excess undisclosed income assessed in the block assessment than the undisclosed income shown in the Form 2B return. This difference has to be mandatorily taken into consideration for the levy of penalty as the second proviso of s. 2 sub-s. (2) of main s. 158BFA clearly directed the AO to initiate the penalty proceedings. The decision of the Tribunal, Mumbai Bench in the case of Dy. CIT vs. Spark Electro Communication Systems (2006) 100 TTJ (Mumbai) 847 : (2006) 281 ITR 13 (Mumbai)(AT) is directly on the issue. Further, the Hon ble jurisdictional High Court while deciding the constitutional validity in the case of P.P. Ummerkutty vs. Asstt. CIT (2005) 199 CTR (Ker) 1 : (2005) 279 ITR 213 (Ker) decided the issue and laid down the ratio that s. 158BFA is constitutionally valid. Respectfully following the decision of the Hon ble jurisdictional High Court and that of the Mumbai Bench of the Tribunal cited supra, we set aside the order of the CIT(A) and restore that of the AO. 6. In .....

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..... cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. In this case the company filed its return of income for the block period disclosing an undisclosed income of Rs. 79,10,187 and the AO computed the undisclosed income at Rs. 1,32,89,528 the difference being Rs. 53,79,341. The AO has noted that it is pertinent to mention that the assessee declared undisclosed income at Rs. 79,10,187 in the block return but had not paid the tax payable on the basis of such return and produced the evidence for payment of admitted tax along the return of income. According to the AO the assessee has not satisfied any of the conditions except filing the return disclosing the portion of undisclosed income stipulated in proviso in s. 158BFA(2). Hence, he was of the view that the assessee company did not deserve any immunity from the levy of penalty under s. 158BFA(2) of the Act. Therefore, he levied a minimum penalty of Rs. 81,33,192 on the total undisclosed income determined by the AO. Aggrieved by this order of the AO, assessee moved the matter in appeal before the CIT(A). The CIT(A) has observed t .....

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..... d as it stands and in case of doubt in a manner favourable to the taxpayer. If the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO (1961) 41 ITR 425 (SC), Braja Lal Banjk vs. State of Tripura (1990) 78 STC 283 (Gau), CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom), J.K. Synthetics Ltd. vs. CTO (1994) 119 CTR (SC) 222 and Birla Cement Works vs. State of Rajasthan (1994) 94 STC 422 (SC). Now applying the above principle, the provisions of s. 158BFA(1) provides that where the assessee did not file a return of income as required by notice under s. 158BC and has furnished the return after the expiry of the period specified in that notice or has not furnished the return of income, the assessee shall be liable to pay simple interest at the rate of two per cent of the tax on undisclosed income determined under .....

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..... ty, which proposition cannot be accepted in the light of the principle laid down by the Supreme Court and followed by every High Court while dealing with penalties and the provisos dealing with penalties. The legislature, in our view, has not prescribed the circumstances under which the penalty has to be levied. It has only said the circumstances under which no penalty is leviable. That does not mean that in every other circumstance the penalty is automatic and has to be levied. We should not forget that the words used in sub-s. (2) are that the AO may direct the imposition of penalty. It means that the penalty is not automatic and de hors the committal of the offence or the offence for which the legislature has prescribed the penalty. In our view, sub-s. (2) has miserably failed to provide for circumstances justifying the penalty. We are unable to sustain the penalty levied by the AO in the facts and circumstances of the case. 4.2 Further Mumbai Bench of Tribunal in the case of Dy. CIT vs. Koatex Infrastructure Ltd. (2006) 102 TTJ (Mumbai) 737 has held that penalty under s. 158BFA(2) is discretionary; assessee having explained that it was not humanly possible to compute the income .....

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..... e had admitted Rs. 79,10,187 as undisclosed income in Form No. 2B could not pay the tax thereon, due to recession in construction activities and financial crunch at the relevant point of time. It is seen that the assessee also offered the premises for sale to the Government of India through CIT so that tax would have been paid. Initially, CIT had shown interest to purchase of the premises for the Government as claimed by the assessee s counsel. However, this could not materialize, the CIT allowed to pay in installment of Rs. 5 lakhs per month and the same were paid before the appeal was heard by the CIT(A), Cochin. This fact has been appreciated by the CIT(A) and considering the financial condition of the company, CIT had granted instalment facility. Thus, I am of the view that due to circumstances beyond the control of the assessee, the assessee could not pay the tax on the admitted undisclosed income of Rs. 79,10,187. Further, the Tribunal had condoned the delay in the payment of admitted tax for the purpose of admitting the appeal. I also find reasonableness in the observation of the CIT(A) that the same ratio has to be applied for arriving at the undisclosed income for calculat .....

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..... as well as the proposed orders of the learned Members of the Tribunal. He also drew my attention to the relevant statutory provisions of s. 158BFA(2). 3. The facts in brief are that assessee s premises and its sister concerns and the residential premises of managing director were searched under s. 132 of the IT Act, 1961, by the Revenue authorities on 14th June, 2001 and a notice under s. 158BC was issued to the assessee. The assessee submitted its return, in which undisclosed income was shown at Rs. 79,10,187. Tax on such income was determined at Rs. 48,41,034, which tax was unpaid. Ultimately, AO assessed assessee s undisclosed income at Rs. 1,32,89,530. On appeal, learned CIT(A) allowed some relief to the assessee. Subsequently, AO initiated penalty proceedings and imposed penalty under s. 158BFA(2) on the entire assessed undisclosed income. On appeal, learned CIT(A) upheld the levy of penalty but directed the AO to deduct a sum of Rs. 79,10,187 from the amount taken for levy of penalty. In other words, the income, which was disclosed in the return of income filed in Form No. 2B, was not to be taken into account for the purposes of levy of penalty. 4. On further appeal, the lear .....

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..... viso shall not apply where undisclosed income determined by the AO is in excess of income shown in the return and in such cases penalty shall be imposed on that portion of undisclosed income determined, which is in excess of amount of undisclosed income shown in the return. In other words, no penalty under the second proviso is imposable on undisclosed income shown in the return. Payment of tax on above income is not provided. (3) If, neither first proviso nor second proviso is applicable, then, case is governed by provision of main sub-s. (2). The said provision would be applicable if no return is filed or return is filed but no undisclosed income is shown in the said return. The aforesaid conclusion and inferences are drawn from a plain reading of the section. 6. In the case in hand and evident from the question referred to me, the controversy is restricted to the deduction of the sum of Rs. 79,10,182 shown in the return as undisclosed income in Form No. 2B. The said sum should not be taken into account for purposes of levy of penalty under s. 158BFA(2). It is not anybody s case that no order of penalty can be made in this case. Therefore, question of considering whether that fou .....

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