Income Tax Appellate Tribunal - Pune
Murugesh Hiremath, Pune vs Department Of Income Tax on 10 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
I.T.A. No. 18/PN/2010
(Block period: 1996-97 to 2002-03)
Ratilal G Solanki, .. Appellant
22 Indraprastha Complex,
Rasta Peth, Pune
PAN ADXPS3264L
Vs.
Asstt. Commissioner of Income-tax, .. Respondent
Cir. 5, Pune
Appellant by: Shri S N Doshi
Respondent by: Ann Kapthuma
ORDER
PER G.S. PANNU, AM
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-III, Pune dated 10.11.2009 which, in turn, has arisen from penalty order dated 28.8.2007 passed by the Assessing Officer under section 158BFA(2) of the Income-tax Act, 1961 (in short "the Act"), pertaining to the block period 1996-97 to 2002-03.
2. The grievance of the assessee in this appeal relates to the sustenance of penalty of Rs 4,78,398/- levied by the Assessing Officer under section 158BFA(2) of the Act. The facts, in brief, are that an action under section 132(1) of the Act was carried out at the residential 2 premises of the assessee. In response to a notice issued under section 158BC, assessee filed Block return declaring undisclosed income at Rs 7,40,064/- on account of commission business in financing cash loans on sahukari basis. In the course of search, a pocket diary was found wherein the assessee had made notings with respect to money received from various parties and paid to other parties. It was explained by the assessee that he had been working as financial broker for arranging cash loans for which he used to charge brokerage @ ½% of the interest paid to various parties. The assessee furnished date-wise and party-wise detail of the amounts paid as was shown in diaries. Based on the same, the Assessing Officer worked out the peak debit balance representing introduction of undisclosed cash for giving loans at Rs 9,71,133/-. The matter reached the Tribunal and after giving effect to the order of the Tribunal, the ultimate revised total undisclosed income was worked out at Rs 12,61,197/-.
3. During the penalty proceedings under section 158BFA(2), it was submitted by the assessee that in the absence of books of account, he had considerable difficulty in working out the undisclosed income and even then he honestly worked out the undisclosed income by calculating the brokerage @ 6% of the average of the amounts received and financed in the respective assessment years. It was further submitted by the assessee that the method adopted by him could not be considered to be incorrect or dishonest and that he had a bona fide belief that the method adopted by him was correct method and he could not anticipate different method as had been adopted by the Assessing Officer. 3 Accordingly, it was pleaded that no penalty be levied in the case of the assessee.
4. Aggrieved with the imposition of penalty by the Assessing Officer, assessee went in appeal before the Commissioner of Income-tax (Appeals) and filed written submissions, which have been extracted in detail by the Commissioner of Income-tax (Appeals) in para 6 of the impugned order. The sum and substance of the assessee's submission was that the Assessing Officer was not justified in levying the penalty at the rate of 150% and that the impugned penalty be cancelled. In the alternative, it was prayed that minimum penalty of 100% be levied, if at all any penalty was leviable. After considering the varied submissions of the assessee, the Commissioner of Income-tax (Appeals) confirmed the levy of penalty of Rs 4,78,393/- under section 158BFA(2) of the Act by holding as under:
"7. I have carefully considered the submission of the appellant in the light of the facts of the case. Provisions of section 158BFA(2) are attracted in a case where undisclosed income assessed u/s 158BC r.w.s. 158BD is more than the undisclosed income shown in the block return. Since in the case of the appellant, the assessed income is more than the income shown in the block return, provisions of section 158BFA(2) can be invoked. However, the main contention of the appellant is that no penalty be levied as the difference between the income assessed by the AO and that shown by the appellant is on account of the difference in the method of estimation of income and both these methods are unrecognized methods. I feel hesitation in accepting the contention of the appellant. In my opinion, it is not correct to say that the method adopted by the AO is not a recognized method. Working out of undisclosed income by arriving at the peak balance on the basis of entries in diary seized during the course of search is an accepted method, followed by the Department as well as assessees and approved by judicial authorities. It cannot be said that the method applied by the AO is a novel method hitherto unknown to the appellant. Therefore, I find merit in the observations of the AO that the appellant followed method which suited his interest and therefore, the intention of the appellant cannot be said to be bona fide. Had the appellant have bona fide intention, he would have followed the most accepted an regularly followed method and would not have stumbled upon the other method. On the facts of the case, I hold that the AO is justified in visiting the appellant with the penal provisions of section 158BFA(2) and in levying penalty in an amount of Rs 4,78,398/-. His action in doing so is upheld and the order u/s 158BFA(2) is confirmed."
