TMI Blog2008 (10) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... search and seizure operation under section 132 was conducted at the manufacturing unit of the assessee company as well as the residence of the director on 18-11-98. After the search, notice under section 158BC was issued to the assessee on 22-11-99. The return of income was filed on 17-1-2000 declaring undisclosed income of ₹ 2,40,000. The block assessment was completed on an undisclosed income of ₹ 22,86,595 vide order of the Assessing Officer under section 158I3C dated 28-11-2000. The Assessing Officer had also initiated the penalty proceedings under section 158BFA(2). 5. The Assessing Officer had proposed the addition on account of: (i) gross profit earned on sale of goods for which stock was found short. This was estimated by him at ₹ 97,315 by estimating the shortage of stock at ₹ 6,48,766 and applying a net profit of 15 per cent thereon. (ii) The second addition was in respect of Document Nos. A-15, A-22, A-37 found in the course of the search at the factory premises. Document No. A-15 reflected unaccounted sales of yarn and thread. It reflected that such unaccounted sales amounted to 80,688 boxes. The Assessing Officer carried out inquiries t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference between declared undisclosed income and assessed undisclosed income was worked out at ₹ 13,16,766. 9. In response to show cause notice before levy of penalty under section 158BFA(2), the assessee furnished the following reply: ...1. That in this case, an action under section 132 was conducted on 18-11-1998. Proceedings for Block Assessment from 1-4-1989 to 18-11-1998 was stated vide notice under section 158BC issued on 22-11-1999. Return was filed on 17-1-2000 declaring undisclosed income at ₹ 2,40,000 with admitted tax liability of ₹ 1,46,880. Assessment was completed on a total income at ₹ 22,86,595 vide order dated 28-11-2000. 2. That in first order the following addition has been made by Assessing Officer :- 1. Stock 2,68,050 2. On unaccounted sales 97,315 3. On unaccounted sales @ 15% 17,39,280 4. On unexplained working capital 4,50,000 3. That in 1st appeal addition ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n referred to the decision of the Hon ble Supreme Court in K.C. Builders v. Asstt. CIT [2004] 265 ITR 562 (SC) and Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 (SC) for emphasizing the proposition that the imposition of penalty is not automatic and is not obligatory. It is discretionary in nature. Further an element of mens rea is always inbuilt. The learned CIT(A) also mentioned that like in Explanation 1A of section 271(1)(c), the Assessing Officer is required to arrive at a finding that the explanation offered by the assessee was false. 14. Notwithstanding the learned CIT(A) deleted the penalty of ₹ 5,51,451 being the addition proposed by the learned CIT(A) in quantum order and confirmed the penalty in respect of sum of ₹ 97,315 out of ₹ 6,48,766. The relief was given on the ground that the learned CIT(A) has not directed to initiate or levy penalty proceedings on this amount. Since enhancement was made in the appellate order by the learned CIT(A), this amount could not be considered as concealed income for the purpose of levying penalty by Assessing Officer under section 158BFA (2). In this regard, we refer to the relevant para of the learned CIT(A) as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the penalty on this amount. 17. In respect of other items, the learned A.R. submitted that the additions are made by estimate only. There is no specific item determined from the seized documents which could be said to have not been considered by the assessee while filing of return of income under section 158BC. The explanation of the assessee was not found false and he had produced all the relevant papers before the Assessing Officer. On addition made by estimate two views are always possible. The view that there could not be any mala fide in estimating income at lower figure should find favour with the Assessing Officer. Further, the reduction in quantum added by estimate, would only be a change of opinion, on which no penalty could be levied. The assessee thought to apply a rate of ₹ 13 per box whereas learned CIT(A) and the Hon ble Tribunal thought it proper to apply rate of ₹ 40 per box. They also did not have any basis for adopting this figure. Therefore, it could not be said that the assessee is guilty of not declaring correct income in the block return. Similarly, shortage of stock which was treated as sales could not result into income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of block assessment. 