2006 (8) TMI 232 - AT - Income Tax

Block Assessment in search case - penalty imposed u/s 158BFA(2) - search and seizure operation - difference between the loss declared in the return u/s 158BC and the income determined in the block assessment order - whether the direction of the CIT(A) for enhancing penalty and Assessing Officer s passing of consequential order giving effect of the said order was justified or not? - HELD THAT - It is established without any ambiguity that in the instant case the Department was not able to establish either conscious and deliberate concealment of income or deliberate furnishing of inaccurate particulars of income by the assessee. The block assessment was made primarily on the basis of income disclosed in the disclosure petition. The Assessing Officer only made some intangible/ad hoc additions. Undoubtedly the income was disclosed by the assessee after considering all the relevant books and documents including the voluminous seized material could at the time of search. But for the co-operation extended by the appellant by voluntarily disclosing its correct income it would have been extremely difficult for the Department if not impossible to determine the correct income from the loads of seized papers. Thus it could not be said that the appellant-company deliberately concealed particulars of its income or deliberately furnished inaccurate particulars thereof. In order u/s 158BFA(2) which we have quoted earlier the Assessing Officer categorically stated that the assessee did not deliberately conceal his correct income to the extent of Rs. 14, 25, 052 implying thereby the correctness of the aforesaid assertion of the appellant which the CIT(A) doubted for the unfounded reasons discussed above. In the order the CIT(A) did not give any cogent reasons for not accepting such finding of the Assessing Officer. The other officials of the Department also appeared to accept the fact of conditional disclosure made by the appellant through their various actions. The penalty order was passed by the Assessing Officer with the approval of the Addl. CIT. The CIT had also acknowledged the contents of the disclosure petition submitted to him as his letter apparently implies. Thus apart from the CIT(A) all other concerned officials of the Department accepted the letters of the appellant addressed to the Dy. CIT and the CIT respectively as incorporating the conditional disclosure of income made by the assessee. Merely because the Department did not reply to the letters referred to above would not negate the fact that the assessee did make a conditional disclosure which was acted upon by the Department. As far as the fourth ground is concerned as the cost of repetition the appellant never said that the disclosure petition filed by it should be construed as a revised return. All it sought to do by filing the disclosure petition was to make good the deficiencies in the block return filed by it which crept in because of non-completion of accounts due to frequent searches by various Government agencies non-receipt of the copies of the voluminous seized material and resultant complexity in determining the true income. From the conduct of the assessee and evidentiary documents placed on record it is established that the declaration of additional income was to co-operate the Department to complete error-free block assessment at the best possible manner. Thus we have no hesitation to hold that the CIT(A) was not justified in enhancing the quantum of penalty.

Summary

Issues Involved:
1. Legality of penalty imposed under section 158BFA(2) of the Income-tax Act, 1961.
2. Validity of the enhancement of penalty by the CIT(A).
3. The impact of the assessee's conditional disclosure of income on penalty proceedings.

Issue-wise Detailed Analysis:

1. Legality of Penalty Imposed under Section 158BFA(2):
The assessee appealed against the penalty imposed under section 158BFA(2) for the block period 1990-91 to 14th December 1999. The penalty was based on the difference between the loss declared in the return (Rs. 1,29,57,430) and the income determined in the block assessment (Rs. 35,73,902). The assessee argued that frequent searches and seizures by various authorities disrupted their accounting system, making it challenging to file accurate returns. The initial return was based on incomplete information, and the subsequent disclosure of income was made in good faith to correct the initial inaccuracies. The Tribunal noted that the assessee voluntarily disclosed additional income before the Settlement Commission and the Assessing Officer, which was not detected solely by the Department. The Tribunal emphasized that the penalty under section 158BFA(2) is not mandatory and must be imposed judiciously.

2. Validity of the Enhancement of Penalty by the CIT(A):
The CIT(A) enhanced the penalty by directing the Assessing Officer to impose it on the difference between the returned loss and the assessed income. The CIT(A) argued that there is no provision for filing a revised return in block assessments and that the disclosure made by the assessee was not voluntary. However, the Tribunal found this view to be misconceived. The assessee did not file a revised return but made a disclosure to correct the initial return based on incomplete information. The Tribunal highlighted that the CIT(A) failed to consider the principles of law that allow for correcting mistakes in returns due to extraneous factors. The Tribunal concluded that the CIT(A) was not justified in enhancing the penalty.

3. Impact of the Assessee's Conditional Disclosure of Income on Penalty Proceedings:
The assessee made a conditional disclosure of income, seeking immunity from penalty and prosecution. The Tribunal noted that the disclosure was made in good faith and based on the suggestion of the CIT, Central-I, Kolkata. The Tribunal found that the Department did not provide evidence to refute the assessee's claim that the disclosure was made based on an assurance of immunity. The Tribunal referred to various judicial decisions that support the view that conditional disclosures made to avoid litigation and buy peace should not attract penalties. The Tribunal concluded that the assessee acted in good faith and made a bona fide disclosure of income, and therefore, the penalty under section 158BFA(2) was not warranted.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the penalty of Rs. 99,18,793 under section 158BFA(2) was not justified. The Tribunal emphasized that the assessee's disclosure of additional income was made in good faith to correct the initial return and was not solely detected by the Department. The Tribunal also found that the CIT(A) was not justified in enhancing the penalty based on the difference between the returned loss and the assessed income.