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2017 (5) TMI 709 - AT - Income TaxLevy of penalty u/s 158BFA(2) - assessment u/s 158BC - whether the penalty is not legally tenable as the expenses were not covered in the definition of undisclosed income prior to the amendment of undisclosed income in section 158B(b) of the Act by the Finance Act 2002 retrospective from July 1 1995? - Held that - In sub-section 158B(b) of the Act the last phrase inserted by the Finance Act 2002 with retrospective effect from July 1 1995 or any expense deduction or allowance claimed under this Act which is found to be false whereas the block return was filed by the assessee only on June 7 2000 when the definition of undisclosed income did not include any item pertaining to expense deduction or allowance which is found to be false. These items got included in the undisclosed income only by the Finance Act 2002 though retrospective from July 1 1995 but on the day the assessee filed its return of income the amended provision did not exist. According to us the amended provision will not apply to the present case. As at the time of filing of the block return by the assessee the assessee was not obliged to declare the expenses in the return particularly when no material or evidences was found relating to these expenses (except the statement of the CEO which was retracted) in the course of search on the business premises of the assessee. Thus we reverse the orders of the lower authorities and the penalty levied under section 158BFA(2) of the Act on this jurisdictional issue. - Decided in favour of assessee.
Issues Involved:
1. Legality of the penalty under section 158BFA(2) of the Income-tax Act, 1961. 2. Definition and scope of "undisclosed income" prior to the amendment by the Finance Act, 2002. 3. Validity of additions based on statements and retracted statements. 4. Applicability of retrospective amendments on penalties. Issue-wise Detailed Analysis: 1. Legality of the Penalty under Section 158BFA(2): The primary issue in this appeal is the legality of the penalty amounting to ?17,33,821 levied under section 158BFA(2) of the Income-tax Act, 1961. The assessee contended that the penalty was not legally tenable as the expenses were not covered in the definition of "undisclosed income" prior to the retrospective amendment by the Finance Act, 2002, effective from July 1, 1995. 2. Definition and Scope of "Undisclosed Income": The assessee argued that the definition of "undisclosed income" did not include expenses, deductions, or allowances found to be false at the time of filing the block return on June 7, 2000. The relevant amendment by the Finance Act, 2002, which included these items in the definition of "undisclosed income," was made with retrospective effect from July 1, 1995. The Tribunal noted that at the time of filing the return, the disallowance of expenses was not within the ambit of "undisclosed income." 3. Validity of Additions Based on Statements and Retracted Statements: The additions were primarily based on the statement of the CEO of the assessee-company, which was later retracted. The Tribunal observed that the Assessing Officer relied entirely on the CEO's statement without any corroborating incriminating material found during the search. The Tribunal emphasized that the retraction of the statement was not given due consideration, and the Assessing Officer did not provide the assessee an opportunity to rebut the evidence. 4. Applicability of Retrospective Amendments on Penalties: The Tribunal referred to the decision of the Bombay High Court in CIT v. Essar Teleholdings Ltd., which held that retrospective amendments creating new liabilities should not entail punishment with retrospective effect. The Tribunal also cited the Calcutta High Court's decision in Emami Ltd. v. CIT, which held that interest and penalties could not be levied based on retrospective amendments. Applying these principles, the Tribunal concluded that the amended definition of "undisclosed income" could not apply to the assessee's case as the return was filed before the amendment. Conclusion: The Tribunal reversed the orders of the lower authorities and held that the penalty under section 158BFA(2) was not applicable to the present case due to the retrospective nature of the amendment. The appeal of the assessee was allowed, and the penalty was set aside. Order Pronounced: The order was pronounced in the open court on February 17, 2017.
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