Commissioner Of Income Tax, Udaipur v. Shrisatyendra Kumar Dosi(D.b.income Tax Appeal

(1) COMMISSIONER OF INCOME TAX, UDAIPUR VS. SHRISATYENDRA KUMAR DOSI(D.B.INCOME TAX APPEAL NO.195/08) (2) COMMISSIONER OF INCOME TAX, UDAIPUR VS. SHRINAGENDRA KUMAR DOSI(D.B.INCOME TAX APPEAL NO.196/08) Date of Order:- 19[th] January,2009. HON'BLE MR.JUSTICE A.M.KAPADIAHON'BLE MR.JUSTICE SANGEET LODHA Mr.K.K.Bissa, for the appellant. BY THE COURT :- (PER HONBLE MR.SANGEET LODHA),J. 1. These two appeals under the provisions of Section 260 A ofthe Income Tax Act, 1961 ( in short “the Act of 1961”hereinafter) filed by the Revenue are directed against orderdated 13.3.07 passed by the Income Tax AppellateTribunal,Jodhpur Bench,Jodhpur ( in short “ITAT” hereinafter)inITSSA No.14/JDPR/2006 and ITSSA No. 15/JDPR/2007 inrespect of block period Assessment Years 1996-97 to 2001-02,whereby the appeals preferred by the Revenue against separatebut similar orders dated 18.10.05 passed by the Commissionerof Income Tax(Appeals) ( in short “CIT(A)” hereinafter) in thecase of each of the respondent-assessees deleting the penaltyimposed u/s 158 BFA(2) by the Assessing Officer (in short “AO”hereinafter), stands confirmed. 2.The respondent-assessees and one Shri Virendra KumarDosi are brothers, who are engaged in money lending businessjointly at Banswara. A search was conducted at their residential premises on 3.1.02. The assessees filed their respective returnsfor the block period in response to the notices issued u/s 158 BCof the Act of 1961, declaring the total undisclosed income ofthree brothers at Rs.56,33,926/-. The AO assessed the totalundisclosed income at Rs.88,67,116/-. The assesses' undisclosedincome being found much more than the income declared in theblock period returns, the AO initiated the penalty proceedingsagainst the respondents-assessees and their brother ShriVirendra Kumar Dosi u/s 158 BFA(2) of the Act of 1961. Afterdue consideration of the explanations furnished by theassessees, the AO levied penalty quantified at Rs. 19,39,913/-( Shri Narendra Kumar Dosi Rs.6,41,839/-, Satyendra KumarDosi Rs.6,56,235/- and Virendra Kumar Dosi Rs.6,41,839/-)which comes to 100% of the tax leviable on the difference ofassessed and returned income. It is relevant to mention herethat the appeals of the assessee in quantum proceedings weredecided by the learned ITAT and the income of the assesssesafter the appellate orders stands quantified atRs.67,17,116/-. 3.The validity of penalty orders dated 6.8.02 passed by theAO as aforesaid was challenged by each of the assessees by wayof separate appeals before the Commissioner of Income Tax(Appeals), Udaipur. After due consideration of overall facts of thecase and the decisions cited on behalf of the assessees, the 3.The validity of penalty orders dated 6.8.02 passed by theAO as aforesaid was challenged by each of the assessees by wayof separate appeals before the Commissioner of Income Tax(Appeals), Udaipur. After due consideration of overall facts of thecase and the decisions cited on behalf of the assessees, the learned CIT(A) arrived at the finding that the difference betweenassessed income and returned income is not because of anyconcealment of income by the assessees or because of anyinaccurate particulars of the income furnished by the assesses.According to the CIT(A) the difference in opening capital claimedby the assessees and allowed by the CIT(A) ( in quantumappeals) was on account of different method and differentcalculation followed by the assessees. According to the CIT(A)theassesses did not disturb the actual concealment of the incomeand accordingly offered undisclosed income on the basis ofNeelgagan Diary seized during the course of search. Accordingly,on consideration of totality of the facts and circumstances , thelearned CIT(A) arrived at the finding that non allowance of theopening capital balance by the AO and the reduction of theopening capital balance by the CIT(A) Central,Jaipur, from 35lacs to 15 lacs following different method and working of thesame than that of the appellant cannot be said to be undisclosedincome of assessees for the purpose of levy of penalty u/s 158BFA(2) . Accordingly, the penalty imposed by the AO in the caseof each of the assessees was ordered to be deleted by thelearned CIT(A) vide order dated 18.10.05. 4.On further appeals, before the learned ITAT , it wascontended on behalf of the Revenue that u/s 158 BFA(2) apenalty on account of difference in disclosed and assessed undisclosed income has to be imposed automatically as noreasonable cause is admissible thereunder. The learned ITATafter due consideration of the provisions of Section 158 BFA andthe rival submissions of the parties so also the earlier decisionsof the ITAT held that the provision of penalty as contained inSection 158 BFA(2) is not mandatory. That apart, the learnedITAT opined that in the instant case, the addition is result ofestimation of the opening capital involved prior to the blockperiod and in the block assessments while computing theundisclosed income for the block period, capital possessed by theassessees prior to the block period as revealed from the ledgerand the material seized during the search could not be treated asundisclosed income of the first assessment year in the blockperiod. Accordingly, order passed by the CIT(A) deleting thepenalty in case of each of the assessees has been confirmed bythe learned ITAT by the order impugned in these appeals. 