2015 (11) TMI 1440 - AT - Income Tax

Levy of penalty u/s 158BFA(2) - Held that - When there is a bona fide surrender undisclosed income is computed merely on the basis of such surrender that too in the block period on lump sum basis no penalty would be imposable u/s 158BFA(2) of the Act because there is no determination of undisclosed income by the assessee under clause (c) of Section 158BC which is the requirement for imposition of penalty. See CIT vs Harkaran Das Ved Pal 2008 (11) TMI 47 - HIGH COURT DELHI A bare perusal of seized material shows that no additional investment by the assessee in acquisition of property has been made suggesting the undisclosed income nor any further investigation has been made by the A.O. regarding concealed income. In other words there is no independent material on the file except voluntary acceptance of the assessee as to the undisclosed income sufficient to proceed with the penalty proceedings. From the undisputed facts and circumstances of the case it is proved that when the assessee has voluntarily accepted the undisclosed income bona-fidely for the purpose of buying peace of mind and to avoid protracted litigation no independent determination of undisclosed income as per Section158BF(c) and Section 158BB(1) of the Act has been a made there is no question of imposing penalty u/s 158BFA(2) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Imposition of penalty u/s 158 BFA(2) of the I. T. Act, 1961.
2. Adequacy of time provided to the assessee for compliance.
3. Proper computation of undisclosed income for penalty imposition.
4. Consideration of voluntary acceptance of undisclosed income by the assessee.

Issue 1: Imposition of Penalty:
The assessee appealed to set aside the penalty imposed under section 158 BFA(2) of the Income Tax Act, 1961 for the block period 01.04.1996 to 13.02.2003. The Assessing Officer (A.O.) assessed undisclosed income of Rs. 3,61,097 based on seized documents and levied a penalty of Rs. 2,27,491. The assessee argued that the penalty proceedings were rushed, inadequate time was given for compliance, and the A.O. lacked jurisdiction. The Tribunal found the A.O. did not provide sufficient time for compliance, violating natural justice principles. The penalty was deemed unjustified due to the hasty proceedings.

Issue 2: Adequacy of Time Provided:
The A.O. issued the notice under section 158BC after two years of search, allowing only 15 days for filing the return. The Tribunal noted that the A.O. took two years to scrutinize seized documents but provided inadequate time for the assessee to respond. The legislative intent of providing 15 to 45 days for filing returns was disregarded. The Tribunal held that insufficient time was given, impacting the assessee's ability to comply with the requirements.

Issue 3: Computation of Undisclosed Income:
The A.O. computed the undisclosed income for the block period in a lump sum without segregating it year-wise, contrary to legal requirements. The Tribunal referenced case law to emphasize that undisclosed income should be determined based on evidence found during the search, not just voluntary surrender. As no independent investigation was conducted to prove concealment, the penalty imposition based solely on voluntary acceptance was deemed improper.

Issue 4: Voluntary Acceptance of Undisclosed Income:
The Tribunal considered the voluntary acceptance of undisclosed income by the assessee but highlighted that this alone does not justify penalty imposition. The A.O. failed to establish concealment through independent evidence, relying mainly on the assessee's admission. The Tribunal concluded that without proper determination of undisclosed income as per statutory provisions, penalty under section 158 BFA(2) could not be imposed.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of providing adequate time for compliance, proper computation of undisclosed income, and the necessity for independent evidence to justify penalty imposition under section 158 BFA(2) of the Income Tax Act, 1961.

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