TMI Blog2008 (11) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Income-tax Act, 1961. b) Whether the Income-tax Appellate Tribunal was correct in law in cancelling the penalty on the ground that the assessee himself had surrendered the amount and therefore it could not be said that the assessee had either concealed or furnished inaccurate particulars of income'' 2. The appeal is directed against the order dated 02.02.2007 passed by the Income Tax Appellate Tribunal in IT (SS) A No.'172/Del/2005 and pertains to the block period 01.04.1999 to 06.07.2000. As the questions set out above would indicate, the appeal arises out of penalty proceedings under Section 158 BFA (2) of the said Act. The facts are that a search under Section 132 of the said Act was conducted on 06.07.2000 on the JMD Group of Companies. Certain material (Annexure A-6/R-2 of the seized papers) which related to the assessee was found in the course of the search. The said material indicated cash receipt from the assessee against goods sold to the assessee by the JMD Group on earlier dates. Although in the present case the search was conducted in respect of the JMD Group of Companies and not in respect of the assessee, and, consequently, the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Gupta. I have entered this name on the instruction of the broker. Q11. Do you have regular business dealings with Har Karan Das Ved Pal, 470, Lawrence Road, Delhi' Ans. Yes, we purchase oil from them. Q12. Are the transactions recorded in your books and what is the evidence in support thereof' Ans. Yes, these transactions are recorded in my books of account, bills are available for such purchases and payments are made by account payee cheques. Q.13. Were any broker involved in such dealings' Ans. No, we used to directly purchased from them. Q14. I am showing you entry at page 20 Annexure A-2/R-1, there is one entry on the right side in the name of Har Karan Das Ved Pal. Can you explain the same. Ans. This entry shows payments made to M/s Harkaran Das Ved Pal against the supply made by them. Q15. Can you categorically state that the goods subject of sale belong to Harkaran Das Ved Pal operating from 470, Lawrence Road, Delhi. Ans. No, as already stated above, these entries are entered in the names which are stated by brokers. Q16. Can you identify the person to whom cash was paid' Ans. Entire purchase and sale is carried out through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/-. Consequently, the Assessing Officer held that the undisclosed income for the financial year 1999-2000 worked out at Rs'8,40,000/- and for the financial year 2000-2001 at Rs 15,000/-. He computed the undisclosed income for the block period as under:- A.Y Total income including undisclosed income Returned/ assessed income Undisclosed income 1993-94 36290 36290 Nil 1994-95 105340 105340 Nil 1995-96 304206 304206 Nil 1996-97 232260 232260 Nil 1997-98 259130 259130 Nil 1998-99 270175 270175 Nil 1999-00 294120 294120 Nil 2000-01 1187020 347020 840000 2000-02 137310 122310 15000 (upto 6.7.2000) 36290 - 855000 Assessed on undisclosed income of Rs 855000. Charge interest under Section 158 BFA (1) of the I. T. Act. Initiate penalty proceedings under Section 158 BFA (2). Issue notice of demand and challan.' Thus, the total undisclosed income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that where the action of the assessee was bonafide, penalty may not be attracted. The Tribunal also noted that in the facts of the present case, the undisclosed income as computed by the Assessing Officer comprised of a sum of Rs 8 lacs by way of estimate of investment on undisclosed transaction of purchase and sale of ghee. Furthermore, a sum of Rs 55,000/- was estimated as amounting to 1% of the net profit on undisclosed transactions of purchase and sale. The Tribunal noted that from the statement of Sh. Gulshan Kumar Dhingra of the JMD Group of Companies, it is clear that the payment was received by them in respect of sales made earlier. Consequently, the Tribunal was of the view that the sales made by the JMD Group to the assessee were on credit terms which, in turn, implied that the assessee was not required to make any investment while making the purchases. The Tribunal also noted that even otherwise there was no evidence found as a result of search, which suggested that the transactions for whole of the year required investment in the first instance. While the Assessing Officer had estimated undisclosed investment at 1/5 th of the total turnover of the first year, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The learned counsel also submitted that the surrender made by the assessee had prevented the Assessing Officer from making any further investigation and, therefore, no extra burden should be put on the Assessing Officer to prove that the assessee had evaded the tax by consciously not disclosing his income. The learned counsel placed reliance on a decision of this Court in the case of Durga Timber Works v. CIT: 79 ITR 63 to submit that it would amount to laying an impossible burden of proof on the department and making the provisions for imposition of penalty wholly unworkable if, even after the surrender by the assessee of its concealed income, the department is still required to prove by independent evidence that the assessee had concealed its income. At the outset, we may point out that the decision in Durga Timber Works (supra) was in the context of Section 271 (1)(c) of the said Act which, even as per the submissions of the learned counsel for the revenue, are distinct and different from the provisions of Section 158 BFA (2). Moreover, this is not a case where the department is being asked to establish the extent of undisclosed income even after the assessee had made a surre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Khoday Eswarsa and Sons: 83 ITR 369, 376 (SC) and CIT v. J.K. Synthetics Ltd.: 219 ITR 267 (Del). The relevant observations in the said decisions are as under:- 'CIT v. Anwar Ali: 76 ITR 696 (SC) - 'It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.' CIT v. Khoday Eswarsa and Sons: 83 ITR 369, 376 (SC) -'From the above it is clear that penalty proceedings being penal in character, the department must establish that the receipt of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voluntarily surrendered Rs 8 lacs to buy peace and avoid protracted litigation and that de hors the surrender, the department has not been able to establish any undisclosed income. Consequently, the surrender made by the assessee cannot be made the basis for levy of penalty under