Jharkhand H.C : Undisclosed income disclosed by assessee after filing revised return under section 158BC, would attract penalty under section 158BFA

High Court Of Jharkhand

CIT vs. Hitech Chemical (P.) Ltd.

Block Period : 1-4-1989 To 29-10-1998

Section : 158BFA, 158BC

Ms. R. Banumathi, Cj.  And Chandrashekhar, J.

Tax Appeal No. 7 Of 2005

February  14, 2014

JUDGMENT

1. Challenging the order dated May 20, 2005, in I. T. (SS) A. No. 17/Pat/ 2002 passed by the Income-tax Appellate Tribunal, Circuit Bench, Ranchi, whereby the Commissioner of Income-tax (Appeals) rejected the Revenue’s appeal, the Revenue has approached this court by filing the present Tax Appeal No. 7 of 2005.

2. The assessee is a private limited company engaged in manufacture of chemicals used mainly by steel plants. A search and seizure operation under section 132(1) of the Income-tax Act, 1961 (in short, “the Act”), was conducted on October 29, 1998, simultaneously in the office premises of the assessee-company and at the residence of the managing director of the company and others. During the search, certain cash and FDRs were recovered and seized. A notice under section 158BC of the Act was issued by the Assessing Officer on November 20, 1998, requiring the assessee to file the return for the block period April 1, 1989, to October 29, 1998, within a period of 16 days. The assessee filed the return on March 1, 1999, disclosing the undisclosed income of Rs. 1,17,00,000 only. Subsequently, the assessee filed a notarised affidavit on August 16, 1999, disclosing additional undisclosed income of Rs. 58,20,815. A notice under section 143(b) of the Act was issued on August 24, 1999, and the proceeding was conducted on different dates before the Assessing Officer.

3. Before the Assessing Officer, the assessee contended that the delay in filing the return under section 158BC was attributable to the Department as the assessee was not provided with the extract of the seized documents for which it was entitled under section 132(9) of the Act. It was contended that the return was filed in a haste with a view to avoid penal interest and, therefore, in the absence of the relevant documents the total concealment could not be disclosed by the assessee. It was further contended that since the assessee itself disclosed an additional concealed income of Rs. 58,20,815, before it was otherwise detected by the Department, there was no mala fide intention on the part of the assessee to defraud the Revenue. Lastly, it was contended that since there was no willful concealment on the part of the assessee nor any inaccurate particular has been furnished and since, the penalty proceedings under section 158BFA of the Act and the penal proceedings under section 271(1)(c) of the Act are separate and exclusive proceedings, no penalty could have been imposed on the assessee on the additional disclosure made by the assessee on August 16, 1999. The Assessing Officer assessed the undisclosed income of the assessee at Rs. 1,83,76,129 and after deducting the undisclosed income of Rs. 1,17,00,000 disclosed by the assessee, worked out the net concealed income at Rs. 66,76,129, vide the assessment order dated September 14, 1999. A notice under section 158BFA of the Act was issued to the assessee for compliance by September 22, 1999, and, accordingly, the assessee filed its reply to the notice under section 158BFA. The Assessing Officer did not accept the assessee’s contention and the explanation and, accordingly, the Assessing Officer imposed a penalty under section 158BFA of the Act amounting to Rs. 40,05,677.

4. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) reiterating its stand taken before the Assessing Officer. The Commissioner of Income-tax (Appeals) held that there was no justification for imposing penalty. The assessee had filed its first affidavit before copies of the seized documents were supplied and even the second affidavit dated August 16, 1999, was filed before notice under section 143(2) of the Act was issued. It was further held that the under block assessment procedure, the assessee gets an exclusive opportunity, after the search, to disclose its undisclosed income and since, in the present case, the assessee had declared the entire undisclosed income and paid penal tax on it, there was no concealment on the part of the assessee and, therefore, penalty could not have been imposed by the Assessing Officer. The Commissioner of Income-tax (Appeals) interfered with the penalty order dated October 8, 1999, holding that when there was no concealment, the imposition of penalty amounts to penal action for an offence which was not committed by the assessee.