5.In these appeals, the appellants have suggested thatfollowing substantial question of law arise out of the orderpassed by the learned ITAT for consideration of this Court:- “Whether on the facts and in the circumstances of thecase as well as in the law the learned Tribunal wasjustified in upholding the order of the learned CIT(A)deleting penalty levied under Section 158BFA(2) onthe basis of wrong facts that the said income in realsense does not relate to the block period as such andby ignoring the vast difference in interpretation ofSection 158BFA(3) and 273B of the Income Tax Act”? 6.However, during the course of arguments , the learnedcounsel for the appellant submitted that yet another question asto “whether the provisions of Section 158 BFA(2) providing forpenalty on account of difference in disclosed and assessedundisclosed income is mandatory or discretionary”? also arise forconsideration of this court in these appeals. “Whether on the facts and in the circumstances of thecase as well as in the law the learned Tribunal wasjustified in upholding the order of the learned CIT(A)deleting penalty levied under Section 158BFA(2) onthe basis of wrong facts that the said income in realsense does not relate to the block period as such andby ignoring the vast difference in interpretation ofSection 158BFA(3) and 273B of the Income Tax Act”? 6.However, during the course of arguments , the learnedcounsel for the appellant submitted that yet another question asto “whether the provisions of Section 158 BFA(2) providing forpenalty on account of difference in disclosed and assessedundisclosed income is mandatory or discretionary”? also arise forconsideration of this court in these appeals. 7.It is contended by the learned counsel for the appellantthat the learned ITAT has erred in holding that the disputedincome in real sense does not relate to the block period as such.The learned counsel submitted that what relates to the earlierperiod is the opening capital which is on estimate basis and notthe income on which penalty is levied. The learned counselsubmitted that even if the addition is result of estimatedaddition, a penalty shall be imposed on that portion of theundisclosed income so determined which is in excess of theamount of undisclosed income shown in the return. The learnedcounsel submitted that Section 158 BFA(3) only provides forreasonable opportunity being granted to the assessees beforeimposition of penalty but, in no manner it can be inferred fromthe provision that no penalty is leviable if the reasonable cause isshown, as it is in certain cases covered by the provisions ofSection 273B. Accordingly, it is submitted by the learned counselthat the penalty under Section 158 BFA in respect of undisclosedincome determined by the AO is automatic. 8.We have considered the submissions of the learned counselfor the appellant and also perused the record. 9.Since the controversy involved in these appeals rolls round the provisions of Section 158 BFA(2), it will be beneficial to reproduce the same:- “158BFA(2) The Assessing Officer or the ld.CIT(A) inthe course of any proceedings under this Chapter, maydirect that a person shall pay by way of penalty a sumwhich shall not be less than the amount of tax leviablebut which shall not exceed three times the amount oftax so leviable in respect of the undisclosed incomedetermined by the Assessing Officer under clause (c )of section 158 BC” Provided that no order imposing penalty shall be madein respect of a person if; (i)such person has furnished a return under clause (a)of section 158 BC;of section 158 BC; (ii)the tax payable on the basis of such return hasbeen paid or, if the assets seized consist of money,the assessee offers the money so seized to beadjusted against the tax payable;been paid or, if the assets seized consist of money,the assessee offers the money so seized to beadjusted against the tax payable; (iii)evidence of tax paid is furnished alongwith thereturn; andreturn; and (iv) an appeal is not filed against the assessment ofthat part of income which is show in the return:that part of income which is show in the return: Provided further that the provisions of the precedingproviso shall not apply where the undisclosed incomedetermined by the Assessing Officer is in excess of theincomes shown in the return and in such cases thepenalty shall be imposed on that portion of undisclosedincome determined which is in excess of the amount ofundisclosed income shown in the return.” 