The Commissioner Of Income Tax, Central-Iii, Chennai v. Shri S.v.srinivasan

In the High Court of Judicature at Madras Dated : 03.7.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.948 of 2009 The Commissioner of Income Tax, Central-III, Chennai. ...Appellant VsShri S.V.Srinivasan...RespondentAPPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 14.8.2008 made in IT(SS)A.No.0163/Mds/2006 onthe file of the Income Tax Appellate Tribunal, Chennai 'D' Benchfor the block assessment period from 1996-97 to 2002-03 and upto13.9.2001. and against the order of the Commissioner of incomeTax, (Appeals) II, Coimbatore, dated 19.12.2006 made inI.T.Appeal No. 359C/05-06 and against the order of thecommissioner of Income Tax (Appeals) II, Coimbatore dated24.04.2006 made in I.T.A.No. 231-C/05-06.For Appellant :Mr.T.R.Senthilkumar, SSC andMrs.K.G.UsharaniFor Respondent:Mr.A.S.Sriraman for Mr.S.Sridhar Judgment was delivered by T.S.Sivagnanam,J We have heard Mr.T.R.Senthilkumar, Senior Standing Counselappearing for the Revenue and Mr.A.S.Sriraman, learned counselappearing for Mr.S. Sridhar, learned counsel for the respondent– assessee. 2. This appeal, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act), is directedagainst the order dated 14.8.2008 passed in ITA.No.0163/Mds/2006 https://hcservices.ecourts.gov.in/hcservices/ on the file of the Income Tax Appellate Tribunal, Chennai 'D'Bench for the block assessment period from 1996-97 to 2002-03and upto 13.9.2001. 3. The appeal was admitted on 19.10.2009 on the followingsubstantial questions of law : “i. Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in holding that penalty under Section158BFA(2) was not leviable on the differencebetween the undisclosed income returned bythe assessee and the undisclosed incomefinally determined after giving effect totheTribunal'sdirectionsbasedonsuppression of quantum and value of gold,diamonds and other assets in the quantum ofappeal ? andii. Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the Assessing Officerhad not established that there was anywillful or deliberate concealment andfurnishing of inaccurate particulars on thepart of the assessee ignoring the settledlaw that mens rea was not essential forattracting civil liability or penaltyespecially in view of the terminology usedin Section 158BFA(2)?” 4. During the course of the search conducted in the premisesof the assessee on 13.9.2001, gold jewellery, diamonds and othervaluable articles were found and seized. In the block return,the assessee admitted the undisclosed income of Rs.85 lakhs.However, the Assessing Officer made the assessment atRs.5,05,93,070/-. Since the assessment being a block assessment,the assessee preferred an appeal before the Tribunal. TheTribunal appears to have granted substantial relief to theassessee. Consequently, the giving effect to order was passed bythe Assessing Officer on 14.7.2005 revising the totalundisclosed income at Rs.1,34,73,770/- and computed the taxpayable and after adjustment of the tax collected, a refundorder was issued on 31.3.2005 for a sum of Rs.42,12,751/-. 5. It is only thereafter proceedings were initiated for levyof penalty under Section 158BFA(2) of the Act. The assesseeresisted the proposal to levy penalty by contending that thelevy of penalty was not automatic in terms of Sub-Section (2) ofSection 158BFA of the Act and more particularly when theconditions stipulated in Clauses (i) to (iv) of the Provisounder Sub-Section (2) of Section 158BFA stand attracted in thecase of the assessee. The Assessing Officer did not agree withthe stand taken by the assessee and by order dated 19.7.2005, the Assessing Officer levied penalty under Section 158BFA(2) ofthe Act equivalent to that of the amount of tax. 5. It is only thereafter proceedings were initiated for levyof penalty under Section 158BFA(2) of the Act. The assesseeresisted the proposal to levy penalty by contending that thelevy of penalty was not automatic in terms of Sub-Section (2) ofSection 158BFA of the Act and more particularly when theconditions stipulated in Clauses (i) to (iv) of the Provisounder Sub-Section (2) of Section 158BFA stand attracted in thecase of the assessee. The Assessing Officer did not agree withthe stand taken by the assessee and by order dated 19.7.2005, the Assessing Officer levied penalty under Section 158BFA(2) ofthe Act equivalent to that of the amount of tax. 6. The matter was taken on appeal to the Commissioner ofIncome Tax (Appeals)-II, Coimbatore [for brevity, the CIT(A)]and it was dismissed vide order dated 24.4.2006. As againstthat, the assessee filed an appeal before the Tribunal, which,by the impugned order, allowed the appeal and set aside the levyof penalty and this is how the Revenue is before us by way ofthis appeal. 