High Court Of Delhi
JRD Stock Brokers (P.) Ltd. vs. CIT-II
Section 158BFA
S. Ravindra Bhat And R.K. Gauba, JJ.
IT Appeal No. 134 Of 2014
C.M. A No. 5666 Of 2014
March 4, 2015
JUDGMENT
S. Ravindra Bhat, J. – In this appeal, the assessee claims to be aggrieved by an order of the Income-tax Appellate Tribunal (“the ITAT”) dated July 18, 2008, in IT(SS) A. No. 236/Del/2006. The question of law urged is :
“Whether, in the circumstances of the case, the penalty under section 158BFA(2) of the Income-tax Act, 1961, could be levied in respect of income which was not undisclosed income but was determined on the basis of estimation on the application of weight formula on gross credits in various bank statements considered as turnover ?”
2. The brief facts are that a search operation was carried on November 24, 2000, in the office of the appellant-assessee and the residence of its directors. The books of account, documents and other materials were seized. The assessee, when called upon to file the return, filed a nil return for the relevant block period on October 11, 2002. The Assessing Officer (“the AO”) completed the assessment under section 158BC(c) at Rs. 8,90,36,597 which comprised of, inter alia, undisclosed provisional income of Rs. 1,57,15,409 arrived at by adopting a flat rate of 1.5 per cent. on the aggregate of all credit entries in the bank account statements of the assessee. Other than this amount, the Assessing Officer also added sums of money on the basis of unexplained cash deposits and negative balances ; the Commissioner of Income-tax (Appeals) (hereafter referred to as “the CIT(A)”) directed the cancellation of the sums added on account of negative balances. However, the Commissioner of Income-tax (Appeals) rejected the assessee’s contentions with respect to the addition of Rs. 1,57,15,409. The assessee had, in the original returns, declared the amounts to be derived on account of share trading transactions. The assessee’s contentions were rejected because the Assessing Officer and the Commissioner of Income-tax (Appeals) found that in the statement recorded under section 132(4) of the Income-tax Act, 1961 (hereafter referred to as “the Act”), the assessee had admitted that the said sum of Rs. 1,04,76,94,004 was actually not entirely based on share transactions but was also based on accommodation entries. The assessee had stated in the returns that the commission received on the share transactions ranged between 0.25 per cent. and 0.5 per cent. The Commissioner of Income-tax (Appeals), however, found that there was material suggestive of receipt of commission of up to 1 per cent. even on the share transactions. In these circumstances, the estimated income added back by the Assessing Officer on the basis of his assessment of the true income (on the business activity of providing accommodation entries which the assessee was engaged in) was to the extent of 1.5 per cent. of the total turnover indicated.
3. The Income-tax Appellate Tribunal, in the appeal preferred by the assessee, upheld the substantive decisions of the Assessing Officer and the Commissioner of Income-tax (Appeals) (in IT(SS)A No. 54/Del/2004 dated November 30, 2004). However, the Income-tax Appellate Tribunal directed rejection of 1.5 per cent. turnover of commission attributed by the Assessing Officer and upheld by the Commissioner of Income-tax (Appeals) in the following terms :
“10. As far as application of rate of 1.5 per cent. to the turnover was concerned, the learned Commissioner of Income-tax (Appeals) referred to the seized documents-pages 6 to 8 of annexure A-40 and pages 1 to 16 of annexure A-2-which showed that commission of 1 per cent. to 1.25 per cent. was charged whereas the same was shown between 0.05 per cent. to 0.1 per cent. in the accommodation bills as per the books of account. The balance commission was settled outside the books of account and received in cash. After considering the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer in this case after giving due consideration to the assessee’s submissions and information available as per the seized record and gathered during the course of search, was justified in applying the rate of 1.5 per cent. to compute the commission earned by the assessee in the block period. Accordingly, addition of Rs. 1,57,15,409 was upheld . . .
