TMI Blog2007 (9) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... nce as on 1.4.95 claimed as deduction From the opening capital of ₹ 2,91,93,051 /- as on 01.04.01 mentioned in the seized document 40,00,000/- (b) Bad debts claimed 27,90,000/- (c) Claim of loss on acccunt of sale of shares (confirmed by OT (A) but not pressed before ITAT) 2,10,000/- (d) Excess stock not disclosed (After giving effect to CIT (A) and ITAT order) 15,25,221/- Amount not contested even before the CIT(A) 9,93,933/- Total 95,19,154/- In the mean time the assessee took up the appeal before the CIT(Appeals) and the(appeals) has confirmed the order of the assessing officer. Thereafter the assessee went in appeal before the Tribunal. The addition made by the lower 'authorities were confirmed vide ITAT's order dated 2.10.2005 in I.T.A. No. 82/05. Thereafter the assessing officer initiated penalty proceedings u/s.158BFA(2) of the Income-tax Act and levied penalty of ₹ 58,25,722/- in view of the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts of ₹ 40,09,535/- claimed by the assesse since the said amount has not been written off as 'bad debts' in the books of accounts of the assessee. The assessee submitted that he has claimed bad debts of ₹ 40,0,535/- which is due from 13 parties. The assessing officer has allowed the claim to the extent of ₹ 12,19,535/- and disallowed the rest of the amount. The assessee went in appeal before the Learned Commissioner of Income-tax (Appeals) who is turn had confirmed the action of the assessing officer. Aggrieved the assessee went in appeal before the ITAT and the ITAT had also confirmed the action of the lower authorities placing reliance on the judgment of the jurisdictional High Court in the case of CIT vs. Micromax Systems (P)Ltd. (2005) reported in 277 ITR 409. 3.2 Learned A.R. submitted that the claim of the assessee is bonafide He submitted that the Department has accepted the claim partly and disallowed the rest for the reason best known to the assessing officer. He further stated that the books of accounts of the assessee were in possession of the Department from the date of search and that it is the normal practice is the business to write off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary evidence to show that the spare parts available with the were purchased during the previous year relevant to the A.Y. 1999-2000 to 2002-03 even though it was possible that the assessee would have some accumulated stock pertaining to earlier yeaRs. He placed reliance on the wing judgments: i) Sree Nithyakalyani Textiles Ltd. vs. DCIT (Mad) 282 ITR 154 ii) CIT vs. S. Krishnaswamy and Sons (Mad) (219 ITR 157) iii) CIT vs. K.T.M.S.Mahamood (Mad)(1997) (228 ITR 11 3) 5. The next ground is that the Learned Commissioner of Income-tax (Appeals) erred in upholding the penalty on the share trading loss of ₹ 2,10,000/-. 5.1 Learned A.R. submitted that due to the smallness of the amount involved that ground was not pressed before the ITAT in quantum appeal and that can not be a reason for sustaining the penalty. He further submitted that the assessee's claim was rejected by the assessing officer on the ground that the assessee was not carrying on this business. Learned A.R submitted that the assessing officer has not called for any details regarding this business and hence no details were submitted. He thus stated that the findings of the Assessing officer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the part of the assessee. It is submitted that the explanation offered with reference to various claims/additions had to be independently examined and appreciated; that the standard of proof required for establishing whether there is willful negligence or fraud on the part of the assessee in furnishing inaccurate particulars especially for proving the genuineness of the claims would be definitely different in a penalty proceedings. He further submitted that the rejection of explanation with regard to claim and estimated addition would not automatically attract penal provisions and according to the assessee, levy of penalty in this case is incorrect, unjustified, invalid, erroneous and not sustainable both on facts and law. He further submitted that the findings on the additions made in the appeal should not be taken as conclusive for the present proceedings and the evidences filed in the said proceedings in order to the source from father's business though rejected in the quantum appeal should be looked independently in the penalty appeal. Learned A.R. submitted that the block assessment order under consideration was framed without referring to the books of accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in the return : 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. (3) No order imposing a penalty under sub-section (2) shall be made, - (a) unless an assessee has been given a reasonable opportunity of being heard; (b) by the Assistant Commissioner [or Deputy Commissioner) or the Assistant Director (or Deputy Director], as the case may