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2010 (2) TMI 777 - AT - Income TaxCancellation of penalty levied u/s. 158BFA(2) - Addition on the Basis of certain loose papers were found in search and seizure. - Held that - Once the rough paper containing some entry has been accepted and that very basis the PandL Account is prepared and return has been filed; therefore in our considered view no requirement left to explain the rough paper which undisputedly contains undisclosed entries. If the quantum addition is sustained penalty is not automatic. This is a case of non-substantiation of explanation; otherwise the entry of Rs.9, 26, 600/- was shown in the same paper found during the course of search. Accordingly we hold that on this amount cancellation of penalty is justified. - Decided in favour of Assessee.
Issues Involved:
1. Legality of penalty levied under Section 158BFA(2) of the Income Tax Act. 2. Comparison of penalty provisions under Section 158BFA(2) and Section 271(1)(c) of the Income Tax Act. 3. Discretion in the imposition of penalty under Section 158BFA(2). 4. Assessment of whether the non-acceptance of explanations by the assessee constitutes concealment of income. Issue-wise Detailed Analysis: 1. Legality of Penalty Levied Under Section 158BFA(2): The core issue in the appeal was the legality of the penalty of Rs. 18,04,980/- levied by the Assessing Officer under Section 158BFA(2) of the Income Tax Act. The penalty was imposed following a search and seizure operation on the Sagar Malkani group, which revealed undisclosed income. The Assessing Officer argued that since the undisclosed income was confirmed to the extent of Rs. 31,60,920/-, the penalty was mandatory. However, the CIT(A) disagreed, stating that the imposition of penalty under Section 158BFA(2) is not automatic and must be exercised judiciously, citing precedents such as DCIT vs. Koatex Infrastructure Limited and ITO vs. Smt. Pramila Pratap Shah. 2. Comparison of Penalty Provisions Under Section 158BFA(2) and Section 271(1)(c): The assessee contended that the penalty provisions under Section 158BFA(2) should be considered similar to those under Section 271(1)(c), which require a discretionary approach. The CIT(A) supported this view, referencing the case of Smt. Mala Dayanidhi vs. DCIT, where it was held that both provisions apply mutatis mutandis on merit. The Tribunal upheld this interpretation, noting that the word "may" in Section 158BFA(2) indicates discretion, unlike the mandatory "shall." 3. Discretion in the Imposition of Penalty Under Section 158BFA(2): The CIT(A) and the Tribunal emphasized that the imposition of penalty under Section 158BFA(2) is discretionary and not automatic. The CIT(A) found that the Assessing Officer erred in law and on facts by imposing the penalty without considering the assessee's explanations. The Tribunal agreed, noting that the penalty proceedings are distinct from assessment proceedings and should be based on the facts of each case. 4. Assessment of Whether the Non-Acceptance of Explanations by the Assessee Constitutes Concealment of Income: The CIT(A) and the Tribunal examined whether the non-acceptance of the assessee's explanations constituted concealment of income. The CIT(A) found that the assessee's explanations were bona fide and not malafide, even though they were not accepted by the Tribunal. The Tribunal noted that the major additions made by the Assessing Officer were deleted by the CIT(A) and the Tribunal, and the remaining additions were based on non-substantiation of claims rather than deliberate concealment. The Tribunal concluded that the penalty was not justified, as the explanations offered by the assessee were reasonable and bona fide. Conclusion: The Tribunal upheld the CIT(A)'s decision to cancel the penalty levied under Section 158BFA(2), emphasizing that the imposition of penalty is discretionary and not automatic. The Tribunal found that the assessee's explanations were bona fide and that the penalty proceedings are distinct from assessment proceedings. The appeal filed by the department was dismissed.
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