2010 (3) TMI 753 - AT - Income Tax

Block assessment - Undisclosed income - Revision u/s 263 - It was the case of the assessee himself at the time of search that the cash represented his undisclosed income from which he subsequently sought to retract. It is thus a case of shifting explanations. The subsequent explanation by the assessee that the unaccounted income and cash belonged to the firm was neither spontaneous nor supported by any evidence - it is not the case of the assessee that his statement was obtained under duress or coercion. It is also not his case that the statement was not voluntarily made by him - Held that Tribunal has confirmed the addition of unaccounted income as unexplained income on the basis of acceptance of income in the statement of the assessee recorded under section132(4) of the Act and the Tribunal has rejected the retraction made by the assessee through his affidavit - Therefore assessee is liable to penalty under section 158BFA(2) of the Act - Decided against the assessee

Summary

Issues Involved:

1. Levy of penalty under section 158BFA(2) of the Income-tax Act, 1961.
2. Validity of the retraction of the statement made under section 132(4).
3. Determination of undisclosed income and its assessment.
4. Applicability of judicial precedents regarding penalty and retraction.

Detailed Analysis:

1. Levy of Penalty under Section 158BFA(2):

The primary issue in this case is whether the penalty under section 158BFA(2) of the Income-tax Act, 1961, is leviable. The section provides for the imposition of a penalty for understatement of income in the block return in respect of searches initiated on or after 1-1-1997. The first proviso to section 158BFA(2) allows for an exception from penalty in cases of admitted income, subject to certain conditions. However, the second proviso mandates that where the undisclosed income determined by the Assessing Officer exceeds the income shown in the return, the penalty shall be imposed on the excess portion of undisclosed income.

In this case, the assessee's undisclosed income was determined to be higher than the declared income, leading to the imposition of a penalty of Rs. 7,51,200. The CIT(A) upheld the penalty, noting that the assessee failed to disclose the correct income in the block return and attempted to evade tax on the undisclosed income.

2. Validity of Retraction of Statement Made Under Section 132(4):

The assessee initially admitted to receiving cash interest of Rs. 7.52 lakhs during a statement recorded under section 132(4) but later retracted this statement via an affidavit, claiming that the income belonged to a partnership firm. The Tribunal rejected this retraction, citing several reasons, including the lack of evidence to support the retraction, the delay in filing the affidavit, and the self-serving nature of the affidavit.

The Tribunal emphasized that statements made under section 132(4) are binding unless effectively retracted with cogent and reliable evidence. The Tribunal found that the assessee's retraction did not meet these criteria, as it was not supported by any evidence and was made after a significant delay.

3. Determination of Undisclosed Income and Its Assessment:

The Tribunal upheld the addition of the unaccounted income as unexplained income in the hands of the assessee. The Tribunal noted that the assessee and his brothers had admitted to receiving unaccounted income individually and had not provided any evidence to show that the income belonged to the firm. The Tribunal rejected the retraction and confirmed the addition of Rs. 7,51,200 as unexplained income.

4. Applicability of Judicial Precedents Regarding Penalty and Retraction:

The assessee cited several judicial precedents to argue against the imposition of penalty, including the cases of Calcutta Credit Corpn., Smt. Pramila Pratap Shah, Dodsal Ltd., Haryana Warehousing Corpn., and Rajasthan Spg. & Wvg. Mills. However, the Tribunal distinguished these cases based on the specific facts of the present case.

- Calcutta Credit Corpn.: The Tribunal noted that the facts of this case were different, as the basis for the CIT(A)'s decision was not accepted by the Tribunal, making the precedent inapplicable.
- Smt. Pramila Pratap Shah: The Tribunal found that the assessee did not prove bona fides, distinguishing it from the present case.
- Dodsal Ltd.: The Tribunal acknowledged that the penalty under section 158BFA(2) is discretionary, but found that the facts warranted the imposition of penalty.
- Haryana Warehousing Corpn.: The Tribunal distinguished this case as it involved a bona fide belief regarding the non-taxability of income, which was not applicable here.
- Rajasthan Spg. & Wvg. Mills: The Tribunal noted that the decision pertained to section 11AC of the Central Excise Act and was not directly applicable to the present case.

Conclusion:

The Tribunal concluded that the assessee was liable for the penalty under section 158BFA(2) due to the failure to disclose the correct income in the block return and the unsuccessful retraction of the statement made under section 132(4). The appeal was dismissed, and the penalty was upheld.