2012 (7) TMI 241 - AT - Income Tax

Levy of penalty u/s 158 BFA(2)- addition made by AO to the undisclosed income as substantial gold/diamond jewellery had been found at the time of search - Held that - Considering the statement of the father at the time of search that the shortage found represented gifts given to various family members is no acceptable as it was not supported by any gift tax paid nor full details/particulars of items gifted - assessee submission that 140 gms jewellery had been declared in VDIS but no VDIS certificate had been produced and even if VDIS declaration was made, the jewellery declared therein had merged with the jewellery declared in the returns for assessment year 1992-93 - explanation of the assessee cannot be considered as bonafide as diamond/ gold jewellery are precious items which are carefully kept by any person and it cannot be accepted that a person will not keep accounts of the same - mere confirmation even if given is not enough as there is no supporting evidence in the form of gift tax return nor there are details of purchase of items gifted or the source thereof - as in case of silver items the amount being small (Rs.4258/-) it will not be appropriate to levy penalty in respect of such addition - penalty confirmed on gold/diamond jewellery - partly allowed in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 158 BFA(2) of the Income Tax Act.
2. Explanation and substantiation of unaccounted jewellery (diamond, gold, and silver).
3. Applicability and comparison of provisions under section 158 BFA(2) and section 271(1)(c).
4. Evaluation of the bonafide nature of the assessee's explanation.

Detailed Analysis:

1. Levy of Penalty under Section 158 BFA(2):
The primary issue in this appeal is the levy of penalty under section 158 BFA(2) of the Income Tax Act. The assessee contested the penalty imposed by the Assessing Officer (AO) following a search under section 132(1), which led to the discovery of unaccounted jewellery and subsequent additions to the assessee's undisclosed income. The AO levied a minimum penalty of 60% of the concealed income, amounting to Rs.2,58,107/-, which was upheld by the CIT(A).

2. Explanation and Substantiation of Unaccounted Jewellery:
The assessee argued that the unaccounted jewellery, including diamond and gold, was received as gifts from family members and relatives on various occasions. Specific claims included diamond jewellery received from Kantilal Laxmidas Walia and gold jewellery from Late Shri Bhaidas Sanghvi. However, the AO and CIT(A) found these explanations unsubstantiated due to the lack of supporting evidence such as gift tax returns or purchase details. The Tribunal also confirmed the additions for diamond jewellery valued at Rs.2,03,219/- and gold jewellery valued at Rs.2,22,701/-.

3. Applicability and Comparison of Provisions under Section 158 BFA(2) and Section 271(1)(c):
The assessee contended that the provisions of section 158 BFA(2) were akin to section 271(1)(c), which requires proof of intentional concealment or filing of inaccurate particulars of income for penalty imposition. The CIT(A) and Tribunal acknowledged this comparison but emphasized that the penalty under section 158 BFA(2) is not automatic and must be evaluated based on the facts and circumstances of each case. The Tribunal referred to the Supreme Court's judgment in Dharmendra Textiles and Processors, which clarified that penalty under section 271(1)(c) is a civil liability, not requiring proof of mens rea.

4. Evaluation of the Bonafide Nature of the Assessee's Explanation:
The Tribunal scrutinized the bonafide nature of the assessee's explanations regarding the unaccounted jewellery. It was noted that the explanations lacked substantiation, such as gift tax returns or detailed particulars of the gifts. The Tribunal found that the explanations could not be considered bonafide, especially for high-value items like diamond and gold jewellery, which are typically well-accounted for. However, the Tribunal did not levy a penalty for the small amount of silver items (Rs.4,258/-), considering it inappropriate.

Conclusion:
The Tribunal partly allowed the appeal, confirming the penalty in relation to the unaccounted gold and diamond jewellery but not for the silver items. The judgment underscores the importance of substantiating explanations with credible evidence and the nuanced application of penalty provisions under the Income Tax Act.