5. The Revenue approached the Income-tax Appellate Tribunal, Circuit Bench, Ranchi. Before the Tribunal, the Revenue contended that once the proceeding under section 158BC of the Act is initiated, it is not open to the assessee to take a stand that the disclosure was made prior to the detection by the Department. Referring to the facts of the case, it was contended on behalf of the Revenue that the amount of concealment disclosed by way of affidavit dated August 16, 1999, contained only the deposits made in two bank accounts and those transactions were made by the assessee itself and, therefore, the assessee was in the knowledge of those transactions and, thus, it cannot be contended by the assessee that in the absence of the alleged non-supply of documents, the assessee could not make the correct disclosure. Relying on the second proviso to section 158BC of the Act, it was contended on behalf of the Revenue that, since the assessee had already furnished the return under section 158BC of the Act, it was not entitled to file a revised return and, therefore, the income disclosed by the assessee was treated as concealed income in terms of section 158BFA of the Act.

6. On behalf of the assessee, it was submitted that in spite of repeated requests made by the assessee for supply of documents and release of computer hard disc on November 5, 1998, November 9, 1998, November 16, 1998, November 26, 1998, November 30, 1998, and December 2, 1998, the same were not supplied to the assessee and on the insistence of the Department, the assessee filed a disclosure petition on December 15, 1998, disclosing an income of Rs. 117 lakhs and a detailed disclosure petition was filed on February 22, 1999. In these circumstances, without waiting for the photocopies of the documents, the block return was filed on March 1, 1999. Again, the assessee moved a petition on July 30, 1999, for allowing the xerox copies of such materials and, thereafter, the assessee voluntarily disclosed an additional undisclosed income of Rs. 58,20,815 through affidavit dated August 16, 1999. The disclosure was made prior to any notice of date of hearing as, the first notice under section 143(2) of the Act was issued on August 24, 1999. It was further submitted on behalf of the assessee that there was no mala fide intention on the part of the assessee to defraud the Revenue. The assessee had offered for adjustment of the tax out of the seized assets and the income which was finally assessed do not include any addition on the income returned and disclosed through affidavit filed by the assessee and, therefore, the Assessing Officer was not justified in imposing penalty.

7. The learned Tribunal held that there is no material on record to show that the assessee was provided the photocopies of the entire seized materials before filing of the return for the block period. It was further held that neither any addition was made in the income disclosed by the assessee nor did the assessee disclose the additional income after the issuance of notice under section 143(2) of the Act or any other notice or query made in this behalf and, therefore, penalty could not have been imposed. As regards the plea taken on behalf of the Revenue that an assessee is not entitled to file a revised return, the learned Tribunal held that the provision contained in the second proviso to section 158BC of the Act is for the purpose of assessment. It further held that after the assessee offers a convincing reason or any reasonable cause is demonstrated for non-inclusion of such income in the return for the block period, the penal interest in such a case is not attracted. The learned Tribunal finally held that the additional income disclosed by the assessee through affidavit was not a concealed income within the meaning of section 158BFA of the Act.

8. In the aforesaid background, it is contended on behalf of the Revenue that, in view of the second proviso to section 158BC of the Act since the assessee is not entitled to file a revised return, the undisclosed income detected after filing of return for the block assessment whether detected by the Department on its own or pursuant to the subsequent disclosure made by the assessee in the garb of the revised return, would be treated as a concealed income on which penalty would be imposed and since this aspect of the matter has not been considered by the Commissioner of Income-tax (Appeals) or by the learned Tribunal, the appeal preferred by the Revenue deserves to be allowed. Mr. Deepak Roshan, the learned counsel appearing for the Revenue, has contended that though the Assessing Officer has rightly considered this aspect of the matter, the learned Tribunal has erroneously ignored the effect of the second proviso to section 158BC of the Act on the ground that since the additional undisclosed income of Rs. 58,20,815 was disclosed by the assessee on August 16, 1999, that is, prior to notice under section 143(2) or any other notice issued by the Assessing Officer, therefore, the said income was not liable to penalty. The learned counsel for the appellant-Revenue has further contended that the specific finding recorded by the Assessing Officer that, since the return filed by the assessee on March 1, 1999, was itself belated, the plea taken by the assessee for not disclosing the concealed income fully on the ground of non-supply of photocopy of the seized documents was not believable, has been interfered by the appellate forum on an erroneous presumption that there is no material on record to show that the assessee was provided the photocopies of the entire seized material before filing of the return for the block period.

