Income Tax Appellate Tribunal - Pune
C.P. Nanda vs Deputy Commissioner Of Income Tax on 25 March, 2004
Equivalent citations: (2004)84TTJ(PUNE)125
ORDER
H.L. Karwa, J.M.
1. This is an appeal by the assessee and is directed against the order of the learned CIT(A)-I, Pune dt. 12th Dec., 2002, confirming the penalty of Rs. 2,35,761 under Section 158BFA(2) of the IT Act, 1961.
2. The assessee is an individual and was being assessed to tax for the last several years. The sources of the income of the assessee are share of profit from the firm M/s Nanda Clinic and income from commission and brokerage. A search and seizure action under Section 132 was carried out at the premises of Dr. P.K. Nanda on 24th Nov., 1999, which was concluded on 31st Dec., 1999. The assessee is father of Dr. P.K. Nanda, therefore, his residential premises was also covered under the search action. There was no seizure of any asset in this case. A notice under Section 158BC was issued to the assessee, which was served upon him on 10th May, 2000, The assessee filed his return of undisclosed income for the block period on 23rd June, 2000 and undisclosed income was declared as Rs. Nil. From the records of the assessee's case, it was noticed by the AO that in the instant case the return of income for asst. yr. 1999-2000 filed by the assessee on 23rd June, 2000 was beyond the specified date in the Act. According to the AO, the return of income for the asst. yr, 1999-2000 was due on or before 30th June, 1999. The assessee was a partner in M/s Nanda Clinic. The due date in the case of said concern was 31st Oct., 1999. The assessee did not file the return by this date. However, the return was filed on 23rd June, 2000. The AO was of the view that the income declared at Rs. 3,57,214 was undisclosed income of the assessee liable to tax under the provisions of Section 158BB(1)(c) of Chapter XIV-B of IT Act, 1961. Accordingly, the AO determined the income of the assessee and levied the tax. He had also initiated penalty proceedings under Section 158BFA(2) of the IT Act, 1961 and vide order dt. 24th June, 2002 imposed penalty of Rs. 2,35,761 under Section 158BFA(2) read with second proviso thereto of the IT Act, 1961.
3. In further appeal, the CIT(A) upheld the action of the AO in levying the penalty and also directed the AO to take action under Section 158BFA(1) for charging interest as return of undisclosed income was beyond the time-limit under Section 158BC(a) of the Act. The relevant findings of the learned CIT(A) given in paras 4.2 and 5 are reproduced hereunder:
"I may like to point out here that the appellant is liable to penalty under Section 158BFA(2) itself without taking recourse to proviso thereto as the return of undisclosed income for the block period has not been filed under Section l58BC(a). In fact, the AO may also take action under Section 158BFA(1) for charging interest, if it has not already been done, as the return of undisclosed income was beyond the time allowed under Section 158BC(a) of the IT Act, 1961.
After considering various aspects of the case and legal position as it exists, levy of penalty under Section 158BFA(2) is hereby confirmed."
4. Aggrieved by the order of the learned CIT(A), the assessee is in further appeal before this Bench of the Tribunal.
5. Before us, Shri R.G. Nahar, the learned counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that for the asst. yr. 1999-2000, the AO has considered the income of Rs. 3,57,214 as undisclosed income, despite the fact that the assessee had filed the regular return under Section 139(4) of the Act declaring total income at Rs. 3,57,214. Shri R.G. Nahar, the learned counsel for the assessee pointed out that there was no difference between the income admitted and assessed by the AO, except for the fact that the AO considered the disclosed income as undisclosed for the purpose of levy of taxes. It was also brought to our notice that the assessee had paid full taxes on the basis of the return so filed and accepted the assessment and did not file further appeal in order to avoid any possible litigation in future and to bring an end to such possible litigation. It was also submitted that keeping in view the provisions of Chapter XIV-B (block assessment) the case of the assessee is beyond the scope of provisions of Section 158BFA for justifying any imposition of penalty. It was vehemently argued that even though the return was filed beyond the date prescribed under Section 139(1) of the Act, yet the assessee was entitled to file regular return of income under Section 139(4) of the Act on or before the expiry of one year from the end of the relevant assessment year. In fact, the assessee had filed regular return of income under Section 139(4) on 23rd June, 2000 in the asst. yr. 1999-2000 and the assessee had the time upto 31st March, 2001 to file such return under Section 139(4) of the Act. There was no justification in treating the income admitted by the assessee in the return so filed on 23rd June, 2000 as undisclosed income by the AO and no penalty should have been imposed for alleged default on the part of the assessee in terms of provisions of Section 158BFA.
