Delhi High Court
Commissioner Of Income Tax ... vs Harkaran Das Ved Pal on 12 November, 2008
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 12.11.2008
+ ITA 1005/2007
COMMISSIONER OF INCOME TAX
DELHI- IX ... Appellant
- versus -
HARKARAN DAS VED PAL ... Respondent
Advocates who appeared in this case:
For the Appellant : Ms Prem Lata Bansal
For the Respondent : Mr Ajay Vohra with Ms Kavita Jha
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ? YES
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported in Digest ? YES
BADAR DURREZ AHMED, J
1. This appeal under Section 260 A of the Income Tax Act,
1961 (hereinafter referred to as the ‗said Act') raises the following
substantial questions of law :-
―a) Whether the Income-tax Appellate Tribunal was correct in
law in cancelling the penalty imposed by the Assessing
Officer under Section 158 BFA(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 158 BD would be applicable, however, in terms
of Section 158 BD itself the Assessing Officer having jurisdiction over
the assessee, was required to proceed under Section 158 BC and the
provisions of Chapter XIV-B were to apply accordingly. Action under
Section 158 BC read with Section 158 BD of the said Act was initiated
in respect of the assessee on account of the aforesaid material. Initially,
the assessee had challenged the validity of the action under Section 158
BD. However, those proceedings are not of much relevance for the
present appeal. The assessee had filed his return of income for the
block period on 10.03.2003 in compliance with the notice issued on
26.03.2002 under Section 158 BD of the said Act. The return filed by
the assessee declared undisclosed income at nil.
3. Thereafter notices under Section 143 (2) and 142 (1) of the
said Act were issued along with a detailed questionnaire. In the course
of assessment proceedings, statement of Sh. Gulshan Kumar of the
JMD Group was recorded. The relevant questions as extracted in the
impugned order are as under:-
―Q6. I am showing Annexure A-6/R-2 of the seized
paper (page No. 18), there is an entry in the name of M/s
Har Karn Das Ved pal. Can you explain the same?
Ans. This shows cash receipt against goods sold to
them on earlier dates.
Q.7 Can you identify the person who is supposed
to have paid cash to you?
Ans. I cannot identify the person who has made the
payments as all payments were received through brokers
and were entered in names stated by brokers.
Q.8. Can you categorically state that cash was paid
to you by Shri Ved pal Gupta, partner of Har Karan Das
Ved Pal Ltd., Lawrence Road, Delhi or any of his
partners and/ or staff?
Ans. I have already stated that payments were
received through brokers only. I cannot categorically,
therefore, state that these payments have been made by
Shri Ved Pal Gupta or any other person on behalf of Har
Karan Das Ved Pal operating from 470, Lawrence Road,
Delhi.
Q9. Do you have evidence to prove that goods
were sold and delivered to the above firm against which
supposedly cash has been received ?
Ans. No.
Q10. How can you say that the entry relates to M/s
Har Karan Das Ved Pal in which Mr Ved Pal Gupta is
partner?
Ans. I do not know whether Har Karan Das Ved
Pal entered in seized paper is the firm belonging to Shri
Ved Pal 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 brokers. I cannot, therefore, identify the person
to whom cash was paid.
Q17. Can you confirm that cash was paid to Mr
Ved Pal Gupta or any of the partner/ staff member?
Ans. No.
Q18. When the broker gives you a name of the
party, did you same before entering the same in the
loose papers?
Ans. No, because this is faith business and we write
whatever name is stated by brokers.
Q19. Can you categorically state that the
transactions recorded in loose papers in the name of
Harkaran Das Ved Pal relates to the firm with the same
name operating from 470, Lawrence Road, Delhi.
Ans. No, I have no basis to confirm‖.
