PALAKKARAN BANKERS & CHIT FUNDS vs.DEPUTY COMMISSIONER OF INCOME TAX

PALAKKARAN BANKERS & CHIT FUNDS vs.DEPUTY COMMISSIONER OF INCOME TAX

COCHIN TRIBUNAL

B P JAIN AM & GEORGE GEORGE.K, JM.

IT(SS)A No. 03/Coch/2014

Mar 2, 2016

(2016) 46 cch 0221 CochinTrib

Legislation Referred to

Section 158BFA(2), 273B, 271

Case pertains to

Asst. Year

Decision in favour of:

Assessee

Search and seizure—Suppression of Income—Penalty u/s 158BFA(2)—Assessee was partnership firm consisting of three partners, engaged in business of money lending and chit fund business—Search was conducted in premises of assessee—Subsequently notice was issued to assessee and on basis of statement given by one of partners u/s 132(4) and material seized during course of search, AO determined undisclosed income at Rs.31,00,724—AO observed from books of account seized during course of search that it was clear that unaccounted transactions were carried out— It was further observed that entries recorded were 1/100th of real figures—AO multiplied figures by 100 and arrived at addition of Rs.37,51,374/- on account of unaccounted business—Penalty proceedings were initiated against assessee by issuance of notice u/s 158BFA(2)—AO   imposed penalty of Rs.18,60,043/- u/s. 158BF(2) on ground that there was clear case of suppression of income by assessee—CIT(A) dismissed appeal of assessee holding that language of section 158BFA(2) makes it obligatory upon AO to impose penalty on portion of undisclosed income determined—CIT(A) confirmed penalty imposed on assessee—Held, in CIT vs. Becharbhai Parmar (Supra) Guj. High Court held that “Sub-section(2) of Section 158BFA makes it clear that it is well within discretion of AO while framing assessment for block period, whether or not to impose any penalty or not— Words, “may direct” have to be given its normal meaning, leaving discretion to officer— In absence of any special reason word “may” could not be read as “shall”—It was, of course, true that upon satisfying such conditions, that in assessee would get immunity from penalty—Nevertheless, this was not thing as to suggest that in no other case, or on no other ground AO may at his discretion, not impose penalty moment additions under clause (c) of section 158BC were sustained—Penalty u/s 158BFA(2) was not mandatory in nature— It was true that Section 273B which provides that penalty should not be imposed in certain cases on assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as sections 271, 271A etc., made no mention of Section 158BFA(2)—AO was directed to cancel penalty imposed u/s 158BFA(2) and order of CIT(A) was reversed—Assessee’s Appeal allowed

Held

In the case of CIT vs. Becharbhai Parmar (Supra) the Hon’ble Guj. High Court has held as “Sub-section(2) of Section 158BFA makes it clear that it is well within the discretion of the Assessing Officer while framing the assessment for the block period, whether or not to impose any penalty or not. The words, “may direct” have to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word “may” cannot be read as “shall”. The contention of the counsel for the Revenue that only upon satisfaction of the conditions contained in proviso to sub-section (2) that the assessee, in case of the block assessment can be spared of the penalty cannot be accepted. It is, of course, true that upon satisfying such conditions that in assessee would get immunity from penalty. Nevertheless, this is not a thing as to suggest that in no other case, or on no other ground the AO may at his discretion, not impose penalty the moment additions under clause (c) of section 158BC are sustained. In other words, the penalty u/s. 158BFA(2) is not mandatory in nature. It is true that Section 273B which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as sections 271, 271A etc., makes no mention of Section 158BFA(2). This still does not mean that penalty u/s. 158BFA(2) is mandatory.” Considering the totality of the facts more so in view of the fact that additions have been upheld on estimation basis and in view of the decision of the co- ordinate Bench cited hereinabove, ITAT are of the view that no penalty is leviable in the present case. ITAT accordingly direct the AO to delete the penalty.

(Para 14.9)

Assessing Officer to cancel the penalty imposed u/s. 158BFA(2) of the Act and accordingly, the order of the Ld. CIT(A) is reversed. Accordingly, all the grounds raised by the assessee are allowed.

