TMI Blog2010 (5) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned Commissioner of Income-tax (Appeals)-I, Dehradun, dated July 30, 2004 for the block period form April 1, 1991 to May 3, 2001. 2. The grounds raised by the assessee read as under : "(1) The learned Commissioner of Income-tax (Appeals) has erred on the facts of the case and in law in upholding the action of the Assessing Officer in invoking the provisions of section 158BFA(2) of the Income-tax Act and consequently, in confirming the penalty of Rs. 12,36,060 in the present case, i.e., 2000 per cent. of the tax payable on undisclosed income. (2) On the facts and considering the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has failed to appreciate that: the return of income for the block period was submitted in due time as mentioned in notice under section 158BC(a) ; the learned Commissioner of Income-tax (Appeals) has upheld the Assessing Officer's decision wherein the Assessing Officer has increased the gross profit of the appellant on an estimated basis and rejected books of account, while no undisclosed income was found in search operation ; that mere acceptance of the amount of undisclosed income calculated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Harkaran Das Ved Pal [2009] 117 Taxman 398. It is submitted that in that case also, the issue involved was regarding penalty under section 158BFA(2) and it was held in that case that where the computation of undisclosed income is based on material other than what was found in the course of search, the same could not be treated as undisclosed income determined under clause (c) of section 158BC and hence no penalty under section 158BFA(2) can be imposed in such a case. It is submitted that in the present case also, there was no material found in the course of search suggesting any undisclosed income and suggesting any addition on the basis of higher gross profit rate and therefore, no penalty is imposable although the assessee has not carried the matter in appeal in quantum proceedings. It is submitted that it was intimated by the assessee to the Assessing Officer by a letter that the assessee is accepting the inflated gross profit as determined by the Department for buying peace of mind with a request for not imposing penalty. 5. As against this, the learned Departmental representative for the Revenue supported the orders of authorities below. Reliance was place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further observed by the hon'ble High Court of Delhi that the Tribunal has already returned a finding that there is no evidence found as a result of search. In that case also, the assessment was made in the block assessment by estimating net profit at one per cent and it was noted by the Tribunal that the same is mere guess work. In the present case also, addition has been made to the income of the assessee by estimating the gross profit at a higher rate without any reference to any seized material found in the course of search and hence as per this judgment of the hon'ble High Court of Delhi, such income cannot be treated as undisclosed income determined under clause (c) of section 158BC and hence no penalty under section 158BFA(2) can be imposed in such a case. The relevant paragraphs, i.e., paragraphs 24 to 30 of this judgment of the hon'ble High Court of Delhi are reproduced below (page 22 of 336 ITR) : "The expression 'undisclosed income determined' has to be understood in the context used in section 158BFA(2). It refers to the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC. Section 158BC prescribes the procedure for block asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As pointed out in Ravi Kant Jain [2001] 250 ITR 141, the assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. It is, therefore, clear that the undisclosed income, which is to be determined under Chapter XIV-B, has to be determined on the basis of evidence discovered during the search. It is obvious that where the computation of undisclosed income is based on material other than what was found in the course of the search, the same could not be treated as undisclosed income determined under clause (c) of section 158BC. Going back to section 158BFA(2), the Assessing Officer has been empowered to impose penalty on a person when the undisclosed income determined under clause (c) of section 158BC, is in excess of the undisclosed income returned by such person in pursuance of a notice under section 158BD/158BC. In other words, a pre-condition for the imposition of penalty under section 158BFA(2) is that there must be a determination of the undisclosed income by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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