Gujarat H.C : the penalty levied under section 158BFA(2) of the Income-tax Act, 1961, in respect of addition of Rs. 3 lakhs towards unaccounted investment directed by the Appellate Tribunal in quantum appeal

High Court Of Gujarat

Kandoi Bhogilal Mulchand vs. DCIT

Block Period : 1-4-1995 To 8-1-2002

Section : 158BFA

Akil Kureshi And Ms. Sonia Gokani, JJ.

Tax Appeal No. 2467 Of 2010

November 8, 2011

JUDGMENT

Akil Kureshi J. – The assessee has challenged the judgment of the Income-tax Appellate Tribunal, Ahmedabad (“the Tribunal” for short), dated May 14, 2010, wherein, the following substantial questions of law are raised for our consideration :

“(A) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the penalty of Rs. 1,83,600 levied under section 158BFA(2) of the Income-tax Act, 1961, in respect of addition of Rs. 3 lakhs towards unaccounted investment directed by the Appellate Tribunal in quantum appeal ?

(B) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the penalty levied under section 158BFA(2) of the Income-tax Act, 1961, when the addition of Rs. 3 lakhs as unaccounted investment was admitted by the authorised representative of the appellant to buy peace ?

(C) Whether, on the facts and in the circumstances of the case, the order passed under section 158BFA(2) of the Income-tax Act, 1961, was valid in the absence of any substantive provision to levy penalty in respect of undisclosed income under Chapter XIV-B ?

(D) Whether, on the facts and in the circumstances of the case, the conclusion reached by the Income-tax Appellate Tribunal to uphold the penalty of Rs. 1,83,600 is such as could have been arrived at from the material on record or is perverse ?”

2. As can be seen from the questions, the issue pertains to penalty of Rs. 1,83,600 levied by the Assessing Officer and confirmed up to the Tribunal.

3. From the record perused by us with the assistance of the learned counsel for the appellant, we find that the block assessment proceedings were carried out against the appellant for the block period from April 1, 1995, to January 8, 2002. The assessee filed return declaring certain undisclosed income and also paid tax on the same. However, the Assessing Officer, by his order dated January 30, 2004, made further additions over and above those declared by the assessee. Since the income determined by the Assessing Officer under section 158BC of the Income-tax Act, 1961 (“the Act” for short), was more than what was declared by the assessee by Rs.18.71 lakhs, the Assessing Officer also initiated penalty proceedings under section 158BFA(2) of the Act. Notice for such purpose was issued.

4. While the penalty proceedings were going on, the assessee carried the additions made by the Assessing Officer in further appeal. Ultimately, the Tribunal, by order dated March 6, 2009, maintained the addition of Rs. 3 lakhs over and above what was declared by the assessee in the return.

5. On the basis of such addition confirmed by the Tribunal, the Commissioner of Income-tax (Appeals) passed the final order of penalty under section 158BFA of the Act on October 29, 2009. He imposed minimum penalty of 100 per cent. as provided under section 158BFA of the Act.

6. Once again, the assessee approached the Tribunal against the order of penalty. The Tribunal confirmed the order of penalty and rejected the assessee’s appeal. The Tribunal made following observations :

“10. Having heard both the sides, we have carefully gone through the order of authorities below. It is pertinent to note that sales of Rs.4,23,20,387 was not recorded in the books of account. Out of this unrecorded sales, the assessee in the return of block period declared undisclosed sales of Rs. 7,23,933 at Satellite Shop. In respect of the remaining sales, the assessee merely disclosed gross profit at 28 per cent. However, the Assessing Officer treated the entire sales as undisclosed income. Admittedly, initial investments for procuring sweets, which are sold outside the books of account, are not recorded in the books of account. In case, it is presumed that the cost of production of sweets, which are sold outside the books of account, is also recorded in the books of account. In that event, the Assessing Officer was having no option but to treat the entire sales as undisclosed income. The learned counsel of the assessee before the Tribunal admitted that the cost of manufacturing of sweets, which are sold outside the books of account, was not recorded in the books of account. On the basis of appreciation of this argument and evidence found during the course of search, the Tribunal estimated the cost of initial investment in respect of sales made outside the books of account at Rs. 3 lakhs. Though this income has been estimated but estimate made is fair and reasonable looking to the amount of sales made, which is not recorded in the books of account. In our considered opinion, the income, which is detected as a result of search operation under section 132 is undisclosed income of the assessee within the meaning of section 158BFA(2) of the Act. With regard to the contention of the assessee that the assessee has correctly disclosed the total sales, we may point out that the assessee has not disclosed the initial investment as undisclosed income. Therefore, the correct income of the assessee cannot be computed without making the addition on account of cost incurred by the assessee in making initial investment for procuring mithai outside the books of account. If the contention of the assessee that the cost of production is also recorded in the books of account, in that event, in quantum appeal, the appellate authority could have confirmed the entire addition. On addition, which is made on estimate basis also, the penalty for concealment is leviable. In support of this, reliance can be placed on the judgment of the hon’ble Gujarat High Court in the case of CIT v. Chandra Vilas Hotel [2007] 291 ITR 202 (Guj). In these circumstances, the Assessing Officer, therefore, rightly levied the penalty under section 158BFA(2) of Rs. 1,83,600 on concealed income of Rs. 3 lakhs and the learned Commissioner of Income-tax (Appeals) has given cogent reasons for confirming the said penalty. We, therefore, incline to uphold the order of the learned Commissioner of Income-tax (Appeals) and reject the appeal of the assessee.”