Shri R.G. Nahar, the learned counsel for the assessee also submitted that there was no undisclosed income which was found by the search party at the time of conducting the search in terms of Section 158B(b) of the Act. According to the learned counsel for the assessee, in absence of any undisclosed income found and so assessed, no penalty should have been imposed. It was also stated that the AO did not find any income from undisclosed sources assessable to tax. The assessee was being assessed to tax since long. The main source of the assessee's income was interest on savings bank account, fixed deposits with the bank, dividend from investment in shares and the commission received from LIC. It was also stated that on substantial part of such income, tax was being deducted at source and all the sources and investments were on the record of the Department. It was further submitted that there was no reason on the part of the AO to initiate proceedings in terms of Chapter XIV-B of the Act since the assessee had been paying regular advance tax and tax was being deducted at source.
In view of the above, it was submitted by the learned counsel for the assessee that there was no justification in levying the penalty and the learned CIT(A) has committed an error of law while confirming such penalty. He, therefore, submitted that the impugned penalty may be cancelled. Reliance was placed on the following decisions :
1. Vidya Madanlal Malani v. Assn. CIT (2000) 69 TTJ (Pune) 456 : (2000) 74 ITD 341 (Pune)
2. Amarnath Aggarwal v. Dy. CIT (2000) 67 TTJ (Del) 551
3. G. Kangaraj v. Dy. CIT (2001) 73 TTJ (Chennai) 731
4. Seahorse Ship Agencies (P) Ltd. Mumbai v. Dy. CIT [IT(SS)A No. 107/Mum/2001, dt. 15th March, 2002]
5. Salvi Divakar Shankar v. Asstt. CIT (2000) 66 TTJ (Pune) 698 : (2000) 72 ITD 552 (Pune)
6. Kasat Paper & Pulp Ltd. v. Asstt. CIT (2000) 69 TTJ (Pune) 924 : (2000) 74 ITD 455 (Pune)
7. Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune)
8. N.R. Paper & Board Ltd. and Ors. v. Dy. CIT (1998) 234 ITR 733 (Guj).
6. Smt. Kusum Ingale, the learned Departmental Representative strongly supported the orders of the authorities below. She further pointed but that in the instant case, the assessee had accepted the specific findings of the AO given in the assessment order dt. 28th Dec., 2001 passed under Section 158BC(c) of the Act and, therefore, the AO was justified in levying penalty under Section 158BFA(2) of the Act. In fact, the assessee had not preferred any appeal before the learned CIT(A) against the order of the AO dt. 28th Dec., 2001. She, therefore, submitted that the findings given in the assessment order are relevant while deciding the penalty proceedings. It was pointed out that the assessee had filed the return of income for the asst. yr, 1999-2000 on 23rd June, 2000 which was beyond the specified date in the IT Act. The return of income for the year under consideration was due on or before 30th June, 1999. Since the assessee failed to file the return of income on or before 30th June, 1999 and even before the date of search, the entire income of the assessee could be considered as undisclosed income and, therefore, the AO was fully justified in considering the income relating to assessment year under consideration as undisclosed income. Accordingly, it was submitted that the penalty levied by the AO and confirmed by the CIT(A) may be upheld. She has also submitted that the CIT(A) was justified in directing the AO to charge interest as per the provisions of Section 158BFA(1) of the Act.
7. We have carefully considered the rival submissions and have also perused the orders of the authorities below. At the same time, we have also considered the decisions cited by the either party. At the very outset, we may point out here that there is no merit in this contention of the learned Departmental Representative that the findings given in the assessment order have become final since no appeal was preferred and, therefore, the AO was justified in levying the penalty. It is well settled law that findings in assessment proceedings are relevant but not conclusive in the penalty proceedings. It is also true that assessment proceedings are different and independent proceedings and the assessee has every right to contest the penalty proceedings and is also entitled to adduce further evidence in penalty proceedings. We therefore do not see any force in the above contention of the learned Departmental Representative. In the instant Case, we have to decide as to whether the Department was justified in treating the income of Rs. 3,57,214 as undisclosed income of the assessee for the asst. yr. 1999-2000 as per provisions of Section 159BB(1)(c) of the Act. If the above question is held in affirmative (sic-negative) no penalty under Section 158BFA(2) can be imposed. There is no dispute as regards facts of the present case. The assessee had filed his return of income on 23rd June, 2000 for the assessment year under consideration under Section 139(4) of the Act. The assessee filed return of income along with the statement of total income, which reads as under :
"Statement of total income Rs.