9. Per contra, Mr. B. Poddar, the learned senior counsel appearing for the respondent-assessee, submitted that in view of the fact that the copies of the documents and hard disc were not provided to the assessee, the revised return filed by the assessee disclosing on its own an additional undisclosed income of Rs. 58,20,815 cannot be subjected to penalty. The learned senior counsel submitted that this is not a case in which the assessee has filed additional return reducing its income rather, it is a case where the assessee has filed the return disclosing additional undisclosed income on its own and, therefore, no penalty could have been imposed by the Assessing Officer. The learned senior counsel for the respondent-assessee has relied on following judgments :

(i) CIT v. Shriram Properties and Constructions (Chennai) Ltd. [2013] 356 ITR 700/40 taxmann.com 48/219 Taxman 140 (Mad.) (Mag.) ;

(ii) CIT v. P. Rojes [2013] 356 ITR 703/31 taxmann.com 253/216 Taxman 9 (Mad.) (Mag.) ;

(iii) CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) ;

(iv) Badshah Prasad v. CIT [1981] 127 ITR 601 (Patna) ;

(v) CIT v. Suresh Chandra Mittal [2001] 251 ITR 9/119 Taxman 433 (SC) ;

(vi) CIT v. Suresh Chandra Mittal [2000] 241 ITR 124/[2002] 123 Taxman 1052 (MP.) ;

(vii) Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) ;

(viii) Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC) ; and

(ix) CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249/32 Taxman 19 (Cal.).

10. Before referring to the above contention raised on behalf of the respondent-assessee it would be useful to notice the provisions under Chapter XIV-B of the Income-tax Act, 1961. Chapter XIV-B is confined to “Special procedure of assessment of search cases”. Section 158B(b) defines the term, “undisclosed Income”. The manner and method of computation of undisclosed income of the block period is given under section 158BB. It provides that the undisclosed income of the block period shall be the aggregate of the total income, i.e., undisclosed income as well as disclosed income, of the previous years as reduced by aggregate of total income or increased by aggregate of losses, i.e., disclosed income, of such previous years. Section 158BC(c) of the Act provides determination of the tax payable after determination of the undisclosed income for the block period. It further provides that the order of assessment so passed by the Assessing Officer should specify the manner in which the undisclosed income for the block period has been computed by him. Section 158BC further provides that the income of the block period would be determined in the manner laid down under section 158BB and the provisions of section 142, section 143(2), section 143(3), section 144 and section 145 of the Act. Section 158BE prescribes the time limit for completion of block assessment and section 158BF and section 158BFA relate to levy of interest and penalty. Thus, it is clear that Chapter XIV-B is a self-contained code which provides for special procedures which has to be adopted for assessment in search cases.

11. The relevant extract of the Explanation to section 158BA(2), the second proviso to section 158BC, section 158BF and the first proviso to section 158BFA(2) of the Income-tax Act, 1961, are extracted below :

“Explanation to section 158BA(2).—For the removal of doubts, it is hereby declared that,—

(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ;

(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period ;

(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period.

Second proviso to section 158BC

Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return.

Section 158BF

Certain interests and penalties not to be levied or imposed.-No interest under the provisions of section 234A, section 234B or section 234C or penalty under the provisions of clause (c) of sub-section (1) of section 271 or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment.

