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2018 (10) TMI 736 - AT - Income TaxLevy of penalty u/s 158BFA(2) - block assessment - additions towards unexplained cash and unexplained income - Held that - Penalty under section 158BFA of the Income Tax Act is to be imposed on all together different grounds than the one imposed under section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income. When the AO issues notice under section 158BC of the Act, inviting the assessee to file return of the undisclosed income, he would supply copies of seized material on the basis of which the assessee has to compute true undisclosed income. In other words, material on the basis of which income of an assessee has to be determined for the purpose of block period is common. It is the material collected during the course of search. In these circumstances, the allegations or the charge against an assessee could be why he failed to compute true undisclosed income. The assessee does not deserve to be visited with penalty under section 158BFA in the given circumstances. We allow the appeal of the assessee and delete penalty.
Issues Involved:
- Confirmation of penalty under section 158BFA(2) of the Income Tax Act, 1961. - Validity of additions made during the block assessment period. Detailed Analysis: 1. Confirmation of Penalty under Section 158BFA(2): The sole grievance of the assessee was the confirmation of a penalty amounting to ?6,18,386/- under section 158BFA(2) of the Income Tax Act, 1961. The relevant facts are that a search under section 132 was conducted at the assessee's premises, leading to an assessment order determining the income at ?27,77,98,314/-. After appeals, most additions were deleted except for ?7,70,960/- (excess stock of limestone) and ?2,39,475/- (unexplained cash found during the search). The penalty was imposed based on these sustained additions. 2. Validity of Additions Made During the Block Assessment Period: The Tribunal examined whether the additions of ?7,70,960/- and ?2,39,475/- were valid and whether the penalty under section 158BFA(2) was justified. The Tribunal noted that the penalty under section 158BFA differs from that under section 271(1)(c) and emphasized the need to consider the findings of the Hon’ble Gujarat High Court in CIT Vs. Beecharbhai P. Parmar, which elaborated on the discretionary nature of imposing penalties under section 158BFA(2). Analysis of Excess Stock Addition: The Tribunal reviewed the assessee's explanation regarding the stock discrepancy, which was based on a hypothetical and estimated measurement method. The stock-taking was done hurriedly and under less-than-ideal conditions, which could lead to inaccuracies. The Tribunal found that the assessee had a reasonable belief that the stock discrepancy could be explained during assessment proceedings, and thus, the failure to include this in the block return did not warrant a penalty. Analysis of Unexplained Cash Addition: Regarding the unexplained cash, the assessee argued that the loose papers found during the search were rough sheets showing cash advances to employees for expenses, which would have been recorded in the regular books. The Tribunal found this explanation plausible and noted that the assessee could reasonably believe this did not constitute undisclosed income. Conclusion: The Tribunal concluded that the assessee did not deliberately fail to compute the true undisclosed income based on the seized material. The Tribunal also noted that the AO's computation of ?24.77 crores of undisclosed income largely failed, with only ?10 lakhs being sustained. Recognizing the assessee's disappointment with the penalty imposition, the Tribunal found no grounds to uphold the penalty under section 158BFA(2) and allowed the appeal, deleting the penalty. Final Judgment: The appeal of the assessee was allowed, and the penalty was deleted. The order was pronounced on 10th October 2018 at Ahmedabad.
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