2015 (3) TMI 187 - AT - Income Tax

Penalty levied u/s 158BFA(2) - Difference in remuneration received - ₹ 9.00 lakhs - CIT(A) deleted penalty levy - Held that - Tribunal has considered all the submissions made by the assessee, the seized material, surrounding circumstances, conduct of the assessee s father who maintained the record and finally has given a finding that the remuneration was ₹ 36.00 lakhs. Under these set of facts, we are unable to agree with the contention of the Ld A.R as well as with the view expressed by Ld CIT(A) that the addition of ₹ 9.00 lakhs has been sustained on estimate basis. In our view, the above said addition has been sustained on the basis of seized material only. Hence, we are of the view that the assessing officer was justified in levying penalty on the above said addition u/s 158BFA(2) of the Act. - Decided in favour of revenue. Unaccounted expenditure on renovation of flat of ₹ 5.00 lakhs - Held that - Tribunal has given a finding that there were overlapping in the seized materials wherein the items of work were found noted. Under these circumstances, the Tribunal has estimated the amount spent on interior works of three flats at ₹ 40.00 lakhs and thus sustained the addition to the extent of ₹ 5.00 lakhs. Hence, we agree with the view expressed by Ld CIT(A) on this addition that the Tribunal has sustained the addition on estimate basis and the Tribunal could not come a conclusion from the seized material that there was undisclosed income in incurring interior decoration works. Hence, in respect of this issue, we agree with the Ld CIT(A) and accordingly hold that the first appellate authority was justified in directing the assessing officer to delete the penalty. - Decided in favour of assessee.

Summary

Issues:
1. Penalty deletion by Ld CIT(A) on remuneration difference and renovation expenditure.
2. Discrepancy in remuneration received for a film.
3. Unaccounted expenditure on renovation of flats.
4. Interpretation of penalty provision u/s 158BFA(2) - mandatory or discretionary.
5. Consideration of subsequent reduction of remuneration.
6. Admissibility of appeal by the High Court in penalty proceedings.

Detailed Analysis:
1. The appeal concerns the deletion of penalties by Ld CIT(A) on two income items - remuneration difference and renovation expenditure. The revenue challenged the decision, leading to the Tribunal's review of the penalty imposition under section 158BFA(2) of the Act for the block period from 1990-91 to 2001-02.
2. The first issue revolves around the remuneration difference for a film, where the AO determined undisclosed income based on seized material. The Tribunal confirmed a reduced addition, leading to a penalty imposition. The Ld A.R argued for penalty deletion citing subsequent reduction in remuneration, while the Ld D.R supported the penalty imposition based on seized material analysis.
3. The second issue pertains to unaccounted renovation expenditure on three flats. The Tribunal estimated the expenditure based on overlapping seized materials and sustained a partial addition, prompting the Ld CIT(A) to delete the penalty, emphasizing the estimate basis of the addition.
4. The interpretation of penalty provision u/s 158BFA(2) was deliberated, with the Tribunal considering the discretionary aspect due to the usage of "May direct." Reference was made to a Chennai Tribunal case for further clarity on the discretionary nature of penalty imposition.
5. The consideration of subsequent reduction in remuneration was debated, with the Ld A.R arguing for penalty deletion based on post-search correspondences. However, the Tribunal upheld the addition based on seized material analysis, rejecting claims of reduction as an afterthought.
6. The admissibility of appeal by the High Court in penalty proceedings was discussed, with the Ld A.R citing the admission as indicative of bonafides. The Tribunal differentiated the applicability of Explanation 1 to sec. 271(1)(c) from sec. 158BFA(2), leading to the restoration of penalty on the remuneration difference issue.

In conclusion, the Tribunal partly allowed the revenue's appeal, upholding the penalty on the remuneration difference while deleting the penalty on the renovation expenditure issue, based on seized material analysis and the discretionary nature of penalty imposition under section 158BFA(2) of the Act.