Section 158'BFA (2) of the said Act. 15. The learned counsel for the assessee referred to the decision of the Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. Commissioner of Income-tax: 168 ITR 705 (SC) to submit that where a surrender has been made voluntarily and bonafide prior to detection by the department, no penalty under Section 271 (1) (c) would be leviable with reference to the surrendered income. In Sir Shadilal Sugar and General Mills Ltd (supra) the Supreme Court observed as under:- 'The High Court accused the Tribunal of not considering the time when the assessee admitted the additions. We find that it was duly considered by the Tribunal. We find that the assessee, admitted that these were the incomes of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hadilal Sugar and General Mills Ltd (supra), the revenue was required to prove the mens rea of the quasi-criminal offence and it was because of such a view that the Explanation to Section 271 was added. The Supreme Court further noted that it is by reason of the said Explanation that the view taken in Sir Shadilal Sugar and General Mills Ltd (supra) could no longer be said to be applicable. Because there is no such explanation or provision introduced in Section 158 BFA (2), it cannot be said, in our view, that the general observations in Sir Shadilal Sugar and General Mills Ltd (supra) as noted above, would not apply to cases of penalty under Section 158 BFA (2). 16. It was lastly contended on behalf of the learned counsel for the assessee that the levy of penalty under Section 158 BFA (2) of the said Act was discretionary and not automatic as was evident from the use of the word 'may' in the said provision. The learned counsel submitted that the Tribunal was right in deleting the penalty under Section 158 BFA (2) of the said Act on the basis of the findings returned by it and consequently, both the questions ought to be decided in favour of the assessee and against the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax leviable but 'shall' not also exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer as indicated above. While it is discretionary for the Assessing Officer to direct that a person shall pay penalty, it is mandatory that, in case the Assessing Officer is of the opinion that such penalty is leviable, the penalty amount shall not be less than the amount of tax leviable in respect of the undisclosed income and not more than three times of such tax. A plain reading of Section 158 BFA (2) gives us the indication that the legislature did not intend the imposition of penalty by itself to be mandatory. The legislature intended the same to be left to the discretion, which of course has to be exercised upon judicial considerations, of the Assessing Officer. 18. The first proviso clearly stipulates the circumstances under which an order imposing penalty cannot be made. Where a person has furnished a return under Clause (a) of Section 158 BC and the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso means is that where there is a difference between the undisclosed income shown in the return filed under Section 158 BC (a) and the undisclosed income determined by the Assessing Officer under Section 158 BC (c), notwithstanding the fact that the circumstances stipulated in the first proviso are satisfied, penalty would still be imposable by the Assessing Officer and the same shall be imposed on the portion of the undisclosed income determined by the Assessing Officer which is in excess of the amount of undisclosed income shown in the return. 20. The expression 'undisclosed income determined' has to be understood in the context used in Section 158 BFA (2). It refers to the undisclosed income determined by the Assessing Officer under clause (c) of Section 158 BC. Section 158 BC prescribes the procedure for block assessment. Clause (b) thereof stipulates as under:- (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 31,'section 144 and section 145 shall, so far as may be, apply;' This is followed by clause (c) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be determined under Chapter XIV-B, has to be determined on the basis of evidence discovered during the search. It is obvious that where the computation of undisclosed income is based on material other than what was found in the course of the search, the same could not be treated as undisclosed income determined under clause (c) of Section 158 BC. 21. Going back to Section 158 BFA (2), the Assessing Officer has been empowered to impose penalty on a person when the undisclosed income determined under clause (c) of Section 158 BC, is in excess of the undisclosed income returned by such person in pursuance to a notice under Section 158 BD/ 158 BC. In other words, a pre-condition for the imposition of penalty under Section 158 BFA (2) is that there must be a determination of the undisclosed income by the Assessing Officer under clause (c) of Section 158 BC of the said Act. If this is not satisfied, then there would be no question of imposing any penalty. 22. In the present case, we find that the computation of undisclosed income by the Assessing Officer cannot be construed as 'undisclosed income determined by the Assessing Officer under clause (c) of Section 158 BC'. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not in Section 158 BFA (2). The consideration of the question of concealment of income or furnishing inaccurate particulars of income was not a relevant consideration in the facts of the present case. To that extent, the Tribunal had misconstrued the scope of the penalty provisions applicable in the present case. We have already noted that because the assessee had surrendered the amount bonafide and for the purposes of buying peace and avoiding protracted litigation, it did not follow that there was a determination of undisclosed income in the terms stipulated in Section 158 BC (c) or 158 BB (1) of the said Act. Once this is recognized, there is no question of imposing a penalty under Section 158 BFA (2) of the said Act. So, though we hold that the Tribunal was not required to consider the question of concealment of income and/ or furnishing of inaccurate particulars of income, the Tribunal was correct in arriving at the conclusion in the earlier part of its decision as noted above that there was no evidence relatable to the search de hors the surrender made by the assessee and, therefore, the penalty which had been imposed by the Assessing Officer under Section 158 BFA (2) was l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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