2005 (8) TMI 289 - AT - Income Tax

Block Assessment in search case - penalty levied u/s 158BFA(2) - HELD THAT - The charge against the assessee is to show the reason why a difference has taken place in the undisclosed income shown in the return and ultimately determined by the Assessing Officer. In order to appreciate this controversy we have to keep in mind that element of concealment of particulars of income or income is not condition precedent for levy of penalty u/s 158BFA(2) because income for the block period is to be determined on the basis of seized material which is already in the possession of the department. The assessec has to explain as to why it was not able to compute the true undisclosed income from the seized material and why it failed to return the true undisclosed income. In order to explain its position assessee has submitted that 84 files containing about 10,000 voluminous sheets were seized involving 31 concerns. It was not humanly possible for the assessee to work out the exact figure. The group has already honoured whatever discloser was made at the time of search. The assessee further did not dispute the addition made by the Assessing Officer in the assessment, rather assessee itself filed the letter pointing out as to how it claimed the expenses which are not allowable and can be considered as undisclosed income for the block assessment purpose. In the present case particulars were already in the possession of the department. It is the computation of income which has not been properly disclosed by the assessee and the reasons demonstrated before us for not disclosing the true undisclosed income is that from the seized material it was not humanly possible to compute the income from such voluminous record. We have gone through the assessment order also. From the assessment order it is discernible that additions have been made purely on the basis of assessee's letter dated 24-4-2001 extracted above. The Assessing Officer nowhere discussed independent material for making the addition. No doubt there is a difference in undisclosed income declared by the assessee and ultimately determined by the Assessing Officer but for that assessee has already demonstrated that it was not humanly possible to compute the alleged true undisclosed income as determined by the Assessing Officer out of the voluminous seized material. This argument of the assessee has been rejected by ld. Assessing Officer without assigning any reason. From the record we nowhere find mala fide intentions attributable to the assessee, rather on going through the letter of the assessee dated 24-4-2001 coupled with the explanation submitted by it during the penalty proceedings we are of the view that ld. CIT(A) has rightly deleted the penalty. Therefore, we do not see any good reason to interfere in the order of ld. CIT(A). In the result, the appeal of the revenue is dismissed.

Issues Involved:
1. Deletion of penalty levied under section 158BFA(2) of the Income Tax Act.
2. Discretionary nature of penalty under section 158BFA(2).
3. Bona fide nature of the assessee's actions and explanations for discrepancies in disclosed income.

Detailed Analysis:

1. Deletion of Penalty Levied under Section 158BFA(2):
The revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 25-2-2002, which deleted the penalty levied under section 158BFA(2). The penalty was imposed due to the difference between the undisclosed income declared by the assessee and the amount determined by the Assessing Officer (AO).

2. Discretionary Nature of Penalty under Section 158BFA(2):
The Assessing Officer argued that the term "shall" in section 158BFA(2) mandates the imposition of penalty whenever there is a discrepancy between the declared and determined undisclosed income. However, the CIT(A) and the Tribunal interpreted the section as discretionary, noting that the term "may direct" indicates that the AO and CIT(A) have the discretion to impose or not impose the penalty based on the circumstances. The Tribunal emphasized that the expression "shall" in the second proviso pertains to the quantum of penalty and not to the basic decision of whether to levy the penalty.

3. Bona Fide Nature of the Assessee's Actions and Explanations:
The assessee contended that the discrepancy in the undisclosed income arose due to the complexity and volume of the seized documents, which made it difficult to compute the exact income. The CIT(A) found the assessee's explanation credible, noting that the assessee had cooperated with the department and had not engaged in avoidable litigation. The Tribunal upheld this view, stating that the assessee's actions were bona fide and that the discrepancy was not due to any intentional concealment.

Analysis of Specific Arguments and Case Laws:
- The Department Representative (D.R.) argued that the penalty is automatic under section 158BFA(2) and cited various case laws to support this contention. However, the Tribunal distinguished these cases, noting that they primarily dealt with concealment of income, whereas in this case, the issue was the computation of income from voluminous seized material.
- The Tribunal considered the assessee's detailed explanations and the circumstances leading to the discrepancy, including the complexity of the seized documents and the group's overall cooperation with the department.
- The Tribunal also noted that the additions made by the AO were based on the assessee's own letter and voluntary disclosures, further supporting the assessee's bona fide intentions.

Conclusion:
The Tribunal concluded that the CIT(A) had rightly deleted the penalty, as the assessee's actions were bona fide and the discrepancy in the undisclosed income was not due to intentional concealment. The appeal of the revenue was dismissed, affirming the discretionary nature of the penalty under section 158BFA(2) and the importance of considering the assessee's conduct and explanations.

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