2008 (10) TMI 656 - AT - Income Tax

Summary

Issues Involved:
1. Penalty under Section 158BFA(2) for undisclosed income.
2. Enhancement of income by CIT(A) and its implications on penalty.
3. Comparison of provisions under Section 271(1)(c) and Section 158BFA(2).
4. Jurisdiction to levy penalty on enhanced income.
5. Validity of explanation provided by the assessee for undisclosed income.

Detailed Analysis:

1. Penalty under Section 158BFA(2) for Undisclosed Income:
The assessee filed a return declaring undisclosed income of Rs. 2,40,000, but the block assessment determined undisclosed income of Rs. 22,86,595. The Assessing Officer initiated penalty proceedings under Section 158BFA(2) for the difference in income. The CIT(A) reduced the penalty amount, and the Tribunal confirmed the undisclosed sales figure of Rs. 67,53,842, applying a gross profit rate of 13%.

2. Enhancement of Income by CIT(A) and Its Implications on Penalty:
The CIT(A) enhanced the income by treating the entire sales of Rs. 6,48,766 as undisclosed income and applied a rate of Rs. 40 per box for unaccounted sales, reducing the total undisclosed sales to Rs. 67,53,842. The Tribunal upheld this enhancement and confirmed the addition of Rs. 6,48,766 as undisclosed sales. The CIT(A) deleted the penalty of Rs. 5,51,451, as it was an enhancement made during the appellate proceedings without a directive for penalty initiation.

3. Comparison of Provisions under Section 271(1)(c) and Section 158BFA(2):
The CIT(A) compared the penalty provisions under Section 271(1)(c) and Section 158BFA(2), noting that the latter does not require the Assessing Officer's satisfaction before initiating penalty. Section 158BFA(2) mandates penalty on the difference between declared and assessed undisclosed income, whereas Section 271(1)(c) involves concealed income or inaccurate particulars in regular returns.

4. Jurisdiction to Levy Penalty on Enhanced Income:
The Tribunal clarified that only the CIT(A) could direct the levy of penalty on enhanced income discovered during appellate proceedings. The Assessing Officer's jurisdiction is limited to additions proposed during the assessment. The Tribunal referred to precedents where the appellate authority's findings on concealed income restricted the Assessing Officer's jurisdiction to impose penalties.

5. Validity of Explanation Provided by the Assessee for Undisclosed Income:
The assessee's explanations for the valuation of boxes and unaccounted sales were found unsatisfactory. The Tribunal noted that the basis for valuing the boxes was not substantiated, and the explanation lacked reasonableness and bona fide. The Tribunal upheld the penalty on the undisclosed income determined by the Assessing Officer and confirmed by the CIT(A).

Conclusion:
The Tribunal dismissed both the assessee's and the Department's appeals, upholding the CIT(A)'s decision to delete the penalty on the enhanced amount and confirming the penalty on the undisclosed income determined by the Assessing Officer. The Tribunal emphasized the distinct jurisdictions of the Assessing Officer and CIT(A) in directing penalties under Section 158BFA(2).