The Commissioner Of Income Tax Patiala(Punjab v. Shri Jai Parkash C/Om/S Mangal Engineering Works

ITA No.372 of 2007 In the High Court for the States of Punjab and Haryana at Chandigarh… ITA No.372 of 2007 Date of decision: 25 .3.2008 The Commissioner of Income Tax Patiala(Punjab) Versus Shri Jai Parkash c/oM/s Mangal Engineering Works Appellant ..Respondent Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Yogesh Putney, Advocatefor the appellant-Revenue. Rakesh Kumar Garg,J 1.The Revenue has filed the present Appeal under Section 260Aof the Income Tax Act, 1961(for short ‘the Act’) against the order of theIncome Tax Appellate Tribunal, Chandigarh, Bench ‘A’ Chandigarh (forshort ‘ITAT’),dated 25.4.2007 (Annexure A-5) passed in IT(SS)ANo.130/CHANDI/2005 in the case of M/s Jai Parkash c/o M/s MangalEngineering Works, Factory Area, Patiala (Punjab) Vs. ACIT Circle, Patialafor the Block period 1.4.1986 to 2.1.1997, raising the following proposedsubstantial questions of law:- (i) Whether on the facts and in the circumstances of the case,the ITAT was right in law in deleting the penalty imposedunder Section 158BFA (2) of the Act by ignoring its ownfinding that the income of Rs.3,76,640/- constituted undisclosed income within the meaning of section 158BB(1)(ca) read with Section 158BC(c ) of the Act and that suchundisclosed income attracted penal provisions under Section158BFA(2).” (ii)Whether on the facts and in the circumstances of the case,the ITAT was justified in deleting the penalty on the groundthat the assessee still had time to file the return income underSection 139(4) and that it had paid entire advance tax ignoringthe mandate of 2[nd] proviso to sub section (2) to Section158BFA of the Act.” 2.A search and seizure under Section 132(1) of the Act hadbeen carried out at the premises owned by the assessee/respondent on2.1.1997 and upto the date of search, the assessee had not filed his returnof income for the Assessment Year (for short ‘A.Y’.) 1996-97, which wasotherwise due to be filed on or before 31.10.1996. The return was filed on17.1.1997, therein declaring an income of Rs.3,76,640/-. During the courseof search, three saving bank accounts bearing Numbers 1499, 1760 and1453 with Oriental Bank of Commerce, Anaj Mandi, Patiala belonging tothe assessee were detected, which were in the fictitious names of M/sGoyal Traders, M/s Shiv Traders and M/s National Engineering havingdeposits of Rs.69,33,866/-, 57,15,604/- and Rs.54,72,439/- respectively.The Assessing Officer while completing Block Assessment under Section158BC read with Section 143(3) of the Act treated the income ofRs.3,76,640/- as an income from undisclosed sources in view of thespecific provisions under Section 158BB(1)(ca) of the Act, though the samewas declared by the assessee under Part III of his return of income filedunder Section 158BC(a)(i) of the Act. Simultaneously, penalty proceedingsunder Section 158 BFA (2) read with Section 158BC(c) of the Act were initiated vide order-dated 31.12.1998. The appeal filed by the assesseeagainst the order of the assessment was partly allowed vide order dated12.11.1999. However, the findings of the Assessing Officer pertaining tothe addition of Re.3,76,640/- shown as income by the appellant in hisreturn filed on 17.1.1997 for the Assessment Year 1996-97 were upheld bythe Commissioner of Income Tax(Appeals). 3.Aggrieved against the order of the Commissioner of IncomeTax(Appeals), the assessee filed further appeal before the Tribunalchallenging the order of the Assessing Officer, which was confirmed by theCommissioner of Income Tax(Appeals) adding the income of Rs.3,76,640/-as an undisclosed income within the meaning of Section 158 BB(1)(ca) onthe ground that the assessee had not disclosed the same before the searchoperation carried out on 2.1.1997. The Tribunal vide its order dated15.9.2004 dismissed the said appeal filed by the assessee. 3.Aggrieved against the order of the Commissioner of IncomeTax(Appeals), the assessee filed further appeal before the Tribunalchallenging the order of the Assessing Officer, which was confirmed by theCommissioner of Income Tax(Appeals) adding the income of Rs.3,76,640/-as an undisclosed income within the meaning of Section 158 BB(1)(ca) onthe ground that the assessee had not disclosed the same before the searchoperation carried out on 2.1.1997. The Tribunal vide its order dated15.9.2004 dismissed the said appeal filed by the assessee. 