2006 (4) TMI 204 - AT - Income Tax

Assumption of jurisdiction u/s 158BFA(2) - penalty imposed - Block Assessment in search case - Search And Seizure u/s 132 - search initiated before the date on which section 158BFA came into effect - Undisclosed income - HELD THAT - We are of the considered opinion that initiation means the very beginning of a process or to take the first step. The very first act in the series of acts is the initiation of the main action. The warrant of authorisation is such initiation of taking proceedings u/s 132 of the Act. Whether the warrant is actually executed or not and the date on which the possession of asset was taken by the revenue under the section is entirely immaterial. The terms initiation and execution are two different words having different meanings and are not synonymous. The word execution means starting or commencing the order or direction or intention by putting into action. Therefore the initiation is something different from commencement of search. Resultantly we come to the conclusion that initiation of search commences with the issue of authorization by the authorities. Having come to the above conclusion now it is for certain that the search in this case was initiated on 30-12-1996. Further it is a well-recognized fact that the penal provision 158BFA(2) came into operation only on 1-1-1997. Meaning thereby that on the day when the search was initiated in the given case the abovesaid penal provision was not in vogue. Thus the very assumption of jurisdiction u/s 158BFA(2) is void ab initio. Hence in the given facts and the circumstances of this case no penalty can be levied in this case u/s 158BFA(2). Since we have decided the legal issue in the favour of the assessee there is no need to decide other grounds of appeal. In the result the impugned penalty is hereby cancelled and the appeal of the assessee is allowed.

Summary

Issues:
Appeal regarding block period of assessment years 1987-88 to 1997-98, validity of penalty under section 158BFA(2) for undisclosed income during search initiated before January 1, 1997.

Analysis:
1. The appeal pertains to undisclosed income during a search conducted under section 132(1) of the Income-tax Act, 1961. The Assessing Officer initially assessed undisclosed income at Rs. 70,74,170, later reduced to Rs. 15,74,657. Subsequent penalty under section 158BFA(2) of Rs. 4,35,103 was imposed, contested by the assessee.

2. The primary contention was the inapplicability of section 158BFA(2) as the search was initiated before January 1, 1997, when the provision came into effect. The assessee argued that the search initiation on December 30, 1996, precluded the penalty. The Tribunal analyzed the meaning of "initiation" in this context, emphasizing the importance of the authorization date by tax authorities.

3. The Tribunal deliberated on legal precedents, including the Kolkata and Bangalore Benches, establishing that search initiation occurs with the authorization date. The judgment emphasized that the penalty provision of section 158BFA(2) must be strictly construed, favoring the taxpayer in case of doubt. The Tribunal concluded that the penalty jurisdiction was void ab initio due to the search initiation predating the enactment of the penalty provision.

4. Consequently, the Tribunal ruled in favor of the assessee, canceling the penalty under section 158BFA(2) due to the search initiation before the provision's effective date. The decision highlighted the importance of interpreting penalty provisions strictly and in favor of taxpayers in case of ambiguity.

5. The judgment exemplifies the significance of the initiation date in determining the applicability of penalty provisions, emphasizing adherence to legal principles and precedents in tax matters. The cancellation of the penalty underscores the need for precise interpretation of tax laws to protect taxpayer rights and ensure fair application of penalties.