Rs.
(A) Profit and gains from business and profession 2,80,813 Surplus as per income & exp. a/c (TDS Rs. 39,659) 2,80,813 (B) Income from other sources Bank interest 64,887 Bank FDR Int. (TDS 2,546) 26,463 Int. on bonds and debentures 2,603 UTI dividend 11,948 Income from mutual fund 1,500 1.06.401 Gross total income 3,87,214 Less: Deductible under Chapter VIA:
(1) under s. 80G (as per note) 15,000 (2) under s, 80L 15,000 30.000 Net taxable income 3,57,214 i.e. 3,67,210 Gross tax due 81,163 Less: Rebate under s. 88:
PPF 60,000 Gross qualifying amount 60,000 20% 60,000 12.000 Rebate under s. 88 restricted to 10.000 Net tax payable:
59,163 Less: Prepaid taxes:
TDS 42,205 Advance tax I 1,000 Advance tax II 1,000 Advance tax III 11,000 Paid under s, 140A on 21.6.2000 6,500 61.705 Tax payable/refund due
- 2,642 Notes
1. Rs. 2,74,574 interest received on PPF account is exempt.
2. Rs. 41,140 interest received on NSS 1987 will be taxable at the time of withdrawal as per NSS Rules 1987.
3. Deduction under Section 80G is donation made as under:
Ded. % Amount
(a) Sadhu Vaswani Mission 10,000 50% 5,000
(b) Helpage India 5,000 100% 5,000
(c) World Vision of India 10,000 50% 6,000 Total:
25,000 15,000
4. Share of profit from a firm M/s Nanda Clinic is exempt under Section 10(2A)."
It is observed that 'undisclosed income' has been defined in Section 158B(b) of the Act, which reads as under:
"158B. In this Chapter, unless the context otherwise requires,--
(a).....
(b) "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false."
From a perusal of the above provisions, it would be clear that the legislature has used the words 'has not been or would not have been disclosed for the purposes of this Act'. In the case of Vidya Madanlal Malani v. Asstt. CIT (supra), this Bench of the Tribunal held that the scope of these words, i.e., 'has not been or would not have been disclosed' are to be construed harmoniously. It was further held by the Tribunal that, "therefore, if so construed, then the words 'has not been' are to be considered in those cases where the disclosure has already been made by the assessee in respect of its income for any assessment year before the date of search and the words 'would not have been disclosed' are to be considered in those cases where the returns have not been filed by the assessee before the date of search."
