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2016 (9) TMI 548 - ITAT AHMEDABAD

2016 (9) TMI 548 - ITAT AHMEDABAD - TMI - Penalty U/s 158BFA(2) - CIT(A) held that the penalty is leviable on total undisclosed income determined by the A.O.in excess of that declared by the A.O.in its block assessment return - reasonable cause for making the payment of taxes on the returned income - Held that:- The assessee was caused to pay tax of ₹ 12 lacs on the disclosed income of ₹ 20,00,000/- the assessee could pay ₹ 5 lacs and there was a shortage of ₹ 7 lacs .....

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income. Ld. first appellate authority has accepted the reasonable cause and deleted the penalty. Revenue is aggrieved on this part of ld. CIT(A)s order. On due consideration of the record, we are of the view that once the assessee has loans and advances whose recovery was not in doubt and assessee applies to the Department either for recovery or uplifting of restrained orders and the Department did not take any action then it would be considered that assessee was prohibited by reasonable cause .....

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pply that material to the assessee and in response to notice u/s 158BC assessee has to compute true and disclose income out of the seized material for the purpose of block assessment. Now the question is, assessee has to compute ₹ 20,00,000/- as true undisclosed income out of the seized material. Ld. Assessing Officer has determined an income of ₹ 6,56,39,749/- which has been scaled down to ₹ 28,03,600/- by the higher appellate authority. A perusal of these details would indica .....

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8,03,600/- vis--vis the undisclosed income determined by the Assessing Officer at ₹ 6,56,39,749/- then it would indicate that construction of seized material at the end of assessee is more closure to the true of computation of undisclosed income rather wild guess work made by Assessing Officer assessing the same at ₹ 6.56 crores. In this situation we are satisfied that assessee is able to demonstrate as to why he has computed his true undisclosed income at ₹ 20,00,000/-. Thus .....

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GNR/107/2009-10 passed against order u/s 158BFA(2) of the Income-tax Act, 1961 (in short the Act) for block year - FY 1996- 97 to 2001-02 & 1/4/2002 to 25/7/2002 framed on 30/10/2009 by DCIT, Circle-3, Ahmedabad. 2. Briefly stated facts of the case are that assessee is an individual engaged in the business of builder, runs petrol pumps and also money lending. Search and seizure operation u/s 132(1) of the Act was conducted on 25.07.2002 and notice u/s 158BC of the Act was issued on 10/02/200 .....

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0/- on which ld. Assessing Officer levied penalty u/s 158BFA(2) of the Act at ₹ 17,15,803/- by applying the proviso (1) of sec.158BFA (2) of the Act. The basic reason observed by ld. Assessing Officer while framing penalty order u/s 158BFA(2) of the Act on 30.10.2009 was that assessee has offered income of ₹ 20,00,000/- in his return and out of total tax liability of ₹ 12 lacs, paid only ₹ 5 lacs and was, therefore, out of the immunity granted in the proviso (1) of sub-se .....

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y the Department on the recoverable loans & advances rather penalty is leviable as per the proviso (2) of sub-sec.(2) of section 158BFA of the Act and while deciding so observed as under :- 6. I have considered the facts of the case and submission made by the assessee. The penalty has been levied on the basis of undisclosed income of ₹ 28,03,600/-. The assessee had filed return for the block period on 23/4/2004 declaring undisclosed income of ₹ 20,00,000/-. The levy of penalty is .....

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#39;s plea mainly are - a) the assessee's case lies in second proviso and therefore the provisions of the first proviso are not applicable on him. He has also relied on some judgments of non-jurisdictional appellate tribunals. b) The assessee's amounts with the debtors were lying attached, and in this sense their money was lying seized. c) Without prejudice to above, they were prevented by sufficient cause as above and therefore in the facts and circumstances no penalty is leviable. As f .....