4.The Assessing Officer initiated penalty proceedings againstthe assessee and an opportunity was given to the assessee. The assesseevide letter dated 19.12.2004 furnished his reply as under: - “By way of reply, it is submitted that no penalty survives as inappeal, the entire addition made in terms of para 6(iii) of theassessment order was deleted in terms of order dated12.11.1999 passed by the Learned CIT(A) Patiala while givingappeal effect to the appellate order dated 12.11.1999, leavingthe balance income at Rs.3,76,637/- which was assessed u/s158 BC. Thus, no income survives to which provisions u/s 158BFA (2) may be applicable. The only income which survived out of assessmentorder dated 31.12.1998 was Rs.3, 76,637/- which was income declared u/s 158 BC. Had the normal return been filed in time before search,even this income of Rs.3, 37,637/- would not have survived.”5.On the basis of this reply, it was submitted by the assesseethat there was no such income on which any penalty under Section158BFA(2) of the Act was leviable and therefore, the penalty proceedingsunder Section 158 BFA (2) of the Act initiated on the basis of assessmentmay kindly be dropped. However, the Assessing Officer vide his orderdated 19.5.2005 held as under:- “I have carefully gone through the above reply put forth by theassessee which is not correct because return of income forthe assessment year 1996-97 was due on 30.10.1996 and thesame was filed on 17.1.1997 declaring income ofRs.3,76,640/- after the search and seizure operationconducted by the department on 2.1.1997 i.e., precisely afortnight after the search u/s 132(1) of the Income Tax Act,1961. It was an after thought on the part of the assesseewhich clearly shows that the assessee had concealedparticulars of his income and declared his income only afterthe search operation conducted on 2.1.1997. Accordingly, thedeclaration under Part III of the Block Assessment by theassessee of income of Rs.3,76,640/- is the undisputed incomeand not what it has claimed. Moreover, the CIT as well as theHon’ble ITAT in their respective orders (Supra) rejected theassessee’s contention that income of Rs.3,76,640/- relate toA.Y. 1996-97 but upheld the action of the Assessing Officerthat this income relates to undisclosed sources because theassessee not disclosed this income before search operation conducted on 2.1.1997. conducted on 2.1.1997. In view of the facts elaborated above, it is crystal clear that theassessee deliberately did not disclose the income of Rs.3,76,640/- which tantamounts to concealment of income. Itherefore, treat the assessee in default under the provisions ofSection 158 BFA (2) read with Section 158 BC(c ) of theIncome Tax Act, 1961 and impose a penalty of Rs.2,26,020/-.”6.Aggrieved against the said order, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals), Patiala on the groundthat the penalty has been imposed only in respect of the income ofRs.3,76,640/- which was a regular income of the A.Y. 1996-97 for whichthe return could not be filed by the due date and was only filed on17.1.1997,i.e., after the search action under Section 132 of the Actconducted on 1.1.1997. The penalty has been levied without appreciatingthat there was no contumacious conduct on the part of the assessee toconceal the income and therefore, there was no question of levy of anypenalty. It was also argued by the assessee that penalty under Section 158BFA (2) of the Act is not mandatory and is discretionary and suchdiscretion has to be exercised by the Assessing Officer considering thefacts and circumstances of the case. 7.The Commissioner of Income Tax (Appeals) dismissed theappeal vide order dated 19.9.2005.The relevant part of the order isreproduced as under: - “ The assertion made by the learned counsel of the appellantthat imposition of penalty u/s 158 BFA(2) of the Act isdiscretionary and not mandatory is not disputed. Nevertheless,it is noted that 2[nd] proviso to sub section 2 of section 158 BFAstipulates that penalty “shall” be imposed on such portion of undisclosed income determined which is in excess of amountof undisclosed income shown in the return. In the case underconsideration, there is no dispute that the sum of Rs.3,76,640/- was not shown in the return of income filed forblock period inasmuch as the appellant had claimed deductionof an equivalent amount whereas as per clause( c) of subsection1 of section 158 BB of the Act, no such deduction wasadmissible to the appellant as due date for filing of return hadexpired and no return of income had been filed. Therefore,there is no dispute that the undisclosed income assessed wasin excess of the undisclosed income returned by Rs.3,76,640/-. The case of the appellant also is not coveredunder the Ist proviso of section 158 BFA (2) of the Act. Nomaterial has been placed on record, which can establish thatthe appellant was prevented by A.Y. reasonable cause in notfiling the return for the A.Y. 1996-97 by the due date and whythe same was filed only after