(Para15)

Conclusion

Penalty u/s 158BFA(2) is not mandatory in nature, and section 273B does not mention section 158BFA(2) for imposition of penalty hence penalty imposed u/s 158BFA(2) liable to be quashed

In favour of

Assessee

Cases Referred to

CIT vs. Dodsal Ltd. (2008) 218 CTR 430

ACIT vs. Shri Chandrakant Kashinath Kele in I.T.A. No. 804/PN/2013 dated 13/03/2015

Champaklal J. Khamar vs. ACIT in IT(SS)A No. 340/AHD/2011 dated 18/06/2014

CIT vs. Satyendra Kumar Dosi (2009) 315 ITR 172

Counsel appeared:

R. Krishna Iyer, CA for the Assessee.: K P Gopakumar, Sr DR for the Revenue

B P JAIN, AM.

1. This appeal of the assessee arises from the order of the Ld. CIT(A)-V, Kochi dated 24-09-2014 for the block period ending 28-06-2001.

2. The brief facts of the case are that the assessee is a partnership firm consisting of three partners and is engaged in the business of money lending and chit fund business. On 28th June, 2001, a search u/s. 132 of the Act was conducted in the premises of the assessee. Subsequently notice u/s. 158BC was issued to the assessee on 16/11/2001. On the basis of the statement given by one of the partners u/s. 132(4) of the Act and the material seized during the course of search, the Assessing Officer, vide order dated 27/06/2003 determined the undisclosed income at Rs.31,00,724/-. The Assessing Officer observed from the books of account seized during the course of search that it was clear that the unaccounted transactions were carried out. It was further observed that the entries recorded were 1/100th of the real figures. To determine the addition, the AO multiplied the figures by 100 and arrived at the addition of Rs.37,51,374/- on account of unaccounted business.

3. Similarly, for gold loan business, the Assessing Officer made an addition of Rs.6,28,850/- with respect to unaccounted gold loans. Further, on the basis of statement given u/s. 132(4) and the books of account seized, the undisclosed gold interest income was determined at Rs.6,26,145/-.

4. The assessee challenged the quantum addition before the Ld. CIT(A) who vide order dated 02.08.2005 confirmed the additions made by the Assessing Officer.

5. Aggrieved by the same, the assessee challenged before the ITAT. However, the appeal of the assessee was dismissed for non prosecution vide order dated 14/07/2010.

6. Penalty proceedings were initiated against the assessee by issuance of notice u/s. 158BFA(2) of the Act on 27/03/2003. The same were revived vide notice dated 01/11/2010. The Assessing Officer vide order dated 30/03/2011 imposed penalty of Rs.18,60,043/- u/s. 158BF(2) of the Act. It was observed by the Assessing Officer from the statement of the partner of the assessee and the books of account seized during the course of search that there was a clear case of suppression of income by the assessee.

7. The assessee challenged the penalty order dated 30-03-2011 before the Ld. CIT(A). The Ld. CIT(A) vide the impugned order dated 24/09/2014 dismissed the appeal of the assessee and observed that the language of section 158BFA(2) makes it obligatory upon the Assessing Officer to impose penalty on the portion of the undisclosed income determined. The assessee is in appeal before us and has challenged the aforesaid order of the Ld. CIT(A) who confirmed the penalty imposed by the Assessing Officer.

8. The Ld. AR has argued that the penalty levied on the assessee should be deleted as there was no evidence to suggest that the assessee had earned unaccounted income except for the statement made by one of the partners. The Ld. AR further argued that the addition has been made on an estimation basis and therefore, penalty cannot be levied.

9. The ld. DR on the other hand has rebutted the submissions made by the Ld. AR. He relied upon the orders passed by the Assessing Officer and the Ld. CIT(A) to support his submissions.

10. We have heard the rival contention and perused the facts of the case. The levy of penalty u/s. 158BFA(2) is not automatic. The Hon’ble Bombay High Court in the case of CIT vs. Dodsal Ltd. (2008) 218 CTR 430 held that section 158BFA(2) provides a discretion to the Assessing Officer for the levy of penalty and what is to be examined is whether there exists appropriate reasons for levy of penalty. The fact that the addition has been confirmed in the quantum proceedings would not by itself be the basis for sustaining the penalty u/s. 158BFA(2) of the Act.

