2016 (9) TMI 548 - AT - Income Tax

Penalty U/s 158BFA(2) - CIT(A) held that the penalty is leviable on total undisclosed income determined by the A.O.in excess of that declared by the A.O.in its block assessment return - reasonable cause for making the payment of taxes on the returned income Held that - The assessee was caused to pay tax of ₹ 12 lacs on the disclosed income of ₹ 20,00,000/- the assessee could pay ₹ 5 lacs and there was a shortage of ₹ 7 lacs. The assessee contended that it has unrealized loans and advances whose recovery has been restrained by the Department. In other words they were attached. Therefore, assessee could not recover these amounts. Along with the return filed in a letter prayed for recovery of these amounts and adjustments against the tax liability but no such action was carried out at the end of the Department. Thus the assessee contended that it has a reasonable cause for not making payment of taxes in the returned income. Ld. first appellate authority has accepted the reasonable cause and deleted the penalty. Revenue is aggrieved on this part of ld. CIT(A) s order. On due consideration of the record, we are of the view that once the assessee has loans and advances whose recovery was not in doubt and assessee applies to the Department either for recovery or uplifting of restrained orders and the Department did not take any action then it would be considered that assessee was prohibited by reasonable cause for making the payment of taxes on the returned income. Therefore, assessee does not deserve to be visited with penalty under the situation as contemplated under first proviso to section 158BFA(2) of the Act. As far as the penalty contemplated under the second proviso is concerned, the scheme of Chapter-14B provides that income of an assessee for the purpose of block assessment is to be determined on the basis of seized material found during the course of search. Assessing Officer would supply that material to the assessee and in response to notice u/s 158BC assessee has to compute true and disclose income out of the seized material for the purpose of block assessment. Now the question is, assessee has to compute ₹ 20,00,000/- as true undisclosed income out of the seized material. Ld. Assessing Officer has determined an income of ₹ 6,56,39,749/- which has been scaled down to ₹ 28,03,600/- by the higher appellate authority. A perusal of these details would indicate that allegation against the assessee for the purpose of visiting it with penalty would be, why assessee failed to compute true undisclosed income from the seized material. In the understanding of assessee the true undisclosed income out of the seized material comes to ₹ 20,00,000/-. The ld. Assessing Officer has not brought any material on the record indicating the deliberate flaw in the computation made by the assessee rather if we take the ultimate determination of income at ₹ 28,03,600/- vis- -vis the undisclosed income determined by the Assessing Officer at ₹ 6,56,39,749/- then it would indicate that construction of seized material at the end of assessee is more closure to the true of computation of undisclosed income rather wild guess work made by Assessing Officer assessing the same at ₹ 6.56 crores. In this situation we are satisfied that assessee is able to demonstrate as to why he has computed his true undisclosed income at ₹ 20,00,000/-. Thus we delete the penalty of ₹ 4,82,160/- confirmed by ld. CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of penalty under section 158BFA(2) of the Income-tax Act, 1961.
2. Conditions for immunity from penalty under the first proviso of section 158BFA(2).
3. Reasonable cause for non-payment of tax before filing the block return.
4. Penalty on undisclosed income determined in excess of returned income.

Detailed Analysis:

1. Applicability of Penalty under Section 158BFA(2):
The case revolves around the penalty imposed under section 158BFA(2) of the Income-tax Act, 1961, for the block period from FY 1996-97 to 2001-02 and 1/4/2002 to 25/7/2002. The assessee disclosed an income of ?20,00,000 in the block return, while the Assessing Officer assessed the income at ?6,56,39,749, later reduced to ?28,03,600 by the Tribunal. The Assessing Officer levied a penalty of ?17,15,803 under section 158BFA(2).

2. Conditions for Immunity from Penalty under the First Proviso of Section 158BFA(2):
The first proviso to section 158BFA(2) provides immunity from penalty if the assessee:
- Furnishes a return under section 158BC.
- Pays the tax payable on the basis of such return or offers to adjust the seized money against the tax payable.
- Furnishes evidence of tax paid along with the return.
- Does not file an appeal against the assessment of the income shown in the return.

The Assessing Officer noted that the assessee paid only ?5 lakhs against the tax liability of ?12 lakhs on the disclosed income of ?20 lakhs, thus not fulfilling the conditions of the first proviso.

3. Reasonable Cause for Non-Payment of Tax Before Filing the Block Return:
The assessee argued that the non-payment of the full tax was due to the Department's restraining orders on recoverable loans and advances. The CIT(A) accepted this explanation, noting that the assessee had shown intent to pay the tax and had paid ?5 lakhs before filing the return. The CIT(A) held that the assessee had a reasonable cause for not paying the full tax before filing the return and thus, no penalty was leviable on the disclosed income of ?20 lakhs.

4. Penalty on Undisclosed Income Determined in Excess of Returned Income:
The second proviso to section 158BFA(2) states that if the undisclosed income determined by the Assessing Officer exceeds the income shown in the return, penalty shall be imposed on the excess amount. The CIT(A) upheld the penalty on the excess undisclosed income of ?8,03,600, citing clear mens rea and the assessee's failure to disclose this income in the block return. The Tribunal, however, found that the assessee's computation of undisclosed income was closer to the true figure than the Assessing Officer's assessment and deleted the penalty of ?4,82,160 confirmed by the CIT(A).

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, deleting the penalty imposed on the excess undisclosed income. The Tribunal held that the assessee had a reasonable cause for not paying the full tax before filing the return and that the assessee's computation of undisclosed income was more accurate than the Assessing Officer's assessment. The order was pronounced in the open court on 3 August 2016.