the search action. The failure tofile the return of income by the due date being attributed toinadvertence is not acceptable. Even if it were so, it is notedthat for the imposition of penalty u/s 158 BFA (2) of the Act,there is no requirement that the Department should establishthat the income assessed in excess of the income returnedwas on account of any deliberate action of an assessee. Thereis also no condition that in case an assessee has reasonablecause for not reflecting its undisclosed income in the return forthe block period correctly, penalty cannot be levied. The onlyrequirement for the imposition of penalty u/s 158 BFA(2) of theAct is that the assessed income should be in excess of the returned income and such excess income is in the nature of undisclosed income.” returned income and such excess income is in the nature of undisclosed income.” 8.Not satisfied with the order of the Commissioner of Income Tax(Appeals), the assessee filed further appeal before the Tribunal challengingthe said order. The Tribunal allowed the appeal vide order dated 25.4.2007filed by the assessee and reversed the order of the Commissioner ofIncome Tax (Appeals) by holding that it is not the case of the revenue thatthe assessee either concealed the income or furnished inaccurateparticulars of such income. It can be said rather the assessee is on moresound wicket due to the fact that the assessee filed the advance tax beforethe search and secondly there was still time available with the assessee tofile the return under Section 139(4) of the Act Hence this appeal by theappellant-Revenue. 9.We have heard Shri Yogesh Putney, Advocate,learnedcounsel for the Revenue. He has argued that while allowing the appeal theTribunal has erred while holding that the respondent/assessee’s case wascovered under second proviso to sub clause (2) to Section 158 BFA of theAct, as the second proviso to Section 158 BFA(2) over rules the firstproviso where the undisclosed income determined by the Assessing Officerwas in excess of the income shown in the return as in the present case.Learned counsel has further argued that the assessee had not disclosedthe income of Rs.3, 76,640/- within the time allowed under Section 139(1),which implies that the same related to the undisclosed income because theincome in question was not disclosed before the date of search andtherefore, as per the provisions, Section 158 BFA(2) read with Section 158BC(c ) of the act, penalty is leviable on the amount of undisclosed income. 10.After hearing the counsel, we find no force in the argumentsraised by the learned counsel for the Revenue. The only contention raised by the Revenue before the Tribunal was to the effect that the assessee hadfiled the return only due to search operation, but at the same time, the factremains that the assessee was still having time to file the return asprovided under Sub Section (4) of Section 139 of the Act up to 31.3.1997as the search took place on 2.1.1997 and before the expiry of the saidperiod as provided under Section 139(4) of the Act. Undisputedly, theassessee had paid the entire Advance Tax and was claiming refund.Therefore, in such a situation, the assessee was saved by the proviso (i) tosub clause (2) to Section 158 BFA of the Act. For imposing penalty underSection 158 BFA (4), there is discretion with the Assessing Officer but atthe same time, the said discretion has to be used in a judicious way. As inthe present case, there is no concealment of income since the assesseehas already paid the advance tax. If the assessee was having any intentionnot to pay the tax, he would not have paid the advance tax. 11. In the present case, the penalty is not imposable as there was noconscious breach of law by the assessee and still there was a timeavailable to file the return under Section 139(4) of the Act. The Revenuehas failed to prove that there was conscious or deliberate concealment ofincome or furnishing of inaccurate particulars by the assessee. Rather, theTribunal has given a finding of fact that it is not the case of the Revenuethat the assessee either concealed the income or furnished inaccurateparticulars of such income. It may also be mentioned here that theargument raised by the counsel for the Revenue regarding the applicabilityof proviso (ii) to sub clause (2) of Section 158 BFA in the present casedoes not arise from the order of the Tribunal. The ground raised by thecounsel for the Revenue before us was never raised before the Tribunal.Thus, the questions of law as proposed by the Revenue in the presentappeal do not arise from the order of the Tribunal. 12. dismissed. Hence, we find no merit in the appeal and the same is (RAKESH KUMAR GARG) JUDGE March 25,2008 nk