7. Before examining the correctness of the order passed bythe Tribunal, we wish to point out that in the instant case, thefacts clearly disclose that the provisions of Section 158BFA ofthe Act could not have been invoked. The reason being that asagainst the block assessment, the assessee filed an appealbefore the Tribunal and as admitted by the Revenue, the assesseesucceeded and substantial relief was granted in favour of theassessee. As against such findings, the Revenue did not file anyappeal. It is only thereafter the giving effect to order waspassed revising the total undisclosed income and as seen fromthe order dated 19.7.2005, it is clear that the penalty wassought to be levied on the revised total undisclosed income ofRs.1,34,73,770/- less the undisclosed income returned at Rs.85lakhs equivalent to Rs.49,73,770/-. Thus, on this amount, thequestion of levying penalty under Section 158BFA(2) of the Actdoes not arise. Therefore, on the above ground, the levy ofpenalty is held to be not sustainable. Nevertheless, since thesubstantial questions of law were framed for consideration, weproceed to consider the same. 8. The first contention of Mr.T.R.Senthilkumar, learnedSenior Standing Counsel for the Revenue is that the assesseecannot escape from the levy of penalty, which is virtuallyimposable in the facts and circumstances of this case. 9. There has been a long line of decisions by various Courtson the issue as to whether any discretion is vested with theAssessing Officer in the matter of levy of penalty under Section158BFA(2) of the Act. We refer to a few decisions. 10. In the decision of the Division Bench of the Delhi HighCourt of in the case of CIT Vs. Harkaran Das Ved Pal [reportedin (2011) 336 ITR 8], it was held that the the Assessing Officerhas discretion to impose penalty, as it is apparent from the useof the expression 'may direct that a person shall pay by way ofpenalty'. It was further held that once the Assessing Officerexercising his discretion comes to the conclusion that penaltyis 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 inrespect of the undisclosed income determined by the AssessingOfficer. Thus, it is discretionary for the Assessing Officer todirect that a person shall pay penalty and it is mandatory thatin case the Assessing Officer is of the opinion that such penalty is leviable, the penalty amount shall not be less thanthe amount of tax leviable in respect of the undisclosed incomeand shall be not more than three times the amount of tax. Thus,the Legislature did not intend imposition of penalty by itselfto be mandatory and the same is left to the discretion, which,of course, has to be exercised upon judicial considerations ofthe Assessing Officer. penalty is leviable, the penalty amount shall not be less thanthe amount of tax leviable in respect of the undisclosed incomeand shall be not more than three times the amount of tax. Thus,the Legislature did not intend imposition of penalty by itselfto be mandatory and the same is left to the discretion, which,of course, has to be exercised upon judicial considerations ofthe Assessing Officer. 11. In the decision of the Division Bench of the RajasthanHigh Court in the case of CIT Vs. Satyendra Kumar Dosi [reportedin (2009) 315 ITR 172], it has been held that levy of penaltyunder Section 158BFA(2) of the Act is discretionary and notmandatory. 12. To the same effect is the decision of the Division Benchof the Bombay High Court in the case of CIT Vs. Dodsal Ltd.[reported in (2009) 312 ITR 112]. 13. The above legal principles were rightly noted by theTribunal and on its own part, it had referred to other decisionsincluding the decision of the Hon'ble Supreme Court in the caseof Dilip N.Shroff Vs. JCIT [reported in (2007) 291 ITR 519].Therefore, in our considered view, the Tribunal is fullyjustified in allowing the appeal filed by the assessee. 