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2016 (7) TMI 901 - AT - Income TaxPenalty imposed and sustained u/s. 158BFA (2) - Held that - As per Section 158BFA(2) no incriminating material found or seized from the possession of the appellant during the course of proceedings on the basis of which the addition was made. Even the basis for filing the block return has shown the undisclosed income of ₹ 4,52,220/- and tax liability as ₹ 2,84,889/- has been change. Subsequent to the passing of the assessment order, the matter was taken up by the assessee before the ld CIT(A). The first appellate authority has reduced the addition of ₹ 53,82,768/- to ₹ 19,83,184/-. This figure of arriving at ₹ 19,83,184/- was arrived after taking into considering the submission of the assessee. Thereafter the Tribunal has further reduced the amount of ₹ 19,83,184/- of the CIT(A) to ₹ 10,63,184/-. The reduction in amount was on the basis of peak income investment determined by the assessee himself on the basis of direction issued by the ld CIT(A). In our view, the basis for addition made by the A.O. was on account of diaries and entries made in the name of Bhandari on the assumption that Mr. Bhandari was the benami of the appellant. However, this very basis was subsequently modified by the ld CIT(A) and by the Tribunal , whereby both the authorities instead of deciding the quantum addition on the basis of Benami transaction in the name of Bhandari , have estimated the income of the assessee on the basis of the peak derived on the basis of the documents given to the assessee. Thus, in our view, there is a total change on the basis of initiation of the penalty. The Hon ble Allahabad High Court in the case of Shadiram Balmukund (1971 (2) TMI 16 - ALLAHABAD High Court ) and Hon ble Calcutta High Court in the case of Ananda Bazar Patrika Pvt. Ltd. (1978 (4) TMI 57 - CALCUTTA High Court ) has held that when the very basis of initiation of penalty has changed then the initiation of penalty is no more sustainable in the eyes of law. Also we have gone through the order passed by the ld A.O. on the quantum proceeding, no satisfaction has been mentioned by the ld A.O. in the assessment order before issuing show cause notice and referring the matter for initiation of penalty.The satisfaction for imposition of penalty is required to be recorded by the ld A.O in the assessment order. The ld A.O. has determined the undisclosed income at ₹ 67,77,020/- as against ₹ 4,52,220/- undisclosed shown in the block of return, whereas in appellate proceeding it was reduced to ₹ 10,63,184/- on estimate basis. Therefore, the proceedings for imposition of penalty were initiated on the basis of earlier finding by the AO. However, as mentioned hereinabove, not only undisclosed income has been reduced but the basis for calculating the undisclosed income has also been changed, in our view, the imposition of penalty, was not warranted, therefore, we deem it appropriate to delete the same - Decided in favour of assessee.
Issues Involved:
1. Imposition and confirmation of penalty under Section 158BFA(2) of the Income Tax Act, 1961. 2. Calculation and justification of the penalty amount. 3. Validity of additions made based on loose papers and materials seized from a third party. 4. Assessment of undisclosed income and its nexus with the appellant. 5. Legal precedents and principles applicable to the imposition of penalty and assessment of undisclosed income. Detailed Analysis: 1. Imposition and Confirmation of Penalty under Section 158BFA(2): The appellant challenged the penalty of ?10,00,000 imposed under Section 158BFA(2) of the Income Tax Act, 1961. The penalty was based on additions made to the appellant's income during a block period. The appellant argued that the penalty was imposed without adequate appreciation of the law and facts, and without proving any nexus between the seized materials and the appellant. 2. Calculation and Justification of the Penalty Amount: The appellant contended that the penalty imposed was higher than the permissible limit. The penalty was calculated at 156.76% of the tax amount, exceeding the statutory limit of 100%. The appellant sought relief from this excessive penalty. 3. Validity of Additions Based on Seized Materials: The additions were primarily based on loose papers, Cefari notebooks, and computer printouts seized from a third party, M/s Ashish International Group (AI Group). The appellant argued that these materials did not belong to him and that there was no nexus between the seized documents and his financial transactions. The key person of AI Group, Shri Vinay Gupta, in his statement, denied any transactions with the appellant. 4. Assessment of Undisclosed Income and Its Nexus with the Appellant: The Assessing Officer (AO) made additions based on the assumption that the entries in the seized loose papers pertained to the appellant because Shri B.S. Bhandari, an employee and relative of the appellant, was named in those papers. However, both the appellant and Shri B.S. Bhandari denied any financial transactions with AI Group. The AO made an addition of ?53,82,768 on substantive basis in the appellant's hands and on protective basis in Shri Bhandari's hands. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions but directed the appellant to work out the peak credit, which was calculated at ?10,63,184. 5. Legal Precedents and Principles: The Tribunal referred to several legal precedents to determine the validity of the penalty. It was noted that penalty proceedings are penal in nature and require the department to establish that the disputed amount constituted income and that the assessee had consciously concealed particulars of his income. The Tribunal cited cases such as Commissioner of Income-tax v. Anwar Ali and Commissioner of Income-tax v. Khoday Eswarsa and Sons, which emphasize the need for independent evidence to support the imposition of penalty. The Tribunal also considered the judgment in CBI v. V.C. Shukla, which held that loose papers and diaries not maintained in the regular course of business have no evidentiary value. Additionally, the Tribunal referred to the case of State of Kerala v. K.T. Shaduli Grocery Dealer, which highlighted the necessity of cross-examination of third parties whose statements are relied upon against the assessee. Conclusion: The Tribunal concluded that the penalty under Section 158BFA(2) was not justified as the additions were based on preponderance of probabilities and not on concrete evidence. The penalty was imposed without proving a nexus between the seized materials and the appellant. The Tribunal emphasized that penalty proceedings require a higher standard of proof and cannot be based solely on assumptions or estimates. Consequently, the penalty of ?10,00,000 was deleted, and the appeal filed by the assessee was allowed.
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