4. The statement of Sh. Gulshan Kumar Dhingra reveals that
the entry in the name of the assessee shows cash receipts against goods
sold to the assessee on earlier dates. It also reveals that the entire
dealings were carried out through brokers who used to take delivery of
goods and make payments on behalf of the parties. It is also apparent
that Sh. Gulshan Kumar Dhingra was not in a position to categorically
state that the transactions recorded in the loose papers in the name of
Har Karan Das Ved Pal related to the firm with the same name
operating from 470, Lawrence Road, Delhi, i.e., the assessee. Apart
from this material there is no other evidence against the assessee. In
order to avoid protracted and time consuming litigation and in order to
buy peace, the assessee, by a letter dated 25.03.2004, surrendered an
amount of Rs 8 lacs as undisclosed income. The Assessing Officer
completed the assessment on 25.03.2004 itself holding that on the basis
of the material found, there was undisclosed turnover of Rs 39.73 lacs
for the financial year 1999-2000 and Rs 14.49 lacs for the financial
year 2000-2001. He applied the net profit rate of 1% for computing the
net profit for the financial year 1999-2000 at Rs 38,100/- and for the
financial year 2000-2001 at Rs 14,487/-. The Assessing Officer
rounded off all these figures and computed net figures at Rs 40,000/-
for the financial year 1999-2000 and Rs 15,000/- for the financial year
2000-2001. The Assessing Officer was of the view that the business of
purchase and sales could not be carried out without some initial
investment. He assumed that the initial investment would be 1/5 th of
the total turnover of the first year and, therefore, he worked out the
undisclosed investment at Rs 8,00,000/-. 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 Returned/ Undisclosed
including assessed income
undisclosed income
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 held to be Rs 8,55,000/- for the
block period. The assessee did not challenge the same any further.
5. Thereafter, the Assessing Officer issued a show cause notice
before the levy of penalty under Section 158 BFA (2) of the said Act.
The Assessing Officer noted that the assessee had shown the total
undisclosed income for the block period to be nil but, that in the block
assessment, the assessee had been assessed at undisclosed income of
Rs 8,55,000/-. Adverting to the second proviso to Section 158 BFA
(2), the Assessing Officer observed that the said proviso specifically
stated that penalty ―shall‖ be paid on the difference between the
―undisclosed income determined‖ and the undisclosed income shown
in the return. He was of the view that since the undisclosed income as
per the return was nil, the difference between the undisclosed income
determined and the undisclosed income returned was Rs 8,55,000/-.
He computed the tax leviable on the difference at Rs 5,13,000/- and
imposed a penalty of 100% of the differential tax at Rs 5,13,000/- by
virtue of his order dated 28.09.2004.
6. The Commissioner of Income Tax (Appeals) confirmed the
penalty imposed by the Assessing Officer. He was of the view that the
assessee had come forward to make the search of Rs 8 lacs only when
he was confronted with the seized documents relating to the assessee.
Since the assessee could not give a satisfactory explanation, the
surrender could not be treated as voluntary. He was also of the view
that the provisions of Section 271 (1) (c) of the said Act were different
from the provisions of Section 158 BFA (2). The Commissioner of
Income Tax (Appeals) was of the view that the provisions of Section
158 BFA (2) did not give any option but to levy the penalty on
undisclosed income determined by the Assessing Officer. He observed
that the use of the words - ―... the penalty shall be on the portion of
undisclosed income determined in excess of the amount of disclosed
income shown in the return‖ - makes the provision mandatory in
nature. Consequently, he upheld the Assessing Officer's levy of
penalty of Rs 5,13,000/- on the difference of Rs 8,55,000/-.
7. The Tribunal, after hearing the arguments advanced on
behalf of the assessee as well as on behalf of the revenue, came to the
conclusion that the levy of penalty under Section 158 BFA (2) is not
mandatory. The Tribunal took the view 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 1/5th of the total turnover of the first year, the Tribunal
returned a finding of fact that no amount was found to have been
invested in the first instance for transactions for whole of the year and
that, therefore, the estimate of undisclosed investment was based
merely on the surrender made by the assessee.
8. The Tribunal also held that the adoption by the Assessing
Officer of the 1% net profit of undisclosed transactions was also
without any basis. It noted that the chart reproduced by the Assessing
Officer in the assessment order suggested that the net profit rate of
earlier years ranged between 0.45 to 0.62%. From this, the Tribunal
held that even the estimate of 1% net profit was mere guesswork. On
the basis of these findings, the Tribunal concluded that, just because the
assessee had surrendered the amount of Rs 8 lacs, it could not be said
that the assessee had either concealed the particulars of income or had
furnished inaccurate particulars and that the Explanation appended to
Section 271 (1)(c) could not be invoked in such a situation to levy the
penalty.
9. In the backdrop of such findings, the Tribunal held that since
the surrender by the assessee was bonafide and truly in the spirit of
avoiding protracted and long drawn litigation, penalty under Section
158 BFA(2) was not justified. Consequently, the Tribunal cancelled
the penalty under Section 158 BFA (2).
