2007 (10) TMI 334 - AT - Income Tax

Block Assessment - concealment or suppression of income - initiated penalty proceedings u/s 158BFA(2) - defective and damaged goods - HELD THAT - We are of the view that the learned CIT(A) has rightly deleted the penalty levied u/s 158BFA(2) of the Act since admittedly it is not the intention of legislature to impose penalty under the said provisions on every finally sustained addition in undisclosed income and the condition precedent for imposing penalty u/s 158BFA(2) is that there must be concealment or suppression of income on the part of the assessee to avoid payment of tax thereon. In absence of a positive finding in this regard, the AO was not justified in imposing the penalty. The first appellate order is thus upheld. The ground as well as appeal is thus dismissed.

Summary

Issues:
1. Questioning the deletion of penalty imposed by the Assessing Officer under section 153BFA(2) on the addition finally sustained by the Tribunal.

Analysis:
The case involved the Revenue challenging the first appellate order that deleted a penalty of Rs. 3,53,875 imposed by the Assessing Officer under section 153BFA(2) on an addition of Rs. 5,04,099 finally sustained by the Tribunal. The Department conducted a search resulting in the assessee filing a block return declaring undisclosed income. The Assessing Officer assessed the income, making additions that were eventually sustained by the Tribunal. The penalty was initiated under section 158BFA(2) based on these additions. The assessee contended that the additions were estimations by the AO and appellate authorities, constituting a minor error not warranting penalty. The CIT(A) deleted the penalty, emphasizing that deliberate concealment was not established. The Tribunal upheld this decision, noting that penalty should not be imposed on every sustained addition without evidence of concealment.

The Assessing Officer calculated the penalty based on the sustained additions, including stock, jewellery, and debtors. The Tribunal observed that these additions were estimation-based, such as the addition of stock, jewellery, and debtors. The Tribunal analyzed the treatment of trade debtors, where the Assessing Officer allowed certain claims but estimated defective and damaged goods differently. The Tribunal concluded that the penalty under section 158BFA(2) requires evidence of concealment, which was lacking in this case. The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing the legislative intent to penalize only deliberate concealment, which was not proven here.

In conclusion, the Tribunal dismissed the appeal, affirming the deletion of the penalty by the CIT(A). The case highlighted the importance of establishing deliberate concealment for imposing penalties under section 158BFA(2), emphasizing that estimations without evidence of intentional wrongdoing do not warrant penalties.