18. We now face the question as to what should be reasonable rate of commission in this case having regard to material available on record. The assessee did not dispute that quantum of turnover for providing the accommodation entries to various clients during the year as computed by the Assessing Officer at Rs. 1,04,76,94,004 is not correct. The commission stated to have been charged and admitted by the assessee ranged from 0.25 per cent. to 0.5 per cent. The rate as evident from the seized material which has been referred to by the lower authorities, does reflect that the assessee had charged a rate as high as 1 per cent. As against this, the Revenue authorities have applied at 1.5 per cent. to the entire turnover irrespective of the nature of entries whether long-term, short-term gain, etc. It is also noteworthy that the gross rate of commission charged by the assessee can also not be said to be profit exigible to tax. The credit for the expenses incurred in running the business is also required to be considered while estimating the income from business of providing accommodation entries. The total turnover also includes some genuine transactions carried on by the assessee on which rate of commission was admittedly much lower ranging between 0.25 per cent. to 0.50 per cent. Therefore, having regard to the entire gamut of facts, circumstances and material which is available on record, there does not appear to be justifiable reasons to estimate the commission/brokerage of the assessee by applying the rate of 1.5 per cent. of the total turnover. In our view, it would be in the fitness of the things that the income earned by the assessee by way of commission/brokerage on the turnover including accommodation entries provided to its clients is computed at 0.6 per cent. on the total turnover of Rs. 1,04,76,94,004 on which there is no dispute. We, accordingly, direct the Assessing Officer to compute the income on count of commission/brokerage.”
4. The Assessing Officer had, in the meanwhile initiated penalty proceedings under section 158BFA(2) of the Act which culminated in the order dated June 29, 2005. The Assessing Officer directed payment of Rs. 15,34,375. The assessee’s appeal to the Commissioner of Income-tax (Appeals) was not successful. In the meanwhile, it is worth mentioning that the assessee had not appealed against the Income-tax Appellate Tribunal’s order finally determining the income at 0.6 per cent. of Rs. 1,04,76,94,004. Therefore, the matter became final. In these circumstances, when the Income-tax Appellate Tribunal was approached in the present round of issue of penalty, it rejected the assessee’s contentions.
5. Learned counsel for the assessee urges that the Income-tax Appellate Tribunal fell into error. It was submitted that the trigger for a penal action under section 158BFA(2) is if in the course of a search, some material is found. Placing emphasis on section 158BB, especially, the phrase, “undisclosed income found”, learned counsel submitted that the pre-condition for imposition of penalty under section 158BFA(2) is that the “undisclosed income” determined by the Assessing Officer is necessarily linked with the undisclosed income found-which in turn is based on some material. Arguing that in the present instance, the assessee had concededly declared a sum of Rs. 1,04,76,94,004 in the books of account, learned counsel highlighted that in the circumstances, the penalty could not have been imposed. It was argued in this context that any income determined in the course of block assessment proceedings must necessarily relate to that adjudicated upon and must be based on objective material found. In other words, it cannot be based on an estimation or a voluntary act of the assessee such as surrender. To say so, learned counsel relied upon two judgments of the Rajasthan High Court, i.e., CIT v. Satyendra Kumar Dosi [2009] 315 ITR 172 (Raj.) and CIT v. Dr. Giriraj Agarwal Giri [2012] 346 ITR 152/[2013] 33 taxmann.com 536 (Raj). Learned counsel also relied upon the judgment of a Division Bench of this court in CIT v. Harkaran Das Ved Pal [2011] 336 ITR 8/[2009] 177 Taxman 398. In Satyendra Kumar Dosi (supra), the Rajasthan High Court held that section 158BFA(2) textually empowers the Assessing Officer to levy penalty on the undisclosed income determined by him but that the power does not extend to imposing penalty in the cases excluded in the first proviso. Thereafter, the court observed as follows (page 177 of 315 ITR) :
“The contention raised by the learned counsel on the strength of the provisions of sections 273B and 158BFA(3) is also devoid of any merit. Of course, as per the provision of section 273B no penalty shall be imposable on the persons or the assessee as the case may be, on their failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. But then, the said provision in no manner leads to the presumption that in respect of the cases other than covered by section 273B for any failure or violation imposition of the penalty is automatic. Each provision of penalty has to be construed independently keeping in view the language employed therein . . .