be, where the amount of penalty exceeds twenty thousand rupees except with the previous approval of the [Joint] Commissioner or the [Joint] Director, as the case may be; (c) in a case where the assessment is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 [or section 246A] or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are to be construed within the term and language of the particular statute. Penalty provision should be interpreted as it stands and in case of doubt in a manner favorable to the taxpayer. If the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177: (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO and Anr. (1961) 41 ITR 425 (SC), Braja Lai Bank vs. State of Tripura (1990) 78 STC 283 (Gau), CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom), J.K. Synthetics Ltd. VS. CTO (1994) 119 CTR (SC) 222 and Birla Cement Works State of Rajasthan (1994) 94 STC 422 (SC). 12. Now applying the above principle, the provisions of s. 158BFAO) ides that where the assessee did not file a return of income as required by notice under s. 158BC and has furnished the return after the expiry of the period specified in that notice or has not furnished the return of income, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances under which penalty shall not be levied. The Assessing Officer, the Commissioner of Income Tax (Appeals) and the learned Departmental Representative are trying to canvass that if these circumstances are not satisfied cumulatively, the assessee is automatically levied with penalty, which proposition cannot be accepted in the light of the principle laid down by the Supreme Court and followed by every High court while dealing with penalties and the provisos dealing with penalties. The legislature, in our view, has not prescribed the circumstances under which the penalty has to be levied. It has only said the circumstances under which no penalty is leviable. That does not mean that in every other circumstance the penalty is automatic and has to be levied. We should not forget that the words used in sub-s. (2) are that the Assessing Officer may direct the imposition of penalty. It means that the penalty is not automatic and de hors the committal of the offence of the offence for which the legislature has prescribed the penalty. In our view, sub s. (2) has miserably failed to provide for circumstances justifying the penalty. We are unable to sustain the penalty levied by the A.O in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary evidence has been submitted by the assessee to substantiate his claim that the amount has been advanced by his father in 1980. In our opinion, the explanation of the assesse is bonafide and the same was not accepted by the Tribunal since it was not made by the assessee either at the time of recording statement u/s.132(4) of the Act or at the stage of assessment. This is the reason for rejection of the claim of the assessee. Coming to the claim of bad debts, the assessing officer has accepted the claim partly and disallowed the balance and the valuation made by the assessing officer is also on estimated basis only. Regarding the addition in respect of other expenses, the assessee is not preferred any appeal and that itself exonerates the assessee from levy penalty as per the provisions of Sec 58BFA(2) of the Act. Any assessing officer could easily harass the taxpayer by demanding nearly 240 percent (60 percent 180 percent maximum penalty) of the tax which can not the purpose of Chapter XIV-B of the Act. This is clearly obnoxious and has never been the intention of the legislature while drafting these provisions. The scope of Chapter XIVB is to ease out the tax computations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in breach of the duty could be made liable for the offence of contempt of the statute. Thus rule construction is now obsolete and has no application to a modern statute. Clear language is now needed to create a crime. The principle applied in construing a penal Act is that if, in construing the relevant provisions, there appears any reasonable doubt or ambiguity, it will be resolved in favour of the person who would be liable to the penalty. If there is a reasonable interpretation, which will avoid the penalty in any particular case, that construction must be adopted. If there are two constructions, the more one must be adopted. In every case, the question is simply what is the meaning of the words, which the statute has used to describe the prohibited or transaction. If these words have a natural meaning, that is their meaning, and such meaning is not to be extended by any reasoning based on the substance of the transaction. If the language of the statute is equivocal and there are two reasonable meanings of that language, the interpretation that will avoid the penalty is to be adopted. These are some of the principles discussed in Maxwell on Interpretation of Statutes 12th Edn. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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