11. The Assessing Officer has relied upon the statement of one of the partners of the assessee. The Assessing Officer has further relied upon the books of account seized during the course of search in the case of the assessee. Apart from that, there is no clinching evidence to demonstrate that the assessee had made unaccounted investments apart from what is declared by the assessee. Even with respect to the books of account seized during the course of search, a bare perusal of the same would not show that the assessee had represented 1/100th of the real income earned. The Assessing Officer had only deduced that the entries had been represented in the aforesaid manner. There is no other evidence to suggest that the gold loans and other advances were 100 times the accounted income. None of the parties to whom the loans had been advanced by the assessee had been examined. It is not the case of the Revenue that the unaccounted cash balance was recovered during the course of search from the premise of the assessee, so as to suggest the earning of unaccounted income. Also, the Assessing Officer has not brought on record any document pertaining to loan transaction which was executed for a higher amount than what is reflected in the books of account. The Assessing Officer had computed the addition on lumpsum basis rather than making separate additions for each year.

12. As regards the interest income is concerned, the Assessing Officer had relied upon the statement made by one of the partners of the assessee and the addition is not made on the basis of concrete documentary evidence found during the course of search. This clearly shows that the additions made in the case of the assessee were on the basis of estimation. There is no independent determination of the undisclosed income. Merely because the explanation of the assessee was rejected by the Assessing Officer with respect to the materials seized, penalty cannot be levied in the case of the present case, that too when the additions have been made on the basis of estimation.

13. In the case of ACIT vs. Shri Chandrakant Kashinath Kele in I.T.A. No. 804/PN/2013 dated 13/03/2015 Act, the ITAT, Pune deleted penalty u/s. 158BFA wherein the additions were made on estimation basis. The Bench observed as under:

“9. In our considered opinion, the fact that the addition has been sustained in the quantum proceedings cannot ipso facto be a basis for sustaining penalty u/s 158BFA(2) of the Act, whose application is not mandatory as held by the Hon’ble Bombay High Court in the case of Dodsal Ltd. (supra). The manner in which the addition has been made in the course of the quantum assessment proceedings clearly shows that the unexplained investment in house property of Rs.11,71,687/- has been arrived at on an estimate basis. In so far as the reference made by the Revenue to the loose papers found of Rs.9.99 lakhs is concerned, it is quite clear that the addition has not been made with reference to the said loose papers found in the course of search. Ostensibly, Revenue has justified the addition in the quantum proceedings on the basis of estimation and so far as the estimation is concerned, even the DVO has estimated the investment in the property near about the same amount as declared by the assessee in the account books. The CIT(A) in the quantum proceedings estimated the value of investment at Rs.30 lakhs as against Rs.40 lakhs made by the Assessing Officer. Under these circumstances, in our view, the CIT(A) has correctly appreciated the facts and circumstances of the case and held that the impugned addition on account of unexplained investment in house property of Rs.11,71,687/- was on estimation basis and not on the basis of any concrete evidence found in the course of search towards incurrence of unaccounted expenditure qua the impugned property. Therefore, having regard to the facts and circumstances of the present case, we affirm the action of the CIT(A) in deleting the penalty with respect to the addition of Rs.11,71,687/- on account of unexplained investment in house property.

10. With respect to the addition on account of unexplained marriage expenditure of Rs.1,96,335/-, in this regard the relevant facts are as follows. The quantum assessment proceedings revealed that in the course of search certain loose papers were found which indicated marriage expenses and on the basis of which the Assessing Officer estimated the expenditure at Rs.12,00,000/-. On the other hand, assessee had shown an expenditure on account of marriage at Rs.5,26,712/- and therefore the Assessing Officer made an addition of Rs.6,73,228/-. In the appellate proceedings, the estimation of total marriage expenditure was scaled down to Rs.7,34,047/- as against Rs.12,00,000/- made by the Assessing Officer and as a consequence addition on account of unexplained marriage expenditure came to Rs.1,96,335/-. On the aforesaid resultant addition, Assessing Officer has imposed penalty u/s 158BFA(2) of the Act. The expenditure has been estimated for marriage of two daughters of the assessee. The CIT(A) has reproduced the submissions of the assessee in para 6.2 of the impugned order on the basis of which he has inferred that the addition of Rs.1,96,335/- has been made on estimate basis only.