10. Before us, the learned counsel for the revenue/ appellant
contended that Chapter XIV-B of the said Act provides a separate
scheme for assessment in search cases and also includes the provision
for levy of penalty in such cases. It was submitted that the provisions
of Section 271 (1)(c) cannot be read into Section 158 BFA (2) and the
two provisions are separate and distinct. The learned counsel for the
revenue argued that under Chapter XIV -B of the said Act, even after
search, the assessee is given an opportunity to declare his true and
correct undisclosed income. It is only when there is a difference
between the assessed undisclosed income and the returned undisclosed
income that a penalty can be levied under Section BFA (2) on this
difference. She also submitted that while the main portion of sub-
section (2) of Section 158 BFA uses the term ―may direct‖ the second
proviso thereto uses the term ―shall‖. According to her, whenever the
second proviso to Section 158 BFA (2) is applicable, imposition of
penalty becomes mandatory. 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 surrender of the sum of Rs 8 lacs.
The question in the present case is different and that is as to whether a
penalty can be imposed on the assessee under Section 158 BFA (2).
The observation made in Durga Timber Works (supra) was in entirely
different circumstances and would, in any event, not be of any
advantage to the revenue in the present case.
11. On the other hand, the learned counsel for the assessee
submitted that Chapter XIV-B is a self-contained code and is a mode of
assessment of undisclosed income, which has been detected as a result
of search. He also submitted that it is settled law that the findings in
the assessment proceedings are not conclusive for the purposes of
deciding the question of penalty. As regards the first proposition that
the procedure under Chapter XIV-B is a special one, the learned
counsel for the assessee / respondent placed reliance on a decision of
this Court in the case of CIT v. Ravi Kant Jain: 250 ITR 141 (Del)
wherein this Court held as under:-
―The special procedure of Chapter XIV-B is intended
to provide a mode of assessment of undisclosed
income, which has been detected as a result of search.
As the statutory provisions go to show, it is not
intended to be a substitute for regular assessment. Its
scope and ambit is limited in that sense to materials
unearthed during search. It is in addition to the regular
assessment already done or to be done. The
assessment for the block period can only be done on
the basis of evidence found as a result of search or
requisition of books of account or documents and
such other materials or information as are available
with the Assessing Officer. Evidence found as a result
of search is clearly relatable to sections 132 and
132A.‖
―The admitted position before the Tribunal was that
the undisclosed income was not determined on the
basis of any search material. That being the position,
the Tribunal was justified in its view that section
158BA had no application to the facts of the case. The
inevitable conclusion is that no substantial question of
law arises out of the order of the Tribunal which
needs adjudication.‖
12. Insofar as the second proposition with regard to assessment
proceedings not being conclusive for the purposes of imposition of
penalty is concerned, the learned counsel for the assessee placed
reliance on, inter alia, CIT v. Anwar Ali: 76 ITR 696 (SC); CIT v.
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 & 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 the amount in dispute constitutes
income of the assessee. Apart from the falsity of the
explanation given by the assessee, the department must
have before it before levying penalty cogent material or
evidence from which it could be inferred that the
assessee has consciously concealed the particulars of his
income or had deliberately furnished inaccurate
particulars in respect of the same and that the disputed
amount is a revenue receipt. No doubt the original
assessment proceedings, for computing the tax may be a
good item of evidence in the penalty proceedings but the
penalty cannot be levied solely on the basis of the
reasons given in the original order of assessment.‖
CIT v. J.K. Synthetics Ltd.: 219 ITR 267 (Del)
―However, the proceedings for imposition of penalty
and assessment proceedings are two separate and
independent proceedings and, therefore, separate and
distinct provisions have been enacted in the statute for
initiation of the same. Under the provisions of section
271(1), a person becomes liable to pay penalty within
the term and language of clause (a) or (b) or (c).
Therefore, the findings recorded by the Tribunal in the
quantum appeal cannot be said to be decisive and
concluded factor in the penalty proceedings.‖
13. The learned counsel for the assessee submitted that the
assessment had been framed purely on the basis of the surrender made
by the assessee to avoid protracted litigation and to buy peace. He
submitted that de hors the surrender made by the assessee, the
department has not been able to prove the existence of any undisclosed
income during the course of the search. The assessment has been made
on pure estimate and, notwithstanding the fact that the assessee did not
file an appeal against the quantum assessment, it was open to the
assessee in penalty proceedings to show that an addition made on the
basis of pure estimate and guesswork did not constitute undisclosed
income.