Moreover, in the instant case, after due examination of the facts and the material on record, the Commissioner of Income-tax (Appeals) and learned Tribunal have concurrently found that the difference of the undisclosed income assessed and the undisclosed income shown in the return does not relate to the block period as such. The Tribunal has arrived at the finding that the assessees had claimed to give reduction of amounts calculated on reasonable basis on account of their opening capital as on April 1, 1995, from the unaccounted money-lending business prior to block period out of the undisclosed income determined in their hands. The learned Tribunal has rightly held that the addition is result of estimation of the opening capital involved prior to the block period and in the block assessments while computing the undisclosed income for the block period, capital possessed by the assessees prior to the block period as revealed from the ledger and the material seized during the search could not be treated as undisclosed income of the first assessment year in the block period. Thus, in view of the concurrent finding of fact arrived at by the two appellate authorities, as aforesaid, in our considered opinion, no substantial question of law arises for consideration of this court in these appeals.
In the result, the appeals fail, the same are hereby dismissed. No order as to costs.”
6. The same High Court later in Dr. Giriraj Agarwal Giri (supra) echoed the same view as follows (page 156) :
“A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also. Therefore, in the facts and circumstances of the case, penalty was wrongly imposed by the Assessing Officer. In these circumstances, we find that the judgment of the hon’ble apex court, referred to by the learned counsel for the appellant, is not applicable, in the facts and circumstances of the present case.”
7. Harkaran Das Ved Pal (supra) was a case that concerned itself with whether on facts the assessee had, during the course of the proceedings after the survey under section 132 of the Act surrendered the amounts which were ultimately brought to tax. The court relied upon various rulings to say that the proceedings under Chapter XIV-B were special in nature and rather constituted a complete code and that in the circumstances, the surrender of amounts would not ipso facto lead to the inference that the amounts were determined by the Assessing Officer pursuant to material seized in the course of search.
8. Section 158BFA(2) reads as follows :
“158BFA. Levy of interest and penalty in certain cases. – (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 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 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 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.”
9. The plain terms of the provision-which Harkaran Das Ved Pal (supra) emphasised occur in a separate part of the Income-tax Act. Chapter XIV-B entitled “Special procedure for assessment of search cases” nowhere indicates that an estimation of income-tax logically based upon inference drawn in the case of block assessment procedure is per se excludible from the ambit of the penal provision. The plain text of the enactment says that the Assessing Officer has the discretion to levy penalty, “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”. In the present instance, there is no doubt at all that the Assessing Officer did determine the undisclosed income ; that it was based upon the estimation or an inference is a matter of detail. The plain text of the enactment admits no room for doubt that all manners of determination of income, per se might call for action at the discretion of the Assessing Officer. As to whether the Assessing Officer has properly exercised discretion in a particular matter or otherwise can certainly be subject to further scrutiny. The plain text of enactment, however, does not admit of the interpretation which was favoured by the two Rajasthan High Court judgments cited by the assessee. The assessee’s argument that there was no fresh material since the entire amount was disclosed earlier and that amount has not been varied, in our opinion, is not accurate. The sum of Rs. 1,04,76,94,004 was claimed in entirety (originally) to have been derived from share business. However, it did not exclusively stem from the share business and in fact the assessee admitted, in the course of search proceedings under section 132(4) of the Act that the said amount also included sums forming part of the turnover on account of providing accommodation entries. Now, that radically changed the complexion of the nature of declaration made and certainly formed the basis for materials discovered during the course of proceedings. Furthermore, having regard to this admission, the Assessing Officer, most importantly, was entitled to determine : having regard to the nature of commission originally declared, whether that was in line with the new activity disclosed. It is a matter of record–noted by the Commissioner of Income-tax (Appeals) in the quantum proceedings that the commission ranged up to 1 per cent. Having regard to the conspectus of circumstances, therefore, the Assessing Officer determined the commission to be 1.5 per cent. on the said total turnover ; the Income-tax Appellate Tribunal decreased it. None the less, the important fact is that the determination in the course of block assessment order was based upon a material discovered, i.e., in the form of statement made by the assessee under section 132(4) of the Act ; that radically changed the character of the income originally declared. Consequently, the estimation directed by the Income-tax Appellate Tribunal was accepted by the assessee.
10. In view of the above circumstances, this court is of the opinion that the question of law urged has to be answered against the assessee and in favour of the Revenue. The appeal is consequently dismissed along with the pending application.
[Citation : 375 ITR 600]
