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TMI Blog2007 (9) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... ening balance as on 1.4.95 claimed as deduction From the opening capital of ₹ 2,91,93,051 /- as on 01.04.01 mentioned in the seized document 40,00,000/- (b) Bad debts claimed 27,90,000/- (c) Claim of loss on acccunt of sale of shares (confirmed by OT (A) but not pressed before ITAT) 2,10,000/- (d) Excess stock not disclosed (After giving effect to CIT (A) and ITAT order) 15,25,221/- Amount not contested even before the CIT(A) 9,93,933/- Total 95,19,154/- In the mean time the assessee took up the appeal before the CIT(Appeals) and the(appeals) has confirmed the order of the assessing officer. Thereafter the assessee went in appeal before the Tribunal. The addition made by the lower 'authorities were confirmed vide ITAT's order dated 2.10.2005 in I.T.A. No. 82/05. Thereafter the assessing officer initiated penalty proceedings u/s.158BFA(2) of the Income-tax Act and levied penalty of ₹ 58,25,722/- in view of the concealment stated in the earlier paragraph. Against this the assessee went in appeal before the Learned Commissioner of Income-tax (Appeals) who in turn confirmed the action of the assessing officer. Aggrieved the assessee is in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due from 13 parties. The assessing officer has allowed the claim to the extent of ₹ 12,19,535/- and disallowed the rest of the amount. The assessee went in appeal before the Learned Commissioner of Income-tax (Appeals) who is turn had confirmed the action of the assessing officer. Aggrieved the assessee went in appeal before the ITAT and the ITAT had also confirmed the action of the lower authorities placing reliance on the judgment of the jurisdictional High Court in the case of CIT vs. Micromax Systems (P)Ltd. (2005) reported in 277 ITR 409. 3.2 Learned A.R. submitted that the claim of the assessee is bonafide He submitted that the Department has accepted the claim partly and disallowed the rest for the reason best known to the assessing officer. He further stated that the books of accounts of the assessee were in possession of the Department from the date of search and that it is the normal practice is the business to write off the amounts as bad only at the end for the financial year and' not during the middle of the year. The decision to write off a debt as 'bad debt' will be taken only during the end of the financial year. No business man will foresee a sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the wing judgments: i) Sree Nithyakalyani Textiles Ltd. vs. DCIT (Mad) 282 ITR 154 ii) CIT vs. S. Krishnaswamy and Sons (Mad) (219 ITR 157) iii) CIT vs. K.T.M.S.Mahamood (Mad)(1997) (228 ITR 11 3) 5. The next ground is that the Learned Commissioner of Income-tax (Appeals) erred in upholding the penalty on the share trading loss of ₹ 2,10,000/-. 5.1 Learned A.R. submitted that due to the smallness of the amount involved that ground was not pressed before the ITAT in quantum appeal and that can not be a reason for sustaining the penalty. He further submitted that the assessee's claim was rejected by the assessing officer on the ground that the assessee was not carrying on this business. Learned A.R submitted that the assessing officer has not called for any details regarding this business and hence no details were submitted. He thus stated that the findings of the Assessing officer that the assessee has not proved the loss from share business is incorrect. He submitted that the A.O has failed to look into the transaction entered into by the assessee before making such observation. The addition is only on estimated basis. He contended that just becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in furnishing inaccurate particulars especially for proving the genuineness of the claims would be definitely different in a penalty proceedings. He further submitted that the rejection of explanation with regard to claim and estimated addition would not automatically attract penal provisions and according to the assessee, levy of penalty in this case is incorrect, unjustified, invalid, erroneous and not sustainable both on facts and law. He further submitted that the findings on the additions made in the appeal should not be taken as conclusive for the present proceedings and the evidences filed in the said proceedings in order to the source from father's business though rejected in the quantum appeal should be looked independently in the penalty appeal. Learned A.R. submitted that the block assessment order under consideration was framed without referring to the books of accounts and was based on the seized materials alone. Learned A.R thus prayed for deletion of the penalty. He filed copied of petitions filed before the High Court and submitted that the assessee was admitted before the High Court and hence in view of the judgment of Tribunal, 'A' Bench, Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed which is in excess of the amount of undisclosed income shown in the return. (3) No order imposing a penalty under sub-section (2) shall be made, - (a) unless an assessee has been given a reasonable opportunity of being heard; (b) by the Assistant Commissioner [or Deputy Commissioner) or the Assistant Director (or Deputy Director], as the case may be, where the amount of penalty exceeds twenty thousand rupees except with the previous approval of the [Joint] Commissioner or the [Joint] Director, as the case may be; (c) in a case where the assessment is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 [or section 246A] or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or the Commissioner, whichever period expires later: (d) in a case where the assessment is the subject-matter of revision under section 263, expi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation which favours the assessee, more particularly so, where the provision relates to the imposition of penalty. Useful reference may be made in this regard to the observations in the decisions in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177: (1973) 88 ITR 192 (SC), C.A. Abraham vs. ITO and Anr. (1961) 41 ITR 425 (SC), Braja Lai Bank vs. State of Tripura (1990) 78 STC 283 (Gau), CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom), J.K. Synthetics Ltd. VS. CTO (1994) 119 CTR (SC) 222 and Birla Cement Works State of Rajasthan (1994) 94 STC 422 (SC). 12. Now applying the above principle, the provisions of s. 158BFAO) ides that where the assessee did not file a return of income as required by notice under s. 158BC and has furnished the return after the expiry of the period specified in that notice or has not furnished the return of income, the assessee shall be liable to pay simple interest at the rate of two per cent of the tax on undisclosed income determined under c. (c) of s. 158BC, for every month or part of a month compiled in the period commencing on the day immediately following the expiry of the time specified in the notice. 13. Now coming to the provisions of s. 158BFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down by the Supreme Court and followed by every High court while dealing with penalties and the provisos dealing with penalties. The legislature, in our view, has not prescribed the circumstances under which the penalty has to be levied. It has only said the circumstances under which no penalty is leviable. That does not mean that in every other circumstance the penalty is automatic and has to be levied. We should not forget that the words used in sub-s. (2) are that the Assessing Officer may direct the imposition of penalty. It means that the penalty is not automatic and de hors the committal of the offence of the offence for which the legislature has prescribed the penalty. In our view, sub s. (2) has miserably failed to provide for circumstances justifying the penalty. We are unable to sustain the penalty levied by the A.O in the facts and circumstances of the case. 15. In this case the assessee has filed the return of income declaring most of undisclosed income. However, the assessee claimed deduction towards opening capital balance at ₹ 40 lakhs and bad debts at ₹ 40,09,535/- and claim on account of loss on sale of shares at ₹ 2,10,000/- and towards non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stage of assessment. This is the reason for rejection of the claim of the assessee. Coming to the claim of bad debts, the assessing officer has accepted the claim partly and disallowed the balance and the valuation made by the assessing officer is also on estimated basis only. Regarding the addition in respect of other expenses, the assessee is not preferred any appeal and that itself exonerates the assessee from levy penalty as per the provisions of Sec 58BFA(2) of the Act. Any assessing officer could easily harass the taxpayer by demanding nearly 240 percent (60 percent 180 percent maximum penalty) of the tax which can not the purpose of Chapter XIV-B of the Act. This is clearly obnoxious and has never been the intention of the legislature while drafting these provisions. The scope of Chapter XIVB is to ease out the tax computations in search cases. But herein it has ended up with all sorts of harassment to the tax payer who wants to come clean before the Department. In our opinion, the assessing officer is not justified in exercising the discretion in favour of the assesse considering the fact that the assessee has filed the return genuinely and has made reasonable claims. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reasonable doubt or ambiguity, it will be resolved in favour of the person who would be liable to the penalty. If there is a reasonable interpretation, which will avoid the penalty in any particular case, that construction must be adopted. If there are two constructions, the more one must be adopted. In every case, the question is simply what is the meaning of the words, which the statute has used to describe the prohibited or transaction. If these words have a natural meaning, that is their meaning, and such meaning is not to be extended by any reasoning based on the substance of the transaction. If the language of the statute is equivocal and there are two reasonable meanings of that language, the interpretation that will avoid the penalty is to be adopted. These are some of the principles discussed in Maxwell on Interpretation of Statutes 12th Edn. These principles, if squarely applied to the facts of the case, it will only result in cancellation of penalty. 18. In Sales Matic Ltd. vs. Hinchcliffe (1959) 1 WIR 1005, it is held that express language is always necessary for creation of an offence. A mere declaration that "all lotteries are unlawful" does not create an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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