TMI Blog2008 (1) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued and the assessment was completed under s. 143(3) r/w s. 158BC on 24th March, 2005, determining the undisclosed income at Rs. 22,86,950 as follows: Towards cash balance Rs. 18,22,000 Undisclosed investment in jewellery Rs. 3,00,000 Undisclosed income out of income Rs. 1,64,946 shown by the assessee ------------- Rs. 22,86,946 ------------- 4. The assessee had not challenged this assessment and the same has become final. The AO further issued notice on 24th March, 2005 calling for explanation from the assessee as to why penalty under s. 158BFA(2) shall not be levied. Further, a notice was issued on 28th July, 2005. The assessee replied to this notice and the assessee in its reply stated that the penalty is not leviable since there was no mens rea established by the AO and the assessee placed reliance on the decision of Tribunal, Bangalore 'A' Bench, in the case of Nemichand vs. Asstt. CIT' (2005) 93 TTJ (Bang) 564. The AO was not satisfied with the explanation and levied penalty under s. 158BFA(2) to the tune of Rs. 14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the grandmother's death. Also he submitted that affidavits have been filed from K. Anasuyamma, Sarajanamma and Sulochanamma stating that the jewellery belonged to late Rathnamma was handed over to Smt. Aparna Reddy on the demise of late Rathnamma, as per her wish. Also, the assessee had filed affidavit from her mother-in-law, Smt. Prameela Reddy, stating that at the time of her daughter's marriage, jewellery, both gold and silver, including precious stones were given to her as per the family tradition. The AO at the time of assessment gave credit towards receipt of gold jewellery from her grandmother to the tune of 1,166 gms. and also 200 gms. of gold received on the occasion of marriage and the balance of 752 gms. were valued @ Rs. 400 per gram and the sum of Rs. 3,00,000 was added as undisclosed income of the assessee. Learned Authorised Representative submitted that this addition is unwarranted since the entire jewellery does not belong to the assessee but belongs to assessee's wife only. He submitted that the assessee did not challenge the addition only with the sole intention to avoid litigation and for concluding the assessment at the earliest. He submitted that just be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and- (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, on the date of completion of assessment under cl. (c) of s. l58BC. (2) The AO or the CIT(A) in the course of any proceedings under this chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the AO under cl. (c) of s. 158BC: Provided that no order imposing penalty shall be made in respect of a person if- (i) such person has furnished a return under cl. (a) of s. l58BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (4) An IT authority on making an order under sub-s. (2) imposing a penalty, unless he is himself an AO, shall forthwith send a copy of such order to the AO." 10. In the present case, the assessee has filed return of income declaring undisclosed income of Rs. 42,402 on 26th Dec., 2003. The AO completed the assessment determining the undisclosed income at Rs. 22,86,950 and levied penalty under S. 158BFA(2) at Rs. 14,14,063 on the difference amount declared by the assessee and determined by the AO. The first addition of Rs. 18,22,000 made by the AO towards cash found was because the explanation given by the assessee was not satisfactory. In our opinion, the explanation given by the assessee is bona fide. The assessee has accepted the addition only with the sole intention to avoid litigation and only because of that the assessee has not gone in appeal against the quantum addition. Just because the assessee has agreed to the quantum addition, this does not entitle the Department to levy penalty. Penalty proceedings are not automatic and the assessment proceedings and penalty proceedings are two different proceedings. The Revenue authorities are required to examine the penalty pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely in defiance of law was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of provisions of the Act or which the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." 11. In the light of the above observations, we are of the view that even if the assessee had not strictly complied with the conditions imposed by the first proviso and even where the second proviso is attracted, still it would be within the powers of the IT authorities not to levy the penalty having regard to the bona fide conduct of the assessee, co-operation shown in the completion of the block assessment and general conduct of the assessee in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion between wife and husband or father and son, and if some member of the family was involved in possession of wealth, unless there was a categorical evidence to believe that this could be read in the hands of husband or as the case may be in the hands of head of the family, it could not be fastened on the husband or the head of the family. 15. Regarding the addition towards other income which are below taxable limit during the block period, the addition itself is unwarranted as laid down in the case of CIT vs. M.M. Thomas (2004) 187 CTR (Ker) 78 : (2004) 265 ITR 327 (Ker). "Held, that since the search under s. 132 of the IT Act, 1961, was conducted on 22nd Nov., 1995, that is after the retrospective amendment of sub-cl. (B) of cl. (c) of sub-s. (1) of s. 158BB, the income below the taxable limit of a previous year could not be included as undisclosed income of the block period." 16. In this case, the date of search ended on 22nd April, 2003. Hence the date of search is after the amendment of sub-cl. (B) of cl. (c) of sub-s. (1) of s. 158BB, the income of the assessee is to be treated as disclosed income. We also take support from the judgment of the Kerala High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am vs. ITO Anr. (1961) 41 JTR 425 (SC), Braja Lal Bank 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). (ii) Further, s. 158BFA(2) reads as follows: 'the AO may direct the assessee to pay penalty on the excess of income determined by the AO and that disclosed by the assessee.' Thus, a discretion is vested with the AO to levy penalty. In our opinion, when there is a discretion to the AO he should have used the discretion in favour of the assessee because just because the additions were confirmed by the learned CIT(A) or by the Tribunal or the assessee himself has accepted the additions does not create a situation for levy of penalty. The provisions of s. 158BFA(2) give a scope for exercising the discretion of the AO. This section which allows the AO to impose a penalty begins with the word 'may' and not 'shall'. In our opinion, the AO has a discretion to impose or not to impose the penalty. Any AO could easily harass the taxpayer by demanding nearly 240 per cent (60 per cent plus 180 per cent maximum penalty) of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. If a statute laid a mandatory duty but provided no mode of enforcing it, the presumption in ancient days was that the person in breach of the duty could be made liable for the offence of contempt of the statute. Thus rule construction is now obsolete and has no application to a modern statute. Clear language is now needed to create a crime. The principle applied in construing a penal Act is that if, in construing the relevant provisions, there appears any reasonable doubt or ambiguity, it will be resolved in favour of the person who would be liable to the penalty. If there is a reasonable interpretation, which will avoid the penalty in any particular case, that construction must be adopted. If there are two constructions, the more lenient one must be adopted. In every case, the question is simply what is the meaning of the words, which the statute has used to describe the prohibited act or transaction. If these words have a natural meaning, that is their meaning, and such meaning is not to be extended by any reasoning based on the substance of the transaction. If the language o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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