5. Before us, the learned Counsel for the assessee vehemently pointed out that the undisclosed income of the Block period was returned by the assessee on the basis of the seized material and computed by adopting a particular method. It was pointed out that having regard to the absence of 4 the account books and the seized material only an estimation of the undisclosed income was possible, which was carried out by the assessee. The Assessing Officer did not agree with the explanation of undisclosed income worked out by the assessee and instead, the undisclosed income was computed by carrying out an exercise of calculating the peak debit balance. This resulted in a variation in the undisclosed income calculated by the assessee. In this background, it was pointed out that mere difference in estimation of undisclosed income does not justify the imposition of penalty under section 158BFA(2) of the Act and in support, reliance was placed on the following decisions:
i) DCIT v Koatex Infrastructure Ltd. 100 ITD 510 (Mum),
ii) CIT v Iqbal Singh & Co. 180 Taxman 355 (P&H),
iii) Harigopal Singh v CIT 258 ITR 85 (P&H),
iv) Rajan H Shinde v DCIT 103 ITD 360 (Pune),
v) Mansukh Dass Soni v ACIT 99 TTJ 894 (Jodh.), and
vi) Deepali Jewellers v ACIT, vide ITA No 889/PN/02, order dated 25.10.2004
6. Apart therefrom, it has been pointed out that the undisclosed income has been finally computed by the Assessing Officer without allowing any credit for opening balance and the bad debts for unrecoverable loans, which were claimed by the assessee. It was pointed out that on the theory of probability, the existence of opening balance can be presumed which would justify carrying on of business and with regard to the claim of bad debts, it was pointed out that the same was also disclosed in the statement given by the assessee in the course of search under section 132(4) of the Act. For all the above reasons, it has been contended that the difference between undisclosed income returned by the assessee and 5 that finally computed by the income-tax authorities was not mala fide and could not be subject to the penalty under section 158BFA(2) of the Act.
7. On the other hand, the learned Departmental Representative, appearing for the Revenue, has defended the imposition of penalty by relying on the reasoning made out by the Commissioner of Income-tax (Appeals) in para 7 of the impugned order, which we have already extracted in the earlier part of this order and thus, the same is not being repeated for the sake of brevity.
8. We have carefully considered the rival submissions. Section 158BFA(2) of the Act empowers an Assessing Officer or the Commissioner of Income-ax (Appeals), as the case may be, to impose a penalty in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC of the Act. The first and second proviso to section 158BFA(2), inter alia, provide that levy of penalty is imposable on the portion of the undisclosed income determined which is in excess of the amount of undisclosed income shown in the return. In this case, the undisclosed income has been finally determined at Rs 12,61,197/- as against undisclosed income returned at Rs 7,40,064/-. Accordingly, the penalty under section 158BFA(2) of the Act has been imposed on undisclosed income of Rs 5,21,132/-, which is the difference between the assessed undisclosed income and the returned undisclosed income. The penalty has been imposed under section 158BFA(2) at the rate of 150% of the tax corresponding to the aforesaid quantum of undisclosed income.
6
9. We have perused the relevant material and find that undisclosed income has been computed on the basis of the seized material which showed income earned by the assessee as a financial broker. During the course of search, certain documents were seized which showed amounts being received by the assessee for financing and the amounts advanced on behalf of the financers. For the various assessment years, assessee computed the undisclosed income by way of commission brokerage at the rate of 6%, i.e. Rs 7,40,064/-. The Assessing Officer, however, recomputed the income from the brokerage commission by analyzing the entries found in the seized material. The Assessing Officer worked out a cash flow statement and ascertained the peak balance and on that basis recomputed the income from financial brokerage. The estimation of income so made by the Assessing Officer was a subject-matter of appeal proceedings and after the order of the Tribunal in the quantum proceedings dated 23.6.2006, undisclosed income has been finally determined at Rs 12,61,197/-. On the basis of the aforesaid, it is contended by the assessee that there is no standard methodology to estimate income on the basis of the seized material in the absence of the regular books of account. It was pointed out that the entries found in the seized material were considered by the assessee and thereafter income from such documents was estimated and returned as undisclosed income. The only difference in assessed income is for the reason that the Assessing Officer has chosen a different methodology to estimate undisclosed income on the basis of the very same seized material. We find that the explanation offered by the assessee is not mala fide. Moreover, as noted by the Mumbai Bench of the Tribunal in the case of 7 Koatex Infrastructure Ltd.(supra), element of concealment of particulars of income is not a condition precedent for levy of penalty under section 158BFA(2) of the Act because income for the Block period is to be determined on the basis of the seized material, which is already in the possession of the Department. The assessee has only to explain as to why it was not able to compute the true undisclosed income from the seized material, as has been finally determined by the Assessing Officer. It is quite evident in the present case that the factum of the assessee having earned undisclosed income from financial brokerage is not disputed and such undisclosed income has aso been returned, albeit on estimate basis. Even the Assessing Officer has finally rested the assessment of such undisclosed income on the basis of the very same seized material and that too on an estimate basis by applying a methodology different from the assessee. It can be seen that the instant is not a case where assessee has been found wanting in returning undisclosed income from a particular source, but is a case where there is only a variation in estimating of undisclosed income on the basis of the seized material. Under these circumstances, in our view, the discretion vested in the income-tax authorities in view of the presence of expression "may" in section 158BFA(2) comes to the rescue of the assessee and such discretion deserved to have been invoked in favour of the assesse in the present case. Apart from the seized material, which has formed the basis to estimate undisclosed income by the assessee as well as by the Assessing Officer, there is no other material referred by the Assessing Officer to justify higher assessment of undisclosed income and, therefore, we find that the penalty imposable under section 158BFA(2) in the 8 present case is not justified. We accordingly direct the Assessing Officer to delete the impugned penalty of Rs 4,78,398/- levied under section 158BFA(2) of the Act. Thus, assessee succeeds in its appeal.
10. In the result, the appeal of assessee is allowed.
Order pronounced in the open Court on this 30th Day of June, 2011.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 30 th June, 2011
B
Copy to:-
1) Assessee
2) Department
3) The CIT (A)III Pune
4) CIT-III, Pune
5) DR, "B" Bench, ITAT, Pune.
6) Guard File
By Order
true copy
Asst. Registrar, I.T.A.T., Pune