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nal undisclosed income. Going by the construction proposed while first assessee would have to pay a minimum of penalty of ₹ 60 lakhs the second escapes with only ₹ 60,000. It is to be noted that the compliance of the first assessee is a little better. The situation cannot be envisaged and therefore any such meaning has to be rejected. It is held that to get the benefit of non-levy of penalty on the undisclosed income represented by the block assessment return, the conditions of first .....

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ached, and in this sense their money was lying seized. Debt is not money nor can it be seized. In fact it was lying attached and not seized. Therefore the conditions of first proviso are not met. Now, it has to be seen that whether there were reasonable cause with the assessee. It is seen that notice u/s 158BC was issued on 10/02/2003. At that time the loans were lying attached by the Department. It is not the case that the assessee did not want to pay tax. He had already paid Rs. Five lakh befo .....

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also clear from the note on the return filed. In the circumstances; I hold that the assessee had fulfilled all conditions of first proviso of section 158 BFA (2) except paying the full taxes on returned income before filing return, and for this failure also he had a reasonable cause. Therefore, it.is held that no penalty is leviable on the basis of undisclosed income to the extent of that declared in the block assessment return, i.e., ₹ 20 lakhs. II The portion of undisclosed income determ .....

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on return income is mainly because of ₹ 6.5 lakh addition on the basis of promissory note and ₹ 2.5 lakhs addition on undisclosed income represented by assessee share in Hira Panna project. As far as the promissory note of ₹ 6.5 lakh $ concerned, this issue and assessee's explanation was considered thread bare by the Commissioner appeals while deciding the quantum. The relevant observations are being reproduced below; "I find that the appellant has attempted to mix th .....

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y the appellant apparently on 11.1.99 which included ₹ 6 lakhs by cheques disclosed in the books of account an ₹ 9 lakhs by cash which is offered as undisclosed income by the appellant in the block return. The promissory note of ₹ 6.5 lakhs dated 1.2.2000 in the name of Shri Narendra .Keshkani, therefore/ prima facie does not link with the financing transactions of the appellant with Keshkani group. There is also no mention of requirement of Shri Narendra Keshkani giving person .....

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separate investment of the appellant which had nothing to do with the joint venture project with Keshkani group as neither figures were matching nor the dates were suitably fitting in the joint venture transactions. The promissory note also has peculiarity in the sense that it was signed by Shri Keshkani in his individual capacity. The Chase Buildcon Project Ltd was a separate corporate entity and there was already sufficient guarantee with the appellant in the form of promissory notes of the co .....

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g the undisclosed income of the appellant invested as unaccounted loan given to Mr. Kheskani. The corresponding addition of ₹ 6.5 lakhs made by the AO is therefore confirmed. The explanation of the assessee in penalty appeals remains essentially the same. It is clear that the explanation is a self-serving concocted story which cannot be believed where circumstances prove that the promissory note was obtained for a separate loan transaction. The amount represents the undisclosed income of t .....

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a. The assessee even has failed to disclose it in the block assessment return. In the circumstances, the appellant cannot succeed and penalty is held leviable on undisclosed income represented by this addition also. In totality, penalty is held leviable on total undisclosed income determined by the assessing officer in excess of that declared by the assessee in its block assessment return, and is confirmed at the minimum level (hundred percent) of tax leviable on such part of undisclosed income .....

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block assessment return though he did not fulfill the conditions as per provisions of section 158BFA(2). 2. The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the Assessing Officer be restored . The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. A copy of CIT(A)'s order was received by me on 21/12/2010. 5.2 In assessee s appeal in IT(SS)A No.170/Ahd/2011 following grounds have been raised:- 1. On the f .....

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aid excess of undisclosed income assessed over undisclosed income returned. 3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 6. Ld. DR supporting the order of ld. Assessing Officer submitted that one of the basic conditions provided in proviso (1) of section 158BFA(2) of the Act is that tax payable on the basis of provisions of sec. 158BC of the Act has to be paid along with the return .....