14. He submitted that the finding of the Tribunal is also to the
effect that the assessment was based on pure estimate / guesswork and
that in the light of such a finding recorded by the Tribunal, the
imposition of penalty cannot be sustained. He reiterated that unless
there is ―undisclosed income‖ within the scope of Chapter XIV-B,
there is no question of levying penalty under Section 158 BFA (2) of
the said Act. He submitted that the assessee had 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 added was
concealed income. There may be a hundred and one
reasons for such admission, i.e., when the assessee
realises the true position, it does not dispute certain
disallowances but that does not absolve the Revenue
from proving the mens rea of a quasi-criminal
offence.‖
At this stage itself, we may note that the learned counsel for the
revenue / appellant contended that the decision in Sir Shadilal Sugar
and General Mills Ltd (supra) is no longer good law as observed by a
larger Bench of the Supreme Court in the subsequent decision in the
case of K.P. Madhusudhanan v. Commissioner of Income-tax: 251
ITR 99 (SC). The exact manner in which the later decision has referred
to the earlier decision in the case of Sir Shadilal Sugar and General
Mills Ltd (supra) is as follows:-
―Learned counsel for the assessee then drew our
attention to the judgment of this court in Sir Shadilal
Sugar and General Mills Ltd. v. CIT [1987] 168 ITR
705. He submitted that the assessee had agreed to the
additions to his income referred to hereinabove to
buy peace and it did not follow therefrom that the
amount that was agreed to be added was concealed
income. That it did not follow that the amount agreed
to be added was concealed income is undoubtedly
what was laid down by this court in the case of Sir
Shadilal Sugar and General Mills Ltd. [1987] 168
ITR 705 and that, therefore, the Revenue was
required to prove the mens rea of a quasi-criminal
offence. But it was because of the view taken in this
and other judgments that the Explanation to section
271 was added. By reason of the addition of that
Explanation, the view taken in this case can no longer
be said to be applicable.‖
The observation of the Supreme Court in K.P. Madhusudhanan
(supra) clearly relates to the addition of the Explanation to Section 271
of the said Act. There is no such provision in Chapter XIV-B of the
said Act and in particular in Section 158 BFA (2) thereof. The general
proposition laid down in Sir Shadilal Sugar and General Mills Ltd
(supra) was that the surrender of undisclosed income made by an
assessee to buy peace did not necessarily lead to the conclusion that the
amount surrendered was indeed concealed income, cannot be said to
have been overruled in K.P. Madhusudhanan (supra). The Supreme
Court in K.P. Madhusudhanan (supra) itself noted that because of the
view taken in Sir Shadilal 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 revenue.
17. Before we proceed to answer the questions in the light of the
arguments advanced by the counsel for the parties, it would be
necessary to notice the statutory provisions. Section 158 BFA (2) reads
as under:-
"158BFA. Levy of interest and penalty in certain
cases.--
(1) xxxx xxxx xxxx xxxx
(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.
(3) xxxx xxxx xxxx xxxx‖
It is apparent that in the course of any proceedings under Chapter XIV-
B, the Assessing Officer ―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‖. This, in our view, implies that the
Assessing Officer has discretion in imposing a penalty. This is
apparent from the use of the expression ―may direct that a person shall
pay by way of penalty‖. Once the Assessing Officer, exercising his
discretion, comes to the conclusion that penalty is imposable, the
statute requires that such sum of penalty ―shall‖ not be less than the
amount 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 payable and the evidence of tax paid is
furnished along with the return and an appeal is not filed against the
assessment of that part of income which is shown in the return, no
order imposing a penalty can be made under Section 158 BFA (2). The
intention of the legislature is clear. Where, after a person receives a
notice under Section 158 BC and he furnishes a return indicating
undisclosed income and tax is paid or the money seized is offered to be
adjusted against the tax payable and if the assessee does not appeal
against the assessment completed on that basis, then no penalty can be
imposed on such an assessee. The intention of the legislature is that
where a person, who has been granted an opportunity of making a clean
breast of things, comes forth and declares his undisclosed income and
also pays the tax thereon, then no penalty ought to be imposed on him
for his earlier transgressions.
