2016 (6) TMI 533 - AT - Income Tax

Levy of penalty under section 158BFA (2) - Cash Found and Jewellery - Held that - It is now a settled issue that penalty under section 158 BFA is not automatic and cannot believe levied merely because the addition has been confirmed. On both the two additions above it is apparent that had the assessee produced the cashbook as well as the withdrawal of cash in the hands of those company where ₹ 448299 was an opening balance and the withdrawal of cash is from bank, perhaps the addition would not have been sustained. Cashbook produced before the lower authorities evidently proves that there was cash on hand available with the assessee from the company of which assessee is one of the director. Further the balance cash on hand the hands of the assessee s parents as well as on the bedroom of the assessee is also covered by the amount of cash on hand with that company. Further, this explanation was already available by letter dated 27/09/2002 filed before the Deputy Director of Income Tax ( investigation). Similarly, the explanation for the jewellery found was also given vide same letter . Therefore, though the additions have been confirmed on the basis that this is an afterthought but merely because the addition has been confirmed, the penalty under section 158BFA , which is not automatic, cannot be levied. Therefore, on the merits on both the above additions we delete the penalty. According to the provisions of section 158BFA (2) the assessing officer is required to work out 100 % of tax sought to be evaded on account of the undisclosed income and also maximum penalty leviable at 300% of the tax on undisclosed income and then levy penalty between theses limits. In the present case, the penalty has been levied on the amount of undisclosed income without providing any working of maximum and minimum penalty leviable. Therefore, on this ground also the penalty order is vitiated. - Decided in favour of assessee

Summary

Issues:
Appeal against penalty u/s 158BFA(2) confirmed by Ld. CIT(A) - Merits of addition of cash and jewellery - Quantum of penalty - Whether penalty can be levied on undisclosed income or tax on undisclosed income.

Detailed Analysis:

1. Merits of the Penalty:
- Cash Found: The penalty was levied on unaccounted cash found during a search not disclosed by the assessee. Explanation regarding the source of cash was disbelieved by authorities. The addition was confirmed as the company's bank statement and books of accounts were not produced. Assessee later submitted evidence of cash account of the company, but authorities did not consider it. No finding was given on cash found from the bedrooms.
- Jewellery: Assessee claimed jewellery belonged to mother, supported by affidavit and return of income. Benefit of circular No. 1916 was not given. Assessee argued penalty is not automatic and relied on judicial precedents.

2. Levying Penalty on Additions:
- Penalty under section 158BFA is not automatic and cannot be levied solely because the addition was confirmed. Had the cashbook and withdrawal details been produced, additions might not have been sustained. Explanation for cash and jewellery was already available, indicating penalty should not be automatic based on confirmed additions.

3. Quantum of Penalty:
- Penalty under section 158BFA should be levied on tax sought to be evaded, not on undisclosed income directly. Assessing officer failed to work out maximum and minimum penalty leviable as required by the law. Penalty order was flawed on this ground.

4. Conclusion:
- The tribunal reversed the Ld. CIT(A)'s order, deleting the penalty of &8377; 5,19,750 under section 158BFA(2) based on the detailed analysis of the merits of the additions, the incorrect levying of penalty on undisclosed income, and the failure to calculate the penalty within the prescribed limits. The appeal of the assessee was allowed.

This comprehensive analysis covers the issues raised in the appeal against the penalty levied under section 158BFA(2) and the detailed examination of the merits of the additions, the basis for levying penalties, and the correct quantum of penalty under the law.