2019 (7) TMI 804 - HC - Income Tax

Levy of penalty u/s 158BFA(2) - difference between the returned income and the assessed income - valuation of the gold jewellery and the diamonds - HELD THAT - On a reading of the penalty order u/s 158BFA(2) dated 19.7.2005, in which the assessment order has been referred to, we find that the difference is on account of the valuation of the gold jewellery and the diamonds. Thus, it was the consistent case of the assessee that the difference between the returned income and the assessed income was not willful, but it was voluntary and requested for dropping the penalty proceedings. These factors were rightly taken into consideration by the Tribunal while passing the impugned order. Though the decision in the case of Apex Metchem (P) Ltd. 2014 (5) TMI 11 - RAJASTHAN HIGH COURT arose u/s 158BFA, it is not applicable to the case on hand, because, on facts, in the said case, it was found by all the three Authorities that the assessee was involved in undisclosed transactions on the basis of overwhelming evidence and all those transactions were out of books. It is never the case of the Revenue that the undisclosed income was on account of any transaction, which was out of books. But, the entire case arose out of valuation of the gold jewellery and the diamonds. Thus, for the above reasons, we find that the Revenue has not made out any ground to interfere with the order passed by the Tribunal. - Decided against revenue.

Summary

Issues:
1. Interpretation of penalty under Section 158BFA(2) of the Income Tax Act, 1961.
2. Discretion of the Assessing Officer in imposing penalty.
3. Difference between undisclosed income returned by the assessee and finally determined income.
4. Willful concealment and furnishing of inaccurate particulars by the assessee.
5. Validity of penalty levy based on valuation differences in gold jewelry and diamonds.

Issue 1: Interpretation of penalty under Section 158BFA(2) of the Income Tax Act, 1961:

The appeal under Section 260A of the Income Tax Act was directed against an order passed in a block assessment period. The Tribunal granted substantial relief to the assessee, leading to a revised total undisclosed income. The Assessing Officer initiated penalty proceedings under Section 158BFA(2) of the Act, which the assessee resisted, arguing that penalty imposition was not automatic. The Tribunal set aside the penalty levy, prompting the Revenue to appeal.

Issue 2: Discretion of the Assessing Officer in imposing penalty:

Various court decisions highlighted the discretionary nature of penalty imposition under Section 158BFA(2) of the Act. The Assessing Officer has the discretion to impose a penalty, and the penalty amount should not be less than the tax leviable but not exceed three times that amount. The Tribunal correctly considered legal principles and exercised discretion in allowing the appeal filed by the assessee.

Issue 3: Difference between undisclosed income returned by the assessee and finally determined income:

The difference in undisclosed income returned by the assessee and finally determined income was a key point of contention. The Tribunal found that the discrepancy was due to valuation differences in gold jewelry and diamonds, not willful misconduct by the assessee. The Tribunal considered this factor in setting aside the penalty levy.

Issue 4: Willful concealment and furnishing of inaccurate particulars by the assessee:

The Tribunal noted that the assessee did not commit any willful default and that the valuation differences were not intentional. The Tribunal referenced similar cases where estimation errors were not considered willful concealment, leading to penalty dismissal.

Issue 5: Validity of penalty levy based on valuation differences in gold jewelry and diamonds:

The Revenue argued for penalty imposition based on valuation differences in gold jewelry and diamonds. However, the Tribunal found that the undisclosed income was not due to out-of-books transactions but valuation discrepancies. The Tribunal's decision was upheld as the Revenue failed to establish grounds for interference.

In conclusion, the High Court dismissed the tax case appeal, answering the substantial questions of law against the Revenue. The judgment emphasized the discretionary nature of penalty imposition and the importance of considering intent and circumstances in determining penalties under Section 158BFA(2) of the Income Tax Act.