In the light of above decision of the Tribunal, we have to see as to whether the income declared by the assessee for the asst. yr. 1999-2000 should he considered as undisclosed income under Section 158B(b) of the Act. The assessee has filed copy of return of income in Form 2B with annexures for the block period filed on 23rd June, 2000. Perusal of the statement of income filed along with the returns for the asst. yrs. 1990-91 to 1998-99 (pp. 6 to 14 of the assessee's paper book) reveal that sources of income of the assessee were profit and gains of business/profession, i.e., own business/profession, share in profits of the firm M/s Nanda Clinic and income from other sources, viz. interest on savings bank, dividend, interest on bonds, debentures, UTI dividend and CDS interest. The Department has accepted the returned income and no addition has been made. Similarly, for the asst. yr. 2000-2001 returned income has been accepted by the Department. It is also true that the assessee was being regularly assessed to tax for the last several years and the main sources of income of the assessee was professional income, interest income, dividend from investment in shares and the commission received from LIC. It is also true that on substantial part of such income, tax has been deducted at source and all the sources and investments are on the record of the Department. Further more, the assessee was paying regular advance tax, which is apparent from the above statement of income for the assessment year under consideration. The advance tax for assessment year under consideration was paid on 5th Sept., 1998, amounting to Rs. 1,000, Rs. 1,000 on 5th Dec., 1998, and Rs. 11,000 on 5th March, 1999. Similarly, tax of Rs. 6,500 was paid on 21st June, 2000, under Section 140A of the Act. It is true that the assessee has filed regular return of income under Section 139(4) of the Act on 23rd June, 2000. In fact, the return so filed resulted in claim of refund. The Department was knowing the sources of income of the assessee. The AO has not brought out any material on record to show that the Department had detected any concealed income of the assessee. At the same time, there is also no material on record to show that the assessee had not declared fully and truly his income. The income declared by the assessee for the assessment year under consideration has been accepted by the AO. In our view, in the facts and circumstances of the present case, it could not be said that the assessee would not have disclosed such income to the IT Department. In the case of Vidya Madanlal Malani v. Asstt. CIT (supra), this Bench of the Tribunal, in similar circumstances, held as under :
"The assessee could not be punished merely because he/she failed to file his/her income before the due date or before the date of search. There may be cases that due to various circumstances, beyond the control of the assessee, the return could not have been filed on or before due date and the search might have taken place just after the due date. In such case, it would be unreasonable to hold that assessee would not have disclosed such income particularly when assessee is legally permitted to file the valid return under Section 139(4), i.e., after the expiry of the due date specified under Section 139(1)."
In view of the above facts, it cannot be held that the assessee would not have disclosed his income for the assessment year under consideration. We may also add here that during the course of search no incriminating material was found to establish this fact that the assessee would not have disclosed such income. This is one aspect of the matter on the basis of which it can be safely held that the income of Rs. 3,57,214 disclosed by the assessee for the assessment year under consideration could not be held as undisclosed income. On this score alone, penalty levied by the AO and confirmed by the learned CIT(A) deserves to be cancelled.
The second aspect of the matter is that in the case of Amarnath Aggarwal v. Dy. CIT (supra) the Delhi Bench held that, "As the return was due in June, 1997, the assessee cannot be taxed on the amount of income for which return was due after the date of search and admittedly the assessee had already filed the return though a bit late but that cannot be treated as undisclosed income for the block period." The Delhi Bench of the Tribunal in the case of Amarnath Aggarwal (supra), while referring to the decision of the Tribunal, Nagpur Bench, Nagpur in ITA No. 998/Nag/1996 held as under:
"3.3 The Tribunal has again taken note of the provisions of Section 158BB(1)(c) and decided the controversy as under : Coming to the contention of the Revenue that once the assessee fails to file the return under Section 139(1), in all circumstances, the disclosed income should be taken as nil. I am unable to agree. The Tribunal, Nagpur Bench, Nagpur in ITA No, 898/Nag/l,996 had already taken the view that if the assessee did not file the return as in certain contingencies such as income was below taxable limit or the time had not been lapsed for filing the return, in such case, Section 158BB(1)(c) cannot be resorted to. I am also unable to agree with the view of the Department that the due date mentioned in Section 158BB(1)(c) is the due date for filing the return under Section 139(1). It is very pertinent to note that Section 158BB(1)(b) specifically mentions Section 139(1) and Section 147. Section 158BB(1)(b) states "where returns of income have been filed under Section 139 or Section 147 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such return". It means that the returns filed under both the sections are equally to be considered for the purpose of computing the income. If that being so, it is not correct to say that in Section 158BB(1)(c), the words "due date for filing a return of income has expired but no return of income has been filed" means the due date under Section 139(1) only. There are different due dates for filing the returns in different sections under the Act. As in the case of this assessee against whom a notice has been served under Section 148 r/w Section 147 and the time for filing the return has not been expired, the due date for filing the return of income has not expired. In case of such an assessee, if transactions are reflected in the books of account, then they cannot be treated as undisclosed income.
3.4 The argument of the learned counsel as well as the learned Departmental Representative stand fully answered in the above observation of the Bench and we are in agreement with the view taken by the SMC Bench and respectfully following the same it is to be concluded that AO was not justified in treating the returned income of the assessee for asst. yrs. 1995-96 and 1996-97 in belated returns as undisclosed income for the block period and the same are liable to be deleted."
