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2015 (3) TMI 409 - DELHI HIGH COURT

2015 (3) TMI 409 - DELHI HIGH COURT - [2015] 375 ITR 600 (Del) - 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 en .....

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irety (originally) to have been derived from share business. However, 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 proc .....

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heless, the important fact is that the determination in the course 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 .....

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) A. No.236/Del/2006. The question of law urged is: Whether in the 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 .....

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the assessee. Other than this amount, the AO also added sums of money 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 .....

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5%. The CIT(A), however, found that there was material suggestive 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 A .....

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n the accommodation bills as per books of accounts. The balance commission 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. Ac .....

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to .5%. The rate as evident from the seized material which has been 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 incurr .....

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okerage of the assessee by applying rate of 1.5% of the total turnover. 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 proc .....

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ected the assessee s contentions. 5. Learned counsel for the assessee 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 .....

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found. In other words, it cannot be based on an estimation or a voluntary 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 Raj .....

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e persons or the assessee as the case may be, on their failure referred 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. Mor .....

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ted money-lending business prior to block period out of the undisclosed 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 .....

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based on estimation, cannot be said to be correct only, it can be 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 th .....

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reads as follows: [Levy of interest and penalty in certain cases. 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 : Provid .....

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turn : Provided further that the provisions of the preceding proviso 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 .....

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termined by the Assessing Officer under clause (c) of section 158BC . 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 ce .....

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