First proviso to section 158BFA(2)

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.”

12. Adverting to the contention raised by the learned senior counsel for the respondent-assessee that since the assessee has disclosed additional undisclosed income on its own and the income so disclosed by the assessee is on the higher side which reflects bona fide intention of the assessee, no penalty could have been imposed by the Assessing Officer, we are of the opinion that since the provision contained in the second proviso to section 158BC of the Act is mandatory, the undisclosed income even if disclosed by the assessee, after the filing of the return under section 158BC by filing a revised return, would be liable to be treated as concealed income and, hence, incur penalty. The provision under section 158BC and section 158BFA were inserted by the Income-tax (Amendment) Act, 1997. As noticed earlier, section 158BFA prescribes that interest and penalty would be levied in certain cases. It appears that the very purpose of inserting the second proviso to section 158BC prohibiting the assessee from filing the revised return is to prevent the assessee from filing a revised return, from time to time, depending on the development that takes place during the course of assessment proceeding. The intention appears to be preventing the assessee from getting away with the penalty imposable under section 158BFA. The second proviso to section 158BC uses the expression “shall not be entitled to” which further reflects the legislative intention that it is mandatory in nature and it admits no exception.

13. The legal position thus appears to be that, the assessee cannot file even a revised lower return on account of some mistake committed by him and thus, the second proviso to section 158BC is intended at prohibiting the assessee from filing a revised higher return with a view to get away with imposition of penalty on the undisclosed income. The plea taken by the assessee that penalty could not have been imposed on the additional undisclosed income disclosed by the assessee itself, is fallacious. The assessee seems to suggest that had such disclosure not been made by the assessee, the Assessing Officer could not have detected it. Merely because the disclosure of additional undisclosed income was made by the assessee prior to any notice from the Assessing Officer would not lead to a presumption that the Assessing Officer could not have detected the concealed income. The provision under section 158BB clearly says that, “undisclosed income would be computed on the basis of evidence found, as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence”.

14. The additional affidavit filed by the assessee would be a material and information available to the Assessing Officer and, therefore, the affidavit filed by the assessee can form the basis of information based on which the undisclosed income of the assessee would be calculated. Since the affidavit dated August 16, 1999, was filed after the filing of the return on March 1, 1999, the Assessing Officer has rightly treated the undisclosed income disclosed by the assessee through affidavit dated August 16, 1999, as concealed income. In this view of the matter, the contention raised on behalf of the respondent-assessee that since a revised return on higher side was filed on its own, no penalty can be imposed on the additional amount disclosed in the revised return, merits no acceptance. In view of the specific provision contained in section 158BF which provides that no penalty under the provisions of section 271(1)(c) or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment and the case of the respondent-assessee not falling under section 158BF, the cases relied upon by the learned senior counsel for the respondent-assessee are not relevant.

15. The learned senior counsel has submitted that penalty is imposed only in a case of evasion of tax or where it is found that the intention of the assessee was mala fide. It is further submitted that penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation and since, in the present case, these ingredients are absent, the Assessing Officer could not have imposed penalty on the additional income disclosed by the assessee on August 16, 1999.

16. We have held that the second proviso to section 158BC is mandatory and the provisions under section 158BFA is also mandatory subject to the conditions mentioned therein, and, therefore, the intention of the assessee is immaterial. In SEBI v. Shiram Mutual Fund [2006] 68 SCL 216 (SC), while holding that section 15A to section 15HB of the SEBI Act, 1992, are mandatory provisions which provide imposition of penalty in cases of default, the hon’ble Supreme Court has held as under (page 607 of 131 Comp Cas) :

“In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and, hence, the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further hold that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of section 15D(b) and section 15E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence, once the contravention is established then the penalty is to follow.”