19. The second proviso to Section 158 BFA (2), however,
stipulates that the provisions of the first proviso would not apply where
the undisclosed income determined by the Assessing Officer is in
excess of the income shown in the return. It further stipulates that 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. The indication of the legislature, which
can be discerned upon a plain reading of the second proviso, is that
when an opportunity has been granted to a person to file return of his
undisclosed income and he still does not disclose the income which is
undisclosed then, where the assessment is made in excess of the
amount of undisclosed income shown in the return, the provisions of
the first proviso would not apply. In other words, in such a situation,
the penalty would be imposable. And, it shall be imposed on that
portion of undisclosed income determined which is in excess of the
amount of undisclosed income shown in the return. The expression
―the penalty shall be imposed on that portion.......‖ appearing in the
second proviso, in our view, has reference to the basis on which the
penalty is to be imposed. To be clear, the word ―shall‖ used in the said
expression does not have reference to the imposition of penalty in the
sense that penalty would be mandatory but has reference to the mode of
quantification of the penalty. All that the second proviso 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) which reads as under:-
―(c) the Assessing Officer, on determination of the
undisclosed income of the block period in accordance
with this Chapter, shall pass an order of assessment and
determine the tax payable by him on the basis of such
assessment;‖
Thus, determination of the undisclosed income has to be done in the
manner laid down in Section 158 BB and the provisions of Section
142, sub-section (2) and (3) of Section 143, Section 144 and Section
145 shall, so far as may be, apply. Section 158 BB deals with
computation of undisclosed income of the block period. Section 158
BB (1), so much as is relevant for our purposes, reads as under:-
"158BB. (1) The undisclosed income of the block
period shall be the aggregate of the total income of the
previous years falling within the block period computed,
in accordance with the provisions of this Act, 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, as
reduced by the aggregate of the total income, or as the
case may be, as increased by the aggregate of the losses
of such previous years, determined,--.....‖
This provision clearly stipulates that the undisclosed income of the
block period has to be determined or computed ―on the basis of
evidence found as a result of search or requisition of books of accounts
or other documents and such other materials or information as are
available with the Assessing Officer and relatable to such evidence‖.
This Court in Ravi Kant Jain (supra), as indicated above, has already
observed that the procedure of assessment under Chapter XIV-B is a
special procedure intended to provide a mode of assessment of
undisclosed income which has been detected as a result of search. The
procedure under Chapter XIV-B is not intended as a substitute to
regular assessment and its scope and ambit is limited in that sense to
materials unearthed during the search. As pointed out in Ravi Kant
Jain (supra), the assessment for the block period can only be done on
the basis of evidence found as a result of search or requisition of books
of accounts or other documents and such other materials or information
as are available with the Assessing Officer and relatable to such
evidence. It is, therefore, clear that the undisclosed income, which is 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 Tribunal has already returned a finding
that there is no evidence found as a result of search, which suggests
that the transactions for the whole year of 1999-2000 required any
investment in the first instance. The Tribunal has also found as a fact
that no amount was found to have been invested by the assessee in the
first instance for the transactions of the whole year. The Tribunal also
found that even the estimate of 1% net profit was mere guesswork. On
the basis of these facts it is apparent that the undisclosed income has
been computed merely on the basis of the surrender made by the
assessee in the course of the block assessment proceedings. De hors
the surrender, there is no evidence which could have been said to have
been found as a result of the search and, therefore, the ‗computation' of
undisclosed income by the Assessing Officer in the block assessment
proceedings cannot be construed as a ‗determination' of undisclosed
income contemplated under Section 158 BC (c) or 158 BB. Thus, even
de hors the question of applicability of the decision in Sir Shadilal
Sugar and General Mills Ltd (supra) and without considering the
provisions of Section 271 (1) (c) of the said Act or the effect of the
insertion of the Explanation therein, when there is a bonafide surrender
and the undisclosed income is computed merely on the basis of such
surrender, no penalty would be imposable under Section 158 BFA (2)
of the said Act. This would be because there is no ‗determination' of
undisclosed income by the assessee under clause (c) of Section 158 BC
which is the requirement for imposition of penalty. The sum and
substance of all this is that, had there been no surrender, the Assessing
Officer could not have determined the undisclosed income inasmuch as
the Tribunal has returned a finding of fact that there is no evidence
relatable to the search on the basis of which such undisclosed income
could have been determined.
23. In view of the foregoing discussion, question (a) is answered
in the affirmative. In other words, the Tribunal was correct in law in
cancelling the penalty imposed by the Assessing Officer under Section
158 BFA (2) of the said Act. However, with regard to question (b) we
note that the Tribunal was concerned with concealment and/ or
furnishing of inaccurate particulars of income, which is an expression
occurring in Section 271 (1) (c) of the said Act but 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
liable to be cancelled. This question is answered accordingly.
24. In view of the answer to question (a) above, the appeal is
dismissed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
November 12, 2008
SR
