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2008 (11) TMI 47 - HC - Income TaxWhether the Tribunal was correct in cancelling the penalty imposed by AO u/s 158 BFA (2), on the ground that the assessee himself had surrendered the amount and therefore it could not be said that the assessee had either concealed or furnished inaccurate particulars of income Held that Tribunal was correct in law in cancelling the penalty, but tribunal was not required to consider the question of concealment of income and/ or furnishing of inaccurate particulars of income
Issues Involved:
1. Legality of the cancellation of penalty imposed under Section 158 BFA(2) of the Income-tax Act, 1961 by the Income-tax Appellate Tribunal. 2. Whether the surrender of income by the assessee negates the concealment or furnishing of inaccurate particulars of income. Detailed Analysis: 1. Legality of the Cancellation of Penalty under Section 158 BFA(2): The appeal arises from the penalty proceedings under Section 158 BFA(2) of the Income-tax Act, 1961, following a search on the JMD Group of Companies. Material found during the search indicated cash receipts from the assessee, leading to action under Section 158 BC read with Section 158 BD. The assessee initially declared undisclosed income as nil but later surrendered Rs 8 lacs to avoid litigation. The Assessing Officer (AO) completed the assessment, determining an undisclosed income of Rs 8,55,000/- for the block period and imposed a penalty of Rs 5,13,000/- under Section 158 BFA(2). The Commissioner of Income Tax (Appeals) upheld this penalty, considering the surrender non-voluntary and the provisions of Section 158 BFA(2) mandatory. However, the Tribunal found that the penalty under Section 158 BFA(2) is not mandatory and noted that the undisclosed income was based on estimates without concrete evidence from the search. The Tribunal concluded that the surrender was bonafide and aimed at avoiding protracted litigation, thus canceling the penalty. The High Court affirmed the Tribunal's decision, emphasizing that the penalty under Section 158 BFA(2) is discretionary, not mandatory. The Court highlighted that the determination of undisclosed income must be based on evidence found during the search, which was lacking in this case. The Court concluded that the computation of undisclosed income was based solely on the assessee's surrender, not on evidence from the search, thus invalidating the penalty. 2. Surrender of Income and Concealment or Furnishing of Inaccurate Particulars: The Tribunal held that the surrender by the assessee did not imply concealment or furnishing of inaccurate particulars of income. The High Court agreed, noting that the assessment was based on the surrender and not on any search-related evidence. The Court referenced several precedents, including CIT v. Anwar Ali and CIT v. J.K. Synthetics Ltd., to support the principle that penalty proceedings are separate from assessment proceedings and require independent evidence of concealment or inaccurate particulars. The Court also discussed the relevance of the Supreme Court's decision in Sir Shadilal Sugar and General Mills Ltd. v. CIT, which held that a voluntary surrender to buy peace does not necessarily indicate concealed income. Although the revenue argued that this decision was no longer applicable post the addition of the Explanation to Section 271, the Court clarified that this Explanation does not apply to Section 158 BFA(2), thus maintaining the principle from Sir Shadilal. The High Court concluded that the Tribunal correctly canceled the penalty, as the undisclosed income was not determined based on evidence from the search, but on the assessee's surrender, which was bonafide and aimed at avoiding litigation. Conclusion: The High Court dismissed the appeal, affirming the Tribunal's decision to cancel the penalty under Section 158 BFA(2) of the Income-tax Act, 1961. The Court held that the imposition of penalty under this section is discretionary and must be based on evidence found during the search, which was absent in this case. The surrender by the assessee was deemed bonafide and not indicative of concealment or furnishing of inaccurate particulars of income.
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