2011 (9) TMI 757 - AT - Income Tax

Block assessment - Penalty u/s 158BFA(2) - Search and seizure - Undisclosed income - the computation of income in the block assessment was made on the basis of the evidence found during the course of search which were incriminating in nature against the assessee - The proviso to section 158BFA(2) of the Income-tax Act provides that penalty could be imposed where undisclosed income determined by the Assessing Officer is in excess of the income shown in the return of income - While there could be a dispute between the Revenue and the assessee as to whether provisions of section 271(1)(c) of the Income-tax Act would be applicable to penalty proceedings under section 158BFA(2) of the Income-tax Act, the language in the two sections are clearly different and the contentions of learned counsel for the assessee is not tenable, yet, it is clear that the assessee was in full knowledge of undisclosed income which was not at all shown in any manner in the return to be filed for the block period - The conduct of the assessee in not disclosing undisclosed income in the return for the block period would show that the conduct of the assessee was not bona fide - Decided against the assessee

Issues Involved:
1. Levy of penalty under section 158BFA(2) of the Income-tax Act.
2. Assessment of on-money received and its treatment as undisclosed income.
3. Validity of the explanation provided by the assessee regarding the source of on-money.
4. Applicability of provisions similar to section 271(1)(c) of the Income-tax Act to section 158BFA(2).
5. Whether penalty under section 158BFA(2) is mandatory or discretionary.

Detailed Analysis:

1. Levy of penalty under section 158BFA(2) of the Income-tax Act:
The appeal was directed against the order of the Commissioner of Income-tax (Appeals)-II, Surat, which confirmed the levy of penalty under section 158BFA(2) for furnishing inaccurate particulars and concealment of income. The penalty was levied based on the addition of Rs. 3,14,000 to the assessee's income, which was treated as unexplained investment in a flat.

2. Assessment of on-money received and its treatment as undisclosed income:
During the search of M/s. Ohm Developers and M/s. Ohm Organizers, evidence was found regarding the receipt of on-money from various parties. The assessee was found to have paid Rs. 5,30,250 for a flat, of which Rs. 2,14,000 was paid in cash. The assessee admitted to the payment but failed to provide evidence for the source of this cash payment. Consequently, the Assessing Officer treated the on-money as the assessee's undisclosed income.

3. Validity of the explanation provided by the assessee regarding the source of on-money:
The assessee claimed the cash payment was made from dollars brought into India from the U.S.A., but failed to produce evidence of encashment. The Assessing Officer rejected this explanation, considering it a make-belief story. The Commissioner of Income-tax (Appeals) upheld this view, stating that the assessee failed to substantiate the source of the on-money and thus confirmed the addition and penalty.

4. Applicability of provisions similar to section 271(1)(c) of the Income-tax Act to section 158BFA(2):
The assessee argued that penalty proceedings under section 158BFA(2) are similar to those under section 271(1)(c), and thus, the explanation provided should be considered. However, the Commissioner of Income-tax (Appeals) and the Tribunal noted that the explanation must be bona fide and substantiated, which the assessee failed to do. The Tribunal referred to various case laws, including decisions of the Supreme Court, to highlight that the onus was on the assessee to prove the genuineness of the explanation.

5. Whether penalty under section 158BFA(2) is mandatory or discretionary:
The assessee contended that penalty under section 158BFA(2) is not mandatory. However, the Tribunal, referencing the Supreme Court's decision in Union of India v. Dharamendra Textile Processors, concluded that the levy of penalty is mandatory where there is evasion of tax. The Tribunal affirmed that the penalty was justified given the facts and circumstances, including the assessee's failure to file a return for the block period and the presence of incriminating evidence from the search.

Conclusion:
The Tribunal dismissed the appeal, confirming the penalty under section 158BFA(2) of the Income-tax Act. The decision was based on the assessee's failure to substantiate the source of the on-money and the mandatory nature of the penalty in cases of tax evasion. The Tribunal upheld the findings of the lower authorities, emphasizing the importance of substantiating explanations and the legal provisions applicable to the case.

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