11. We have perused the case setup by the assessee before the CIT(A) and find that the CIT(A) has thoroughly examined it and his inference that addition is based on estimate basis is a reasoned one. Before us, no cogent material or reasoning has been advanced by the Ld. Departmental Representative to say that any document or evidence was found in the course of search which would indicate clinchingly incurrence of unaccounted expenditure on marriage of assessee’s daughters. Merely because, assessee’s explanation with respect to the loose papers was rejected in the quantum proceedings and the marriage expenses estimated cannot be a ground to levy penalty u/s 158BFA(2) of the Act in the context of the facts and circumstances of the present case. Therefore, order of the CIT(A) on this aspect is also hereby affirmed.

12. Thus, we find no reasons to interfere with the decision of the CIT(A) which is hereby affirmed and accordingly, Revenue fails in its appeal.

13. In the result, the appeal of the Revenue is dismissed.”

14. In the case of Champaklal J. Khamar vs. ACIT in IT(SS)A No. 340/AHD/2011 dated 18/06/2014, the ITAT, Ahmedabad observed as under:

“7. We have heard the rival submissions and perused the material on record. On the basis of submissions made and the material on record, the factual position that emerges is that search u/s. 132 was carried out at the residential premises of Assessee and certain documents were found and seized. Consequent to search operations block assessment was completed and the total undisclosed income was determined by making addition of Rs.11,79,901/-. The addition made by the Assessing Officer was deleted by CIT(A). Against the order of CIT(A), Revenue preferred appeal before ITAT. Hon’ble ITAT confirmed the addition only to the extent of Rs.3,77,338 as against the total addition of Rs.11,79,901/- as made by the Assessing Officer. On perusing the order of Tribunal, it is seen that the addition on account of cash and investment in articles were sustained on estimated basis. With respect to the addition on account of investment in jewellery it is seen that Assessee had stated to have received the jewellery from her sister in Nairobi but in the absence of any supporting declaration filed before customs/immigration, addition to the extent of 190 gms. of jewellery was sustained. In the present case there is nothing to suggest that the explanation of the Assessee was found to be untrue.

8. In the case of Mahendra Vyas (supra), the coordinate Bench has held as under:-

“8. We do not agree with the submission of Revenue that penalty u/s. 158BFA is mandatory in view of the decision of Rajasthan High Court in the case of CIT vs. Satyendra Kumar Dosi (2009) 315 ITR 172 where the Hon’ble High Court has held that levy of penalty u/s. 158BFA(2) is discretionary and not mandatory.

9. In the case of CIT vs. Becharbhai Parmar (Supra) the Hon’ble Guj. High Court has held as under:

“Sub-section(2) of Section 158BFA makes it clear that it is well within the discretion of the Assessing Officer while framing the assessment for the block period, whether or not to impose any penalty or not. The words, “may direct” have to be given its normal meaning, leaving discretion to the officer. In absence of any special reason the word “may” cannot be read as “shall”. The contention of the counsel for the Revenue that only upon satisfaction of the conditions contained in proviso to sub-section (2) that the assessee, in case of the block assessment can be spared of the penalty cannot be accepted. It is, of course, true that upon satisfying such conditions, that in assessee would get immunity from penalty. Nevertheless, this is not a thing as to suggest that in no other case, or on no other ground the AO may at his discretion, not impose penalty the moment additions under clause (c) of section 158BC are sustained. In other words, the penalty u/s. 158BFA(2) is not mandatory in nature. It is true that Section 273B which provides that penalty shall not be imposed in certain cases on the assessee proving that there was reasonable cause for failure to pay tax refers to several provisions such as sections 271, 271A etc., makes no mention of Section 158BFA(2). This still does not mean that penalty u/s. 158BFA(2) is mandatory.”

9. Considering the totality of the facts more so in view of the fact that additions have been upheld on estimation basis and in view of the decision of the co- ordinate Bench cited hereinabove, we are of the view that no penalty is leviable in the present case. We accordingly direct the AO to delete the penalty.

10. In the result the appeal of the Assessee is allowed.”

15. In view thereof, we direct the Assessing Officer to cancel the penalty imposed u/s. 158BFA(2) of the Act and accordingly, the order of the Ld. CIT(A) is reversed. Accordingly, all the grounds raised by the assessee are allowed.

16. In the result, the appeal of the assessee is allowed.

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