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2008 (7) TMI 449 - AT - Income TaxPenalty levied u/s. 158BFA(2) - Assessment made after search and seizure operation - Income earned over and above the income recorded in the books of account - ingredients of s. 271(1)(c) can be read into s. 158BFA(2) - HELD THAT - The argument that the penalty cannot be levied on estimated income, it may be mentioned that the assessee did not furnish the particulars of undisclosed income on the basis of seized material and only nil income was returned. The facts of the case of Smt. Bitoli Devi are quite distinguishable as she had estimated the income at 3.3 per cent against 4 per cent determined by the learned CIT(A). Thus, it was a case of enhancement of the estimate rather than one of making an estimate on the basis of available facts against the nil income returned by the assessee. The Tribunal relied, inter alia, the decision in the case of Smt. Mala Dayanithi, in which it was held that the assessee had co-operated with the AO in the course of assessment leading to the inference that no fault could be found with her. Such is not the case here. In absence of the possibility of correctly computing the income, the authorities will have no alternative but to estimate the income, which is permitted by the statute. In fact, there is no difference in this matter in an assessment made under s. 143(3) or made in the manner provided under s. 144. In this case, such estimate was also put to test and the order of the Tribunal in this case has become final. The penalty has been levied on the basis of the order of the Tribunal. Therefore, we are of the view that on the facts and in the circumstances of the case, penalty could be levied on increase in the undisclosed income even if it was on account of estimation made by the Revenue authorities and the Tribunal. There is a clear finding of the Tribunal that the assessee earned income over and above the income recorded in the books of account. The evidence to this effect was found in search and yet the assessee filed nil return. Therefore, the Revenue authorities were justified in computing the undisclosed income. Obviously, the assessment was made after search and seizure operation and the assessee was aware of the evidence available against it. Yet, the assessee chose to file nil return, which shows that the return was not bona fide. Therefore, even if it is assumed that all ingredients of s. 271 (1)(c) are applicable, such ingredients are satisfied in the instant case. Therefore, it is held that the levy of penalty was justified in this case. Accordingly, the appeal of the assessee is dismissed.
Issues Involved
1. Confirmation of penalty under Section 158BFA(2) of the IT Act. 2. Comparison of Section 158BFA(2) with Section 271(1)(c) of the IT Act. 3. Computation of brokerage or commission income. 4. Determination of undisclosed income. 5. Justification for levy of penalty on estimated income. 6. Requirement of proving mens rea (guilty mind) for penalty under Section 158BFA(2). Detailed Analysis 1. Confirmation of Penalty under Section 158BFA(2) of the IT Act The primary issue in this case was whether the learned CIT(A) erred in confirming the penalty levied by the AO under Section 158BFA(2) of the IT Act. The penalty was based on the difference between the undisclosed income determined by the AO and the income returned by the assessee. The AO concluded that the statutory provision warranted the penalty, and the CIT(A) confirmed this view, stating that the turnover and brokerage or commission income were not correctly shown by the assessee. 2. Comparison of Section 158BFA(2) with Section 271(1)(c) of the IT Act The assessee argued that the provisions of Section 158BFA(2) should be considered in pari materia with Section 271(1)(c), which deals with concealment of income. The AO countered that Section 158BFA(2) does not mention 'concealment' but rather focuses on the excess of undisclosed income over the returned income. The Tribunal cited various case laws to argue that the levy of penalty under Section 158BFA(2) should not be automatic but discretionary, considering all surrounding circumstances. 3. Computation of Brokerage or Commission Income The brokerage or commission income was initially computed by the AO and CIT(A) at 1.5% of the total turnover of Rs. 1,04,76,94,004. However, the Tribunal directed the AO to reduce this rate to 0.60%, resulting in an income of Rs. 62,86,164. The assessee had disclosed an aggregate income of Rs. 40,23,073 for the relevant assessment years, leading to a difference determined as undisclosed income. 4. Determination of Undisclosed Income The Tribunal noted that the assessee did not dispute the turnover of Rs. 104 crores during the block period. The Tribunal found that the assessee was engaged in providing accommodation entries and charging higher rates of commission than shown in the books. The Tribunal concluded that the AO was justified in computing the undisclosed income based on the material seized during the search. 5. Justification for Levy of Penalty on Estimated Income The Tribunal addressed the argument that penalty should not be levied on estimated income. It was noted that the assessee had returned nil income for the block period despite evidence of undisclosed income. The Tribunal held that in the absence of accurate particulars, the authorities had to estimate the income, which is permissible under the statute. The penalty was levied based on the Tribunal's final order, thus justifying the penalty on the estimated income. 6. Requirement of Proving Mens Rea for Penalty under Section 158BFA(2) The assessee contended that the penalty could not be levied without proving mens rea. The Tribunal referred to its findings that the assessee was aware of the undisclosed income and yet filed a nil return. The Tribunal concluded that the assessee's conduct was not bona fide and that the ingredients of Section 271(1)(c), if applicable, were satisfied in this case. Therefore, the penalty under Section 158BFA(2) was justified. Conclusion The Tribunal dismissed the appeal, holding that the levy of penalty under Section 158BFA(2) was justified based on the facts and circumstances of the case. The Tribunal emphasized that the assessee's conduct was not bona fide and that the penalty was warranted even if it was based on estimated income. The Tribunal also clarified that the provisions of Section 158BFA(2) do not require the same level of proof of concealment as Section 271(1)(c).
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