TMI Blog2008 (8) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... hat section 158BFA(2) is materially different from section 271(1)(c), and u/s 271(1)(c), the element of concealment is necessarily to be present for invoking the section 271(1)(c); not so for invoking section 158BFA(2), though discretionary power is given to AO under the said section to levy or not to levy the penalty. Since the assessee was not able to give explanation regarding the cash credit or the interest paid on account of diversion of loan, the AO rightly levied the penalty and the CIT(A) confirmed it. Ld JM order - HELD THAT:- Mere reference of assessee's name in the statement u/s 132(4) is not sufficient to invoke the proceedings u/s 158BD. There was no reference made of any material found in the course of search, on the basis of which the undisclosed income could be determined. Since the additions were made not on the basis of any seized material but on the basis of the statement, only because it was not challenged by the assessee before the higher forum, the learned JM held that the penalty levied is liable to be quashed. The learned JM held that the section as it stands now and stood then is materially different and has no scope for levying the penalty. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hereby deleted. In the result, appeal of the assessee is allowed. - Member(s) : K. P. T. THANGAL., K. C. SINGHAL., ABRAHAM P. GEORGE. ORDER Per Abraham P. George, Accountant Member .-This appeal filed by the assessee is against the order of CIT(A) upholding penalty of Rs. 38,808 levied under section 158BFA(2). 2. The facts relating to the grounds is that the assessee was subject to search assessment, whereupon certain additions were made which included disallowance of an interest expenditure of Rs. 54,180, addition for unexplained cash credit Rs. 10,500 and also on account of non-grant of set off of business loss of Rs. 18,698 claimed by the assessee. Thus there was a difference of Rs. 83,378 between the undisclosed income returned by the assessee in Form 2D and the undisclosed income assessed for the block period. 2.1 Penalty proceedings were initiated by the Assessing Officer under section 158BFA. Assessee, during the course of penalty proceedings submitted as under:- (i) Thus disallowance of interest expenditure Rs. 54,180 on bank loan was only a technical addition and assessee had not preferred an appeal because of the smallness of the amount. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances to the sister concern was exclusively for business purpose. Therefore, the learned CIT(A) concluded that it was an unadmissible claim made by the assessee with a view to reduce its taxable income and, hence, penalty leviable. (ii) As regards the addition on account of unexplained cash credit of Rs. 10,500, the CIT(A) observed that no explanation was offered by the assessee and it was only during assessment proceedings assessee admitted it as undisclosed income. However, the CIT(A) found the assessee's explanation regarding set off of business loss to be reasonable in view of the retrospective amendment to section 158B(1)(c) by Finance Act, 2002 which could not have been foreseen by the assessee at the time of filing its return, and deleted the penalty on this account. 2.5 Before us, the learned Departmental Representative submitted that the additions were agreed to by the assessee only when he was confronted. Nobody entered in appearance for the assessee. 2.6 We have perused the assessment order and the penalty order as well as the grounds and submissions made before the CIT(A) and by learned Departmental Representative before us. The regular assessment procedur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The only issue, therefore, to be decided is whether the Assessing Officer ought to have used the discretion given to him under section 158BFA(2) whether to levy or not to levy the penalty. We find that the CIT(A) has correctly appreciated the facts of the case and given relief from penalty to the assessee in respect of set off of business loss of Rs. 18,698. As far as other two items are concerned we find that assessee has not been able to give any explanation at the time of assessment or at the time of penalty proceedings. In the case of Dy. CIT v. Koatex Infrastructure Ltd. [2006] 100 ITD 510 (Mum.) this Tribunal had ruled that it was humanly not possible in the circumstances of that case for the assessee to correctly compute his income due to the voluminous records seized and, therefore, deleted the penalty levied under section 158BFA(2). About 54 files containing 10,000 sheets involving 31 concerns were seized in that case. On the other hand, here, there are only two items of additions and there is nothing on the record to show that these involved any voluminous record. Hence, the Koatex Infrastructure Ltd.'s case has no applicability in the circumstances of this case. Thus, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act. This aspect of the issue has also been considered by the Tribunal in the case of ITO v. Pramila Pratap Shah [2006] 100 ITD 160 (Mum.) wherein it has been held that levy of penalty under section 158BFA(2) is not automatic and a judicial discretion is vested in tax authorities not to levy penalty where there are facts and circumstances on the record to exercise such discretion. In that case, the assessee was able to show her bona fide in not including certain amounts of income in the return filed under section 158BC and consequently, the Tribunal deleted the penalty. Therefore, each case should be examined to ascertain whether there are facts and circumstances of the case which oblige the tax authorities to exercise their discretion. 4. In the present case, the penalty has been levied in respect of two additions made by the Assessing Officer namely - (i) disallowance of Rs. 54,180 on account of unexplained expenditure and (ii) addition of Rs. 10,500 on account of unexplained cash credit under section 68 pertaining to assessment year 1994-95. The relevant facts giving rise to this appeal are these: (i) the assessee-firm is one of the group concerns of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viii) Penalty proceedings under section 158BFA(2) were initiated by the Assessing Officer while completing the block assessment proceedings. 