19. We have considered the rival submissions and perused the materials on record. The first legal issue that arises for consideration is whether the Assessing Officer can levy penalty in respect of item of enhancement made by the learned CIT(A). There is apparently no distinction for the purposes of levy of penalty under section 158BFA(2) as to whether new item of concealment is discovered by the CIT(A) or enhancement is proposed by him in the item already discovered by the Assessing Officer In this regard, we refer to section 158BFA(2) as under:- (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 person if- (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the assessee has not been able to substantiate explanation furnished by him, fails to prove that such explanation is bona fide and that all facts relating to the computation of total income have been disclosed by him, then addition so made would be deemed to be concealed income. 22. A comparison of these two sections, i.e., section 158BFA(2) and 271(1)(c) of the Act clearly indicates that they are not pari materia in all respects. Following are some of the differences as apparent from the bare reading of these two sections:- (1) At the time of initiating penalty proceedings under section. 271(1)(c) of the Act, the Assessing Officer is required to arrive at a satisfaction during the course of assessment proceedings or any other proceeding during the course of which he intends to initiate penalty proceedings. There is no such requirement of satisfaction in section 158BFA(2) of the Act. (2) Section 271(1)(c) of the Act refers to levy of penalty on income which is concealed or in respect of which inaccurate particulars have been furnished when compared with regular return of income. Thus, there is a comparison of income declared in return filed under section 139 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -B. Normally, it is block assessment proceedings which are available to the Assessing Officer in Chapter XIV-B. When appeal is filed before the ld. CIT(A), block assessment proceedings are shifted before him. Appellate proceedings before the ld. CIT(A) are an extension of block assessment proceedings before the Assessing Officer. Had it not been so, the ld. CIT(A) would not have been vested with power for enhancement of income. The ld. CIT(A) has same powers as the Assessing Officer has while deciding the appeal in addition to disposing of all the grounds before him. He can consider any other item of income not considered by Assessing Officer or consider to enhance addition on the item of income discovered by the Assessing Officer. Therefore, appellate proceedings before the ld. CIT(A) can be safely held to be proceedings under Chapter XIV-B. Though appeal is filed under section 246A of the Act, but it does not take away the proceedings before him as the one initiated and continued under Chapter XIV-B. It is for this reason that the ld. CIT(A) has been empowered to direct levy of penalty under section 158BFA(2) of the Act. If we do not consider appellate proceedings in respect of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings are before the ld. CIT(A), it is only he who holds the sesin over the case and hence it is only he who can direct to levy penalty. But his power to direct levy of penalty extends to all the additions including enhancement. The Assessing Officer, on the other hand, holds sesin over the assessment proceedings only and, therefore, he has only to direct levy of penalty in respect of additions proposed by him. Thus, enhancement proposed by the ld. CIT(A) during the appellate proceedings cannot be said to be arising during the assessment proceedings before the Assessing Officer. As a consequence, it is only the ld. CIT(A) who can direct to levy penalty in respect of enhancement proposed by him during the course of proceedings before him under Chapter XIV-B. 25. Similar issues have come up before the Hon ble Allahabad High Court in CIT v. Dwarka Prasad Subhash Chandra [1974] 94 ITR 154 wherein in the context of section 271(1)(c) of the Act, it was held that where AAC is satisfied in the course of proceedings before him that penalty proceedings should be taken, then IAC or ITO cannot have jurisdiction to impose penalty. Similar view was taken by the Hon ble Allahabad High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reasonable or bona fide. The Tribunal had finally confirmed valuation of the boxes at ₹ 40 per box and there is no material on record to hold that it is purely an estimate, as there is nothing on record to contradict such estimate. This is evident from the fact that ground relating to the addition was not pressed before the Tribunal. Therefore, explanation, if there was any, of the assessee in respect of addition of ₹ 8.78 lakhs being at the rate of 13 per cent of ₹ 67,53,842 being turnover worked out by the ld. CIT(A) and confirmed by the Tribunal, could not be said to be satisfactory or reasonable or bona fide. Similarly, when the Assessing Officer has estimated gross profit at ₹ 97,315 on shortage of stock found and to which the ld. CIT(A) had enhanced the income by ₹ 5,51,451, we do not find any material contrary to hold that it was simply an estimate and not an income earned by the assessee. Even against an estimate made by the Assessing Officer, there has to be some material to show that, over the estimate made by the assessee, the estimate made by Assessing Officer has prevailed. Therefore, there is no satisfactory explanation of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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