7. Counsel for the appellant vehemently contended that the authorities erred in imposing the penalty. The Tribunal likewise erred in confirming the penalty in appeal. He contended that the additions were confirmed by the Tribunal on concession given by the counsel for the appellant. Such additions, on the basis of concession, would not give rise to any penal proceedings. Counsel further submitted that initiation of penalty was on the basis of larger addition of income made by the Assessing Officer. Such addition was, however, not sustained by the Tribunal. The penalty could not have been sustained in view of such changed circumstances since the initiation was on some other basis. In this regard, reliance was placed on the decision of a Division Bench of this court in the case of CIT v. Lakhdhir Lalji reported in [1972] 85 ITR 77 (Guj).

8. From the record, however, we find that pursuant to search operation, block assessment proceedings were initiated in the case of the assessee-firm. The assessee made certain disclosure of income for the block period, which income was hitherto not offered to tax. While framing the assessment, certain further additions were made by the Assessing Officer. Portion of additions were confirmed by the Tribunal. The Tribunal confirmed the additional income of Rs. 3 lakhs over and above what was disclosed by the assessee. It was on this basis, therefore, the Assessing Officer ultimately imposed penalty under section 158BFA(2) of the Act.

9. Section 158BFA(2) of the Act reads as under :

“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.”

10. If we analyse the provisions contained in sub-section (2) of section 158BFA, it would appear that penalty not less than the amount of tax leviable but not exceeding 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 of the Act is envisaged. The first proviso to sub-section (2) of section 158BFA, however, provides that no order imposing penalty shall be made if the conditions (i) to (iv) therein are satisfied. In essence, no penalty would be imposed if the assessee furnishes return of income ; pays or offers tax by way of adjustment on such income ; produces evidence of tax having been paid along with the return and also does not dispute by filing appeal against that portion of assessment which he has shown in his return. By a further proviso, however, it is clarified that such exclusion will not be available where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such a case, penalty shall be imposed on that portion of the undisclosed income determined, which is in excess of the amount of undisclosed income shown in the return.

11. In essence, therefore, penalty under sub-section (2) of section 158BFA of the Act is provided where the Assessing Officer computes income in excess of what is declared by the assessee for the block period.

12. This proviso thus is vitally different from the penalty provisions contained in section 271(1)(c) of the Act, which provides for penalty where the assessee has concealed the particulars of his income, or furnished inaccurate particulars of such income. It is, therefore, often stated by different courts that mere disallowances of a claim or additions made by the Assessing Officer would not ipso facto give rise to penalty proceedings under section 271(1)(c) of the Act. What is further required to be established is that the assessee had either concealed the particulars of his income or furnished inaccurate particulars of such income. In contrast, no such language is used in section 158BFA of the Act. We may recall that under section 158BFA(2) of the Act, penalty proceedings would arise while the Assessing Officer had assessed income for the block period in excess of the income declared by the assessee.

13. In the present case, as already noted, addition of Rs. 3 lakhs was confirmed by the Tribunal over and above the income declared by the assessee for the block period in question. The Assessing Officer, therefore, imposed penalty which was confined to such addition. We do not find the Assessing Officer committed any error in imposing such penalty or the Tribunal in confirming the same.

14. The decision of this court in the case of Lakhdhir Lalji [1972] 85 ITR 77 (Guj) was rendered in the background of the provisions contained in section 271(1)(c) of the Act. The penalty was imposed for furnishing inaccurate particulars while the notice stated that the assessee had concealed the income by suppression of sales. It was in this background that this court held that the penalty was wrongly imposed. Such facts do not arise in this case. Even otherwise, as pointed out, the penalty envisaged under sub-section (2) of section 158BFA is under entirely on different background as compared to one that can be imposed under section 271(1)(c) of the Act. Counsel for the appellant submitted that imposing penalty under sub-section (2) of section 158BFA of the Act is discretionary. Even if we were to accept such a contention, nothing is pointed out to demonstrate that such discretion was not properly or correctly exercised. We may recall that the Assessing Officer imposed penalty which was minimum leviable under section 158BFA of the Act. The contention that addition was sustained on concession given by the counsel cannot be gone into in this appeal since the previous order of the Tribunal pertaining to addition has achieved finality and is not in appeal before us. In the result, we do not find any question of law arising. The tax appeal is dismissed accordingly.

[Citation : 341 ITR 271]

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