5. In the course of penalty proceedings, the explanation of the assessee was- (i) that disallowance on account of interest expenditure was merely a technical addition and the appeal has not been preferred because of the smallness of the issue. (ii) that the addition of Rs. 10,500 is based on the voluntary offer made by the assessee since it was not in a position to compel any co-operation from the other party. (iii) levy of penalty is discretionary as the Legislature has used the term 'may' in section 158BFA(2) of the Act. On the basis of these submissions, it was pleaded that penalty should not be levied. However, the penalty of Rs. 50,027 was levied by the Assessing Officer vide order dated 9-3-2004. 6. On appeal, the learned CIT(A) partially allowed the claim of the assessee regarding the set off of the loss which resulted in reduction of penalty of Rs. 38,808. However, the penalty with reference to the above two additions was sustained. 7. The question for our consideration is whether on the facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidences. It is an admitted fact that both the additions related to the entries recorded in the regular books of account. The Tribunal, in various decisions, has held that no addition can be made in the block assessment in respect of the entries recorded in the regular books of account. Reference can be made to the decision of Tribunal in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245 (Mum.) and in the case of Parakh Foods Ltd v. Dy. CIT [1998] 64 ITD 396 (Pune). Since additions were not made with reference to any material found in the course of search, the same could not have been made in view of the provisions of section 158BB. No adverse inference can be drawn merely because the assessee had not filed any appeal against such order. (iii) The bona fide of the assessee has to be seen at the time when the return is filed. The return was filed on 31-5-2001. On that date, the definition of undisclosed income under section 158B(b) did not include the disallowance of expenses by the Assessing Officer since such disallowance was included in the definition of undisclosed income by Finance Act, 2002 with retrospective effect. Even otherwise, such disallowance can be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs on the following point, the matter is submitted to the Hon'ble President for reference to the Third Member. "Whether, on the facts and circumstances of the case and in law, the Assessing Officer was justified in levying penalty under section 158BFA(2) of the Income-tax Act, 1961". THIRD MEMBER ORDER Per KPT Thangal, Vice President, As a Third Member.- There was a difference of opinion between the two Members constituting the Bench that was required to be resolved by one or more Members of the Tribunal. The present Bench ceased the jurisdiction on nomination of Third Member by Hon'ble President. 2. The question referred to the Third Member is reproduced below:- "Whether, on the facts and circumstances of the case and in law, the Assessing Officer was justified in levying penalty under section 158BFA(2) of the Income-tax Act, 1961?" 3. When the matter was taken up for hearing, nobody was present on behalf of the assessee, in spite of service of notice. Therefore, I proceed to decide the issue on the basis of material available and also hearing the learned Departmental Representative. 4. The only ground taken by the assessee before the CIT(A) was against uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove conclusion, he noted that regular assessment procedure and block assessment procedure are different since Chapter-XIV-B is a special procedure for assessment of search cases. Learned A.M. held that the assessee, under Chapter XIV-B, has been given a chance to file the return and come clean. Under section 158BFA(2), penalty is leviable only on that portion of the undisclosed income determined by the Assessing Officer, over and above the amount disclosed by the assessee in the return. The learned AM, further held that section 158BFA(2) is materially different from section 271(1)(c), and under section 271(1)(c), the element of concealment is necessarily to be present for invoking the section 271(1)(c); not so for invoking section 158BFA(2), though discretionary power is given to Assessing Officer under the said section to levy or not to levy the penalty. Coming to the instant case, the learned A.M. held that since the assessee was not able to give explanation regarding the cash credit or the interest paid on account of diversion of loan, the Assessing Officer rightly levied the penalty and the CIT(A) confirmed it. Since there was no explanation, reliance placed by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to whom the search warrant was issued under section 132 or where the books of account or other documents or any assets were requisitioned under section 132A. The learned JM held that mere reference of assessee's name in the statement under section 132(4) is not sufficient to invoke the proceedings under section 158BD. There was no reference made of any material found in the course of search, on the basis of which the undisclosed income could be determined. On the contrary, since the additions were made on the basis of entries in regular books of account, no adverse inference could be drawn merely because the assessee did not challenge the quantum by way of appeal. Since the additions were made not on the basis of any seized material but on the basis of the statement, only because it was not challenged by the assessee before the higher forum, the learned JM held that the penalty levied is liable to be quashed. The learned JM held that the section as it stands now and stood then is materially different and has no scope for levying the penalty. 9. Hearing the learned DR and going through the material and the order of the learned Members constituting the Bench, I am of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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