10.A bare perusal of Section 158BFA (2) goes to show that by virtue of the said provision, the Assessing Officer or theCommissioner of Appeal is vested with the power to direct the (iii)evidence of tax paid is furnished alongwith thereturn; andreturn; and (iv) an appeal is not filed against the assessment ofthat part of income which is show in the return:that part of income which is show in the return: Provided further that the provisions of the precedingproviso shall not apply where the undisclosed incomedetermined by the Assessing Officer is in excess of theincomes shown in the return and in such cases thepenalty shall be imposed on that portion of undisclosedincome determined which is in excess of the amount ofundisclosed income shown in the return.” 10.A bare perusal of Section 158BFA (2) goes to show that by virtue of the said provision, the Assessing Officer or theCommissioner of Appeal is vested with the power to direct the assessee to pay the penalty as specified in respect of theundisclosed income determined by the AO under clause (c) ofSection 158 BC, however, the AO or the CIT(A) is notempowered to impose the penalty in respect of the person whofulfils the conditions eunmerated in the first proviso to Section158BFA. It is to be noticed that in the main provision providingfor imposition of penalty, the word “may” has been used. It issettled law that the penal provision in the taxing statues shall beconstrued strictly. From the plain reading of the section 158BFA(2), it does not appear that in all the cases where theundisclosed income is determined by the AO under clause ( c) ofSection 158 BC, the imposition of penalty as specified u/s 158BFA shall follow as a natural consequences thereof. In ourconsidered opinion, in terms of Section 158 BFA , a discretion isvested with the Assessing Officer to levy the penalty in respectof the undisclosed income but it cannot be inferred from the saidprovision that the liability for penalty is automatic. Of course,the proviso to Section 158 BFA(2) enumerates thecircumstances wherein no penalty is leviable but from that also itcannot be inferred that the absence of the circumstancesenumerated will attract the provision of penalty automatically. 11.The contention raised by the learned counsel on thestrength of the provisions of Section 273B and 158BFA(3) is alsodevoid of any merit. Of course, as per the provision of Section 273B no penalty shall be imposable on the persons of theassessee as the case may be, on their failure referred to in thesaid provisions if he proves that there was reasonable cause forthe said failure. But then, the said provision in no manner leadto the presumption that in respect of the cases other thancovered by Section 273B for any failure or violation imposition ofthe penalty is automatic. Each provision of penalty has to beconstrued independently keeping in view the language employedtherein. 12. For the aforementioned reasons, we are of the consideredopinion that the learned ITAT has committed no error in holdingthat the provisions of Section 158 BFA(2) providing forimposition of penalty in respect of the undisclosed incomedetermined by the AO under clause (c ) of Section 158BC isdiscretionary and not mandatory. 13.Moreover,in the instant case, after due examination of thefacts and the material on record, the CIT(A) and learned ITAThave concurrently found that the difference of the undisclosedincome assessed and the undisclosed income shown in thereturn does not relate to the block period as such. The ITAT hasarrived at the finding that the assessees had claimed to givereduction of amounts calculated on reasonable basis on accountof their opening capital as on 1.4.95 from the unaccountedmoney lending business prior to block period out of the 13.Moreover,in the instant case, after due examination of thefacts and the material on record, the CIT(A) and learned ITAThave concurrently found that the difference of the undisclosedincome assessed and the undisclosed income shown in thereturn does not relate to the block period as such. The ITAT hasarrived at the finding that the assessees had claimed to givereduction of amounts calculated on reasonable basis on accountof their opening capital as on 1.4.95 from the unaccountedmoney lending business prior to block period out of the undisclosed income determined in their hands. The learned ITAThas rightly held that the addition is result of estimation of theopening capital involved prior to the block period and in theblock assessments while computing the undisclosed income forthe block period, capital possessed by the assessees prior to theblock period as revealed from the ledger and the material seizedduring the search could not be treated as undisclosed income ofthe first assessment year in the block period. Thus, in view ofthe concurrent finding of facts arrived at by the two appellateauthorities, as aforesaid, in our considered opinion, nosubstantial question of law arises for consideration of this Courtin these appeals. 14.In the result, the appeals fail, the same are herebydismissed. No order as to costs. (SANGEET LODHA),J. (A.M.KAPADIA),J.