From the above decision of the Tribunal, Delhi Bench, it would be clear that the return due after the date of search filed with some delay, income returned cannot be treated as undisclosed income of the block period. Applying the above ratio, in the facts and circumstances of the present case, we are of the opinion that income returned by the assessee for asst. yr. 1999-2000 cannot be treated as undisclosed income for the block period. Therefore, provisions of Section 158BFA(2) are not attracted in this case, In the case of G. Kangaraj v. Dy. CIT (supra), the facts before the Tribunal were that the assessee filed his return of income for asst. yr. 1997-98 amounting to Rs. 47,032. The AO included the said amount in the block assessment income as undisclosed income of the assessee under Section 158BB(1)(c) of the Act. Admittedly, the assessee filed his return of income for 1997-98 beyond the due date, i.e., on 19th Dec., 1997 admitting total income of Rs. 47,032. There was no other material on record for treating the said amount as undisclosed income of the block period. The AO has observed that the assessee had not filed the said return within time for the asst. yr. 1997-98, but filed the same only after the search. In further appeal, the learned CIT(A) held that the AO was justified in including the amount in question under Section 158BB(1)(c) and he accordingly upheld the addition. The Chennai Bench of the Tribunal observed as under:
"From these observations also, it is evident that there is no reasoning as to how the amount is an undisclosed income, more so, when the assessee filed a return showing this as income for the assessment year concerned. Merely because the return was filed lately, it cannot be treated as undisclosed income under any provisions of law. Section 158BB(1)(c) reads as under:
"158BB(1) : The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous year determined:
(a).....
(b).....
(c) where the due date for filing a return of income has expired but no return of income has been filed, as nil;"
From a reading of this section, it is evident that it is only a procedure enunciated for computation of undisclosed income of the block period. Even taking into consideration the said clause it talks about a situation where no return is filed during the period provided for filing the return. But it is not stated as income shown in the return filed after expiry of the time-limit in that clause is to be treated as undisclosed income. The block assessment enunciated in Chapter XIV-B of the Act is a special procedure and the assessed income under this chapter is to be taxed at the maximum rate of 60 per cent and it contains the procedure for computation of undisclosed income of the block period, The provisions are to be taken in its strict meaning but not assuming other than what was stated in the said provisions. So under these circumstances, in our considered opinion, the disputed addition is not at all sustainable under law applicable thereto. Accordingly, this issue is answered in favour of the assessee."
From the above observations of the Chennai Bench of the Tribunal, it would be clear that Section 158BB(1)(c) is only a procedure enunciated for computation of undisclosed income of the block period. It is also observed that the section provides about a situation where no return is filed during the period provided for filing the return, but this provision does not speak that any income shown in a return filed after the expiry of the time-limit is to be treated as undisclosed income.
Thus, keeping in view the above referred to decisions of various Benches of the Tribunal, it would be clear that in the facts and circumstances of the present case, the income disclosed by the assessee for the asst. yr. 1999-2000 cannot be held as undisclosed income for the purpose of block assessment. In that view of the matter, the provisions of Section 158BFA(2) are not applicable and the penalty levied by the AO and confirmed by the CIT(A) is hereby cancelled.
8. We also note that while disposing the appeal of the assessee, the learned CIT(A) has directed the AO to take action under Section 158BFA(1) for charging interest, if it has not already been done. In fact, the CIT(A) has not discussed this issue in detail to hold that how and in what manner the assessee was liable for interest under Section 158BFA(1) of the Act. In absence of such findings, we are of the view that the directions given by the CIT(A) are contrary to the well settled principles of law. Further more, the CIT(A) was required to decide the issue regarding justification of imposition of penalty under Section 158BFA(2) of the Act; and therefore, there was no justification in asking the AO to charge interest under Section 158BFA(1) of the Act. It is seen that the learned CIT(A) has travelled beyond the jurisdiction. However, had it been a quantum appeal, of course, the CIT(A) would have been justified in passing such directions, that too, after affording proper opportunity of being heard to the assessee. It is true that the CIT(A) could exercise all the powers which have been given to the AO under the IT Act; but even the AO had no jurisdiction to levy penal interest on the assessee in an order which relates to imposition of penalty. Penalty proceedings are quasi-criminal proceedings and are independent and different proceedings as compared with the assessment proceedings. In our view, the above direction of the CIT(A) is bad in law and hence not tenable. We accordingly quash this direction also.
9. In the result, the appeal is allowed.