2014 (2) TMI 1235 - AT - Income Tax

Lvy of penalty u/s 158BFA - assessee had earned business income outside its books, which had not been disclosed in the return of income but was disguised as agricultural income - Held that - We find that with respect to undisclosed agriculture income, CIT(A) while deleting the addition on agriculture income has noted that Assessee had claimed to have earned agricultural income of ₹ 35,72,353/- but in appellate proceedings the income of ₹ 23,11,092/- was accepted. He has further noted that during the course of penalty proceedings, Assessee had furnished evidences in the form of confirmations but the same were not considered by A.O. He has further noted that A.O. had disallowed the agriculture income by treating it as business income but for which no evidence during the search or otherwise was found to show that Assessee had earned business income outside it books and has not been disclosed in the return of income but was disguised as agriculture income. With respect to disallowance of professional fees, CIT(A) has given a finding that Assessee was engaged on 31.03.1999 and ₹ 4.50 lacs was also paid subsequently to him. The issue that whether the liability of professional fees accrued as on 31.03.1999 was a debatable issue and therefore penalty cannot be sustained on debatable issue. With respect to gross profit, he has noted that G.P. addition was made on the basis of estimate and therefore no penalty was leviable. Before us, the Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record. We also 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. Satyendara Kumar Dosi (2009 (1) TMI 240 - RAJASTHAN HIGH COURT) where the Hon ble High Court has held that levy of penalty u/s. 158BFA(2) is discretionary and not mandatary. - Decided in favour of assessee

Summary

Issues:
1. Disputed undisclosed agricultural income during block period.
2. Disallowance of professional fees related to block period.
3. Addition of gross profit based on estimate during block period.

Undisclosed Agricultural Income:
The appellant, engaged in tobacco business, filed a return showing undisclosed income for the block period. The AO determined total undisclosed income, making various additions. CIT(A) deleted some additions, but confirmed others. The ITAT upheld the confirmed additions. Subsequently, penalty was imposed under section 158BFA(2). CIT(A) canceled the penalty, citing the appellant's evidence of agricultural income and lack of proof of business income. The Tribunal concurred, emphasizing the distinction between quantum and penalty proceedings, and the lack of evidence to support treating agricultural income as business income.

Disallowance of Professional Fees:
The AO disallowed professional fees beyond the block period. CIT(A) found the liability issue debatable and canceled the penalty. The appellant had paid fees post 31.03.1999, leading to a difference of opinion. The Tribunal agreed, highlighting that the expenditure was not disputed, only the year of chargeability. The penalty was deemed unsustainable on a debatable issue.

Addition of Gross Profit:
The AO estimated and added gross profit based on turnover, which CIT(A) canceled. The Tribunal noted that penalties for GP additions based on estimates were generally not upheld. The Revenue's argument for mandatory penalty under 158BFA was refuted, citing judicial precedents emphasizing the discretionary nature of penalty imposition. Citing relevant case law, the Tribunal dismissed the Revenue's appeal, upholding CIT(A)'s decision to cancel the penalty.

In conclusion, the Tribunal dismissed the Revenue's appeal, emphasizing the discretionary nature of penalty imposition under section 158BFA and upholding CIT(A)'s decision to cancel the penalties related to undisclosed agricultural income, professional fees, and gross profit additions during the block period.