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return, even though the appellant had disclosed of ₹ 20 lacs as his undisclosed income, he has paid tax of ₹ 5 lacs only as against ₹ 12 lacs payable. It was further stated by Id. Assessing officer that, as per proviso to section 158BFA(2) the assessee gets immunity for penalty u/s 158BFA(2) only in respect of that part of undisclosed income only if (i) he furnishes his return of income u/s 158BC (ii) the tax payable on the basis of return is paid/or offers to adjust the seize .....

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part of the return which read as under: 1. Pursuant to the above disclosure, the assessee has already made payment of ₹ 5 lacs as tax. Challans evidencing payment of the said tax is being enclosed with this return. The assessee, after the payment of ₹ 5 lacs, had been in the process of trying to collect monies to pay off the necessary tax on the above income offered to tax in the block return. However, it has been made known to him that certain monies which are recoverable by him fr .....

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see is now unable to gather any further monies, the assessee is filing this return with specific request to the Income-tax Department to collect the monies from the above two parties to whom the Department has served restraining orders, and adjust the said monies against his tax liability aggregating to ₹ 12 lacs against the income offered of ₹ 20 lacs at the rate of 60%. It will be appreciated that ₹ 5 lacs has already been paid; and accordingly, the rest of the sum of ₹ .....

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t pursuant to the restraint order, for the above tax liability. Any action whatsoever required from the assessee with reference to this adjustment may kindly be intimated to the assessee." From the above, your honour may appreciate that non payment of tax at the time of filing the block assessment return was precisely on account of inability of appellant to recover dues from certain parties, being Bhagwati Group and Chase Build Cone on whom prohibitory orders were served by the Department, .....

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t paid the balance tax liability as stated below, at the earliest availability of funds. 11-8-2004 60,000 31-12-2004 50,000 25-8-2004 2,65,000 12-8-2004 3,00,000 03-8-2004 35.000 8.10.000 It may also be kindly noted that most of the above payments were made by those debtors directly to the credit of department through challan. Under these circumstances, it is stated that non adjustment of tax liability of appellant out of his dues receivable from such parties by Id. Assessing Officer, cannot be .....

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sregard of elementary principles of natural justice. 8. Ld. AR further submitted that as the assessee intended to pay total tax liability payable on the disclosed income in the return for the block period but was unable to do so due to restraining order by the Department on the debtors of the assessee and even subsequent thereto the assessee has paid the balance tax liability. Thereafter ld. CIT(A) has held that proviso (1) of sec.158BFA(2) of the Act is not applicable to the assessee. 9. We hav .....

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determined. Thus an addition of ₹ 8,03,600/- confirmed in the income of assessee for the block assessment. The controversy in both these appeals relates to levy of penalty u/s 158BFA(2) proviso (1) & (2). In order to appreciate the controversy in right perspective it is imperative on us to take note of section 158BFA(2) of the Act, relevant part of the section read as under :- 158BFA. (2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Ch .....

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rn 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 shown in the return38 : 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 ret .....

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he tax leviable on the returned income. The second proviso contemplates a different situation. It provides that in case an assessee files a block return and paid taxes as per law on that return income but the Assessing Officer has made certain addition in the assessment order and ultimately the assessed income is a different income than the one disclosed by the assessee on this difference a penalty equivalent to the tax sought to be evaded would be paid by the assessee on this difference. 11. As .....

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covery of these amounts and adjustments against the tax liability but no such action was carried out at the end of the Department. Thus the assessee contended that it has a reasonable cause for not making payment of taxes in the returned income. Ld. first appellate authority has accepted the reasonable cause and deleted the penalty. Revenue is aggrieved on this part of ld. CIT(A) s order. On due consideration of the record, we are of the view that once the assessee has loans and advances whose r .....

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nd proviso is concerned, the scheme of Chapter-14B provides that income of an assessee for the purpose of block assessment is to be determined on the basis of seized material found during the course of search. Assessing Officer would supply that material to the assessee and in response to notice u/s 158BC assessee has to compute true and disclose income out of the seized material for the purpose of block assessment. Now the question is, assessee has to compute ₹ 20,00,000/- as true undiscl .....

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