2013 (10) TMI 477 - AT - Income Tax

Penalty under section 158BFA(2) of the Act - Total undisclosed income under section 158BD was determined at Rs.36,47,355/- by the AO and after allowing appeal-effect by the ITAT, the same was reduced to Rs.15,07,455/- Order of penalty on deceased person Applicability of section 292B of the Act Held that - The assessee has only source of agricultural income, and no other source of income could be established by the department - Since the assessee has only agriculture income, unproved part of the deposits could be arguably claimed to be out of agriculture income only Facts of the case may justify the part of the addition to the extent of Rs.15,07,455/-, sustained by the Tribunal, but, are not sufficient to justify the imposition of penalty under section 158BFA(2) of the Act Assessment proceedings and penalty proceedings are different and independent to each other. The addition or part of the addition could be sustained on the preponderance of probabilities, but in penalty proceeding, some proof is required, to impose penalty on the assessee - Savings of the assessee from agriculture income have been determined by the Tribunal by fixing certain percentage ranging from 40% to 80% for different years involved in the block period, and that is by way of estimation only. Reliance has been placed upon the judgment of Hon ble Apex court in the case of Hindustan Steel Ltd. Vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court , wherein it has been held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In the present case, only source of income being agriculture and that the credit for past savings from agriculture income, prior to the block period, having not been allowed in the quantum proceedings, and figure of addition having been determined on estimate basis, applying the average rate of 40%, 60% and 80% for working out the figures of savings from agricultural income in different years of block period, and the part of the addition having been sustained by the Tribunal on estimation only, penalty imposed under section 158BFA(2) is liable to be cancelled on merits and is accordingly cancelled. Order of penalty on deceased person Applicability of section 292B of the Act Held that - In the instant case, the legal heir was never impleaded or brought on record - Therefore, it cannot be said that non-mentioning of the name of the legal heir and writing of name of the deceased at the top of the penalty order is merely a clerical error - In this case, the facts of the case leaves to only conclusion that the order imposing penalty was passed on the deceased, and therefore, is null and void, and the penalty on the dead person is liable to be cancelled on this ground alone Decided in favor of Assessee.

Summary

Issues Involved:
1. Validity of penalty levied under section 158BFA(2) of the I.T. Act, 1961.
2. Legal validity of the penalty order passed on a deceased assessee.
3. Merits of the penalty imposed under section 158BFA(2).

Issue-wise Detailed Analysis:

1. Validity of Penalty Levied under Section 158BFA(2) of the I.T. Act, 1961:
The primary issue in this appeal is the validity of the penalty levied under section 158BFA(2) of the Income Tax Act, 1961. The appellant contended that the penalty order was passed on a deceased person, late Shri Chandrakant A. Gandhi, and not on his legal heir. The respondent argued that this was merely a clerical error and did not invalidate the penalty order. However, the tribunal found that the penalty imposed on a deceased person is null and void, as it is well settled that no penalty can legally be imposed on a dead person. The tribunal distinguished the cited cases, noting that in those cases, legal heirs were properly impleaded and given a hearing, which was not done in the present case.

2. Legal Validity of the Penalty Order Passed on a Deceased Assessee:
The tribunal observed that the son of the deceased, Shri Vinod C. Gandhi, was not impleaded as a legal heir in the penalty order. The tribunal emphasized that the Revenue did not provide any material to suggest that the legal heir was brought on record during the penalty proceedings. The tribunal concluded that since the penalty order was passed on the deceased without impleading the legal heir, it was not merely a clerical error but a substantive legal issue, rendering the penalty order null and void.

3. Merits of the Penalty Imposed under Section 158BFA(2):
On the merits, the appellant argued that the only source of income was agriculture, and no other source of income was established by the department. The tribunal noted that the ITAT had allowed credit for agricultural income declared in the income-tax returns for the block period but not for earlier years. The tribunal found that the savings from agricultural income were determined on an estimated basis, and no penalty could be imposed where additions were sustained merely on estimates. The tribunal referred to several case laws, including Hindustan Steel Ltd. Vs. State of Orissa, where it was held that penalty should not be imposed unless there is deliberate defiance of the law or contumacious conduct. The tribunal concluded that the imposition of penalty under section 158BFA(2) was not justified on the merits, as the addition was based on estimates, and the conduct of the assessee did not warrant a penalty.

Conclusion:
The tribunal allowed the appeal, holding that the penalty levied under section 158BFA(2) was invalid both on legal grounds and on merits. The penalty order was canceled, and the appeal of the assessee was allowed.