17. In Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC), the issue which was referred before the hon’ble Supreme Court was, whether section 11AC of the Central Excise Act, 1944, imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient. Approving the decision in Shriram Mutual Fund (supra), the hon’ble Supreme Court has held that wilful concealment is not an essential ingredient for attracting civil liability. In view of the mandatory provision contained in the second proviso to section 158BC, the plea of bona fide intention taken by the assessee is of no consequence.

18. The learned senior counsel for the respondent-assessee further contended that though the second proviso to section 158BC provides that the assessee is not entitled to file a revised return, there is no provision in the Act which provides for imposition of penalty on filing of additional/revised return. This contention is also not tenable in view of the specific provision contained in section 158BFA. As noticed hereinabove, Chapter XIV-B is a self-contained code. The exclusions, if any, have been specifically mentioned therein. Section 158BFA also admits exceptions and those instances are contained in the said provision itself. Except the exceptions provided therein, the provision in section 158BFA is mandatory.

19. The learned senior counsel, appearing for the respondent-assessee, has lastly submitted that since the two authorities have concurrently found that the required documents were not furnished by the assessee and, thus, the assessee could not submit the return fully disclosing the undisclosed income, no substantial question of law arises in the present appeal and, therefore, the tax appeal preferred by the Revenue is liable to be dismissed.

20. It is the admitted case that a search operation under section 132 was carried on October 29, 1998. A notice under section 158BC was issued on November 20, 1998, and due date of filing of block return was fixed on December 10, 1998. The assessee was permitted by the letter dated December 24, 1998, to take photocopies of the document. A petition was filed by the assessee on January 25, 1999, for release of computer hard disc and by the letter dated February 2, 1999, the assessee was permitted to take copies of the computer hard disc. The block return showing undisclosed income of Rs. 117 lakhs was filed on March 1, 1999. Thereafter, the assessee made a petition on July 30, 1999, for taking xerox copies of the seized material. The Assessing Officer has found that the additional disclosure made by the assessee on August 16, 1999, was with regard to deposits made in two bank accounts, the transactions in which were made by the assessee itself and no direction was issued to the bank authorities by the Department with respect to the said two bank accounts. This aspect of the matter has not been properly dealt with both by the Commissioner of Income-tax (Appeals) and the learned Tribunal. There is no explanation by the assessee for moving an application for furnishing documents, five months after filing the return on March 1, 1999. It appears that the application was moved as an excuse for avoiding penalty under section 158BFA. We further find that the legal effect of the embargo placed by the second proviso to section 158BC has not been considered by the Tribunal. The finding of the learned Tribunal that the second proviso to section 158BC is for the purpose of assessment and, therefore, penalty in such cases would not be attracted is erroneous. The substantial question of law, “whether, in view of the second proviso to section 158BC of the Act, the income disclosed by the assessee in the form of revised return would be liable for penalty or not”, is answered in favour of the Revenue.

21. In view of the aforesaid discussion, we hold that an assessee is not entitled to file revised a return, once the return under section 158BC is filed. The provisions under section 158BFA is also mandatory and, therefore, irrespective of the intention of the assessee, the undisclosed income disclosed by the assessee after filing the return under section 158BC, would attract penalty. The plea of non-supply of documents is not available to the assessee for filing a revised return though, such a plea may be available to the assessee for challenging the final order on the ground of violation of the principles of natural justice.

22. In the light of our observations, that the second proviso to section 158BC(ii) is mandatory and that the assessee is not entitled to file a revised return, the matter has to be remitted back to the Commissioner of Income-tax (Appeals) for consideration of the matter afresh.

23. In the result, we find merit in this appeal and, accordingly, the order dated February 14, 2002, passed by the Commissioner of Income-tax (Appeals) and the order dated May 20, 2005, passed by the Income-tax Appellate Tribunal, Circuit Bench, Ranchi, are set aside. This tax appeal is allowed and the matter is remitted back to the Commissioner of Income-tax (Appeals) for deciding the matter afresh.

[Citation : 363 ITR 145]