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Jrd Stock Brokers (P) Ltd Versus Commissioner Of Income Tax

2015 (3) TMI 409 - DELHI HIGH COURT

Penalty under Section 158BFA(2) - income which was not undisclosed income but was determined on the basis of estimation on the application of Weight Formula on gross credits in various bank statements considered as turnover - Held that:- In the present instance, there is no doubt at all that the AO did determine the undisclosed income; that it was based upon estimation or an inference is a matter of detail. The plain text of the enactment admits no room for doubt that all manners of determinatio .....

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ver, it did not exclusively stem from the share business and in fact the assessee admitted, in the course of search proceedings under Section 132(4) of the Act, that the said amount also included sums forming part of the turnover on account of providing accommodation entries. Now, that radically changed the complexion of the nature of declaration made and certainly formed the basis for materials discovered during the course of proceedings. Furthermore, having regard to this admission, the AO, mo .....

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e of block assessment order was based upon a material discovered, i.e. in the form of statement made by the assessee under Section 132(4) of the Act; that radically changed the character of the income originally declared. Consequently, the estimation directed by the ITAT was accepted by the assessee.

In view of the above circumstances, this Court is of the opinion that the question of law urged has to be answered against the assessee - Decided in favour of the Revenue. - ITA 134/2014, .....

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e circumstances of the case, the penalty under Section 158BFA(2) of the Income Tax Act, 1961 could be levied in respect of income which was not undisclosed income but was determined on the basis of estimation on the application of Weight Formula on gross credits in various bank statements considered as turnover? 2. The brief facts are that a search operation was carried on 24.11.2000 in the office of the appellant assessee and the residence of its Directors. The books of accounts, documents and .....

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oney on the basis of unexplained cash deposits and negative balances; the Commissioner of Income Tax (Appeals) [hereafter referred to as CIT(A)] directed the cancellation of the sums added on account of negative balances. However, the CIT(A) rejected the assessee s contentions with respect to addition of ₹ 1,57,15,409/-. The assessee had, in the original returns, declared the amounts to be derived on account of share trading transactions. The assessee s contentions were rejected because th .....

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of receipt of commission of upto 1% even on the share transactions. In these circumstances, the estimated income added back by the AO on the basis of his assessment of the true income (on the business activity of providing accommodation entries which the assessee was engaged in) was to the extent of 1.5% of the total turnover indicated. 3. The ITAT, in the appeal preferred by the assessee, upheld the substantive decisions of the AO and the CIT(A) [in IT(SS)A No.54/Del/2004 dated 30.11.2004]. Ho .....

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ommission was settled outside the books of accounts and received in cash. After considering facts and circumstances of the case, the learned CIT(A) observed that the AO in this case after giving due consideration to assessee s submissions and information available as per seized record and gathered during the course of search, was justified in applying rate of 1.5% to compute commission earned by the assessee in the block period. Accordingly, addition of ₹ 1,57,15,409/- was upheld. XXXXXX X .....

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een referred to by the lower authorities, does reflect that the assessee had charged a rate as high as 1%. As against this, the revenue authorities have applied @ 1.5% to the entire turnover irrespective of the nature of entries whether long term, short term gain etc. It is also note worthy that the gross rate of commission charged by the assessee can also not be said to be profit exigible to tax. The credit for the expenses incurred in running the business is also required to be considered whil .....

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nover. In our view it would be in the fitness of the things that the income earned by the assessee by way of commission/brokerage on the turnover including accommodation entries provided to its clients is computed @ .6% on the total turnover of ₹ 1,04,76,94,004/- on which there is no dispute. We accordingly direct the AO to compute income on count of commission/brokerage. 4. The AO had, in the meanwhile initiated penalty proceedings under Section 158BFA(2) of the Act which culminated in th .....

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ssee urges that the ITAT fell into error. It was submitted that the trigger for a penal action under Section 158BFA(2) is if in the course of a search, some material is found. Placing emphasis on Section 158BB, especially, the phrase, undisclosed income found , learned counsel submitted that the pre-condition for imposition of penalty under Section 158BFA(2) is that the undisclosed income determined by the AO is necessarily linked with the undisclosed income found - which in turn is based on som .....

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oluntary act of the assessee such as surrender. To say so, learned counsel relied upon two judgments of the Rajasthan High Court, i.e. CIT v. Satyendra Kumar Dosi 2009 (222) CTR 258 (Raj) and CIT v. Dr. Giriraj Agarwal Giri 2013 (33) Taxman 536 (Jaipur). Learned counsel also relied upon the judgment of a Division Bench of this Court in CIT v. Harkaran Das Ved Pal 2009 (177) Taxman 398 (Del). In Satyendra Kumar Dosi (supra), the Rajasthan High Court held that Section 158BFA(2) textually empowers .....

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ferred to in the said provisions if he proves that there was reasonable cause for the said failure. But then, the said provision in no manner leads to the presumption that in respect of the cases other than covered by Section 273B for any failure or violation imposition of the penalty is automatic. Each provision of penalty has to be construed independently keeping in view the language employed therein. XXXXXX XXXXXX XXXXXX 13. Moreover, in the instant case, after due examination of the facts an .....

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closed income determined in their hands. The learned Tribunal has rightly held that the addition is result of estimation of the opening capital involved prior to the block period and in the block assessments while computing the undisclosed income for the block period, capital possessed by the assessees prior to the block period as revealed from the ledger and the material seized during the search could not be treated as undisclosed income of the first assessment year in the block period. Thus, i .....

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e incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. In these circumstances, we find that the judgment of the hon'ble apex court, referred to by the learned counsel for the appellant, is not applicable, in the facts and circumstances of the present case. 7. Harkaran (supra) was a case that concerned itself with whether on facts the assessee had, during the course of the proceedings after the survey under Section 132 of .....

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158BFA. (1) XXXXXX XXXXXX (2) The Assessing Officer or the Commissioner (Appeals) 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 Assessing Officer under clause (c) of section 158BC : Provided that no order imposing penalty shall be made in respect of a p .....

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iso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such 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. 9. The plain terms of the provision - which Harkaran (supra) emphasised occur in a separate part of the Income Tax Act. Chapter XIV-B entitled Special procedure for assessment of search cases nowh .....

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BC . In the present instance, there is no doubt at all that the AO did determine the undisclosed income; that it was based upon estimation or an inference is a matter of detail. The plain text of the enactment admits no room for doubt that all manners of determination of income, per se might call for action at the discretion of the AO. As to whether the AO has properly exercised discretion in a particular matter or otherwise can certainly be subject to further scrutiny. The plain text of enactme .....

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