14. Before the Tribunal, the assessee contended that penaltywas not leviable, as the assessee did not commit any willfuldefault and the assessee claimed that the additions made wereonly due to the difference in estimate and interpretation andthat no mistake was committed by the assessee willfully. 15. In fact, identical is the issue in the case of HarkaranDas Ved Pal wherein also the Division Bench of the Delhi HighCourt held that computation of undisclosed income could not beconsidered as undisclosed income determined by the AssessingOfficer under Clause (c) of Section 158BC of the Act, as it wasfound that no amount was found to have been invested by theassessee in the first instance for the transactions of the wholeyear and that the estimate of 1% net profit was mere guesswork.It was further found that de hors the surrender, there was noevidence, which could be said to have been found as a result ofthe search and therefore, the computation of undisclosed incomeby the Assessing Officer in the block assessment proceedingscould not be construed as a determination of undisclosed incomecontemplated under Section 158BC(c) or Section 158BB of the Act. 16. In the decision in the case of Satyendra Kumar Dosi, theCIT(A) and the Tribunal concurrently found that the differencebetween the undisclosed income assessed and the undisclosedincome shown in the return is a result of estimation of theopening capital prior to the block period and the capitalproposed by the assessee prior to the block period could not betreated as undisclosed income of the first assessment year inthe block period. 17. On a reading of the penalty order under Section 158BFA(2)of the Act dated 19.7.2005, in which the assessment order has been referred to, we find that the difference is on account ofthe valuation of the gold jewelery and the diamonds. Thus, itwas the consistent case of the assessee that the differencebetween the returned income and the assessed income was notwillful, but it was voluntary and requested for dropping thepenalty proceedings. These factors were rightly taken intoconsideration by the Tribunal while passing the impugned order. 18. Mr.T.R.Senthilkumar, learned Senior Standing Counsel forthe Revenue has referred to a decision of the Division Bench ofthe Rajasthan High Court in the case of Apex Metchem (P) Ltd.Vs. ACIT [reported in (2014) 46 Taxmann.com 443]. 17. On a reading of the penalty order under Section 158BFA(2)of the Act dated 19.7.2005, in which the assessment order has been referred to, we find that the difference is on account ofthe valuation of the gold jewelery and the diamonds. Thus, itwas the consistent case of the assessee that the differencebetween the returned income and the assessed income was notwillful, but it was voluntary and requested for dropping thepenalty proceedings. These factors were rightly taken intoconsideration by the Tribunal while passing the impugned order. 18. Mr.T.R.Senthilkumar, learned Senior Standing Counsel forthe Revenue has referred to a decision of the Division Bench ofthe Rajasthan High Court in the case of Apex Metchem (P) Ltd.Vs. ACIT [reported in (2014) 46 Taxmann.com 443]. 19. Though the decision in the case of Apex Metchem (P) Ltd.arose under Section 158BFA of the Act, it is not applicable tothe case on hand, because, on facts, in the said case, it wasfound by all the three Authorities that the assessee wasinvolved in undisclosed transactions on the basis ofoverwhelming evidence and all those transactions were out ofbooks. It is never the case of the Revenue that the undisclosedincome was on account of any transaction, which was out ofbooks. But, the entire case arose out of valuation of the goldjewellery and the diamonds. Thus, for the above reasons, we findthat the Revenue has not made out any ground to interfere withthe order passed by the Tribunal. 20. Accordingly, the above tax case appeal is dismissed andthe substantial questions of law framed are answered against theRevenue. No costs. Sd/- Assistant Registrar (CCC) //True Copy// Sub Assistant Registrar RS To 1.The Income Tax Appellate Tribunal, Chennai 'D' Bench, Chennai. Chennai 'D' Bench, Chennai. 2.The Commissioner of Income Tax, Central III, Chennai. Central III, Chennai. 3.The Commissioner of Income Tax, (Appeals) II, Coimbatore. 4. The Assistant Commissioner of Income Tax, Central Circle III, Coimbatore. Central Circle III, Coimbatore. +1cc to Mr.S.Sridhar, Advocate, S.R.No.55363 +1cc to Mr.T.R.Senthil Kumar, Advocate, S.R.No. 55854 TCA.No.948 of 2009 BR(CO)GN(05/08/2019)