2014 (10) TMI 140 - AT - Income Tax

Computation of income in block period Undisclosed income and computation - Imposition of penalty u/s 158BFA(2) r.w. section 271(1)(c) Held that - Relying upon CIT vs. Ravi Kant Jain 2001 (3) TMI 52 - DELHI High Court - undisclosed income in block assessments has to be determined on the basis of the seized material - for assessing an assessee for a block period there should be a search conducted u/s 132 - penalty impossible u/s 271(1)(i)(c) and penalty impossible on the undisclosed income in the block period, income for the block period has to be determined on the basis of material seized during the course of search - This material was to be supplied to the assessee before he could be asked to submit his return in response to the notice issued u/s 158BC meaning thereby the material goads any person to compute true undisclosed income - From that very material, true and undisclosed income has to be computed by the assessee and to be disclosed in the block return in response to the notice received u/s 158BC - there is a perceptional difference in the operative force of section 271(1)(i)(c) vis- -vis section 158BFA(2) - The charge against the assessee u/s 158BFA(2) could be, why they failed to compute true disclosed income out of the seized material - whether the assessees have made a deliberate attempt to disclose nil undisclosed income or they have sufficient reasoning for forming belief that no undisclosed income is available in their hands which is to be disclosed in response to the notice received u/s 158BC. Whether at the time of filing the return, a man of ordinary prudence can form a belief that he has no undisclosed income on the basis of seized material supplied to him - Whether such formation of belief is a bonafide one having regard to the material on the record or it is merely a Performa explanation - It is to be kept in mind that if a claim was not made in the return, then the assessee would be foreclosing his right to dispute the claim and would accept the stand of the Revenue in COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. 2010 (3) TMI 80 - SUPREME COURT making incorrect claim does not amount to concealment of particulars, because the assessee wants to take a particular stand on the given facts. It is true that admissions being a declaration against an interest are good evidence, but they are not conclusive and parties always at liberty to withdraw the admission by proving that they are either mistaken or untrue - In law retracted confession even may form the legal basis of addition, if the AO is satisfied that it was true and was voluntarily made - It is not strict rule of law but it is only a rule of prudence - As a general rule of practice, it is unsafe to rely upon the retracted confession without corroborative evidence - This situation is to be visualized in the background of intellectual compatibility of these two persons vis- -vis the authorized officer who recorded the statement and who has cross examined the assessee being a trained Revenue Officer and a businessmen engaged in construction and development of properties - when he treated this income in the hands of the assessee on protective basis AO himself was not sure that these are the income only assessable in the hands of the assessee and in the hands of payer it is to be allowed as business expenditure. When Revenue is not sure whether the payer has actually incurred the expenditure towards purchase of land, whether the capital gain is conclusively to be assessed in the hands of the assessee or it is a protective addition, then how it be expected from the layman to compute true undisclosed income equivalent to the amount ultimately determined by the AO in the assessment order Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 158BFA(2) of the Income Tax Act, 1961.
2. Validity of the assessment of undisclosed income based on seized materials.
3. Evaluation of the evidence and statements recorded during the search and seizure operation.
4. Determination of the true sale consideration and its impact on capital gains.
5. Applicability of penalty provisions under Section 271(1)(c) versus Section 158BFA(2).

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 158BFA(2):
The primary grievance of the appellants was that the CIT (A) erred in confirming the penalty imposed under Section 158BFA(2) of the Income Tax Act, 1961. The Tribunal examined the basic principles of computation of income in the block period and the differences between the penalty provisions under Section 158BFA(2) and Section 271(1)(c). It was highlighted that the penalty under Section 158BFA(2) is applicable if the assessee fails to compute the true undisclosed income based on the seized material. The Tribunal concluded that the penalty should not be imposed if the assessee had a bona fide belief that no undisclosed income was available based on the seized material.

2. Validity of the Assessment of Undisclosed Income:
The assessment of undisclosed income was based on the materials seized during the search operation conducted under Section 132 of the Income Tax Act. The Tribunal emphasized that the undisclosed income for the block period should be determined based on evidence found during the search. The assessment should not be based on roving inquiries or presumptions without direct evidence. The Tribunal referred to various judicial precedents to reiterate that the assessment for the block period is intended to address undisclosed income detected as a result of the search and is not a substitute for regular assessment.

3. Evaluation of Evidence and Statements Recorded:
The evidence included agreements dated 8.11.1996, a supplementary agreement dated 22.11.1999, and statements recorded under Section 132(4). The Tribunal noted discrepancies in the statements and agreements. For instance, the supplementary agreement mentioned a total sale consideration of Rs. 4.65 crores, while the original agreements indicated a consideration of Rs. 1.27 crores. The Tribunal observed that the statements made during the search were not conclusive and could be retracted if proven to be mistaken or untrue. The Tribunal also noted that the Assessing Officer assessed the income on a protective basis, indicating uncertainty about the true undisclosed income.

4. Determination of True Sale Consideration and Capital Gains:
The Assessing Officer's case was based on the assumption that the appellants received Rs. 2.75 crores as sale consideration, supported by the supplementary agreement and statements. However, the appellants contended that they only received Rs. 67 lakhs as per the original agreements. The Tribunal found that the supplementary agreement was signed to enable the developer to obtain loans and was not reflective of the actual transaction. The Tribunal concluded that without enforceable agreements or conclusive evidence, it was unreasonable to assume that the appellants received the higher amount.

5. Applicability of Penalty Provisions:
The Tribunal compared the penalty provisions under Section 271(1)(c) and Section 158BFA(2). It noted that while Section 271(1)(c) deals with penalties for concealing income or furnishing inaccurate particulars, Section 158BFA(2) specifically addresses penalties for failure to disclose true undisclosed income in the block period. The Tribunal emphasized that the penalty under Section 158BFA(2) should only be imposed if the assessee deliberately failed to disclose the true undisclosed income based on the seized material. Given the uncertainties and contradictions in the evidence, the Tribunal concluded that the penalty was not justified.

Conclusion:
The Tribunal allowed the appeals, deleted the penalties, and emphasized that the assessment of undisclosed income should be based on conclusive evidence found during the search. The Tribunal highlighted the importance of a bona fide belief in determining undisclosed income and concluded that the penalties under Section 158BFA(2) were not warranted in the given circumstances.