Income Tax Appellate Tribunal - Agra
Nirmala Kapur, Agra vs Assessee on 20 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
SHRI A.L. GEHLOT, ACCOUNTANT MEMBER
IT(SS)A No. 03/Agra/2011
Block period : 01.04.1990 to 08.11.2000
Madhukar Kapur, vs. D.C.I.T., Central Circle,
64, Surya Nagar, Agra. Agra
(PAN : ACNPK 8849 G)
IT(SS)A No. 04/Agra/2011
Block period : 01.04.1990 to 08.11.2000
Nirmala Kapur, vs. D.C.I.T., Central Circle,
64, Surya Nagar, Agra. Agra
(PAN : ACNPK 8850 H)
(Appellant) (Respondent)
Appellant by : Shri V.K. Nagpal, C.A.
Respondent by : Shri Waseem Arshad, Sr. D.R.
Date of hearing : 20.12.2012
Date of pronouncement of order : 28.12.2012
ORDER
Per Bhavnesh Saini, J.M.:
Both the appeals by different assessees are directed against different orders of ld. CIT(A)-II, Agra dated 21.02.2011, challenging the levy of penalty u/s. 158BFA(2) of the IT Act.
2 IT(SS)A No.03 & 04/2011
2. Both the parties mainly argued in the case of assessee, Shri Madhukar Kapur in IT(SS)A No. 03/Agra/2011 in which penalty was imposed on different heads and same would cover the appeal of other assessee, Nirmala Kapur.
3. We have heard the ld. Representatives of both the parties, perused the findings of the authorities below and considered the material available on record.
IT(SS)A No. 03/Agra/2011 (Madhukar Kapur) :
4. Briefly, the facts as noted in the penalty order, are that search was conducted u/s. 132(1) on 08.11.2000 at the business and residential premises of the assessee. The assessee is Managing Director of Mahim Patram Pvt. Ltd. The assessee in response to notice u/s. 158BC filed return of income in prescribed form disclosing undisclosed income of Rs.47.00 lacs. The assessment was, however, completed at the undisclosed income of Rs.61,88,209/- and penalty proceedings u/s. 158BFA(2) was separately initiated. During the search operation, several valuable items were found and it was also found that the assessee is using car, helpers and AC facilities of the company etc., for which no perquisites have been shown in the return. The same was calculated at Rs.3,83,300/- and was considered as undisclosed income. Further, property situated at Safdarjang, New Delhi was found in the name of assessee along with Shri Arvind Kapur and Smt. Nirmala Kapur, from which the assessee has rental income at 1/3rd of the share. From this property, the assessee got 3 IT(SS)A No.03 & 04/2011 unrealized rent of Rs.3,93,940/- for the assessment year 1991-92 to 1997-98. The assessee filed return disclosing income of Rs.2,50,572/- for the assessment year 1999-2000, but when return for block period was filed, the amount was disclosed at Rs. 3,37,572/- instead of Rs.2,50,572/-. The assessee claimed deduction u/s. 24, which was not allowable as per section 25A of the IT Act. The assessee's share comes to Rs.1,31,313/-, which was considered as undisclosed income on account of unrealized rent. Accordingly, the addition was made. Further addition was made of Rs.10,000/- in respect of RD account with Indian Overseas Bank, which was found as per bank passbook. Addition of Rs.4,61,694/- was made on account of unexplained jewellery. The AO also made addition of Rs.13,225/- on account of undisclosed income for the assessment year 1999-2000 and 2000-01. Thus, total addition comes to Rs.9,99,532/- and the AO gave benefit of Rs.6,00,000/- which was disclosed in the return for the block period, which was surrendered by the assessee separately apart from surrender of Rs.47.00 lacs and balance of Rs.3,99,532/- was considered as undisclosed income, on which penalty was imposed at the double of the rate at Rs.4,80,000/- u/s. 158BFA(2) of the IT Act. The ld. CIT(A), considering the explanation of the assessee confirmed the levy of penalty and dismissed the appeal of the assessee.
5. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the assessee in all disclosed Rs.53,00,000/- as 4 IT(SS)A No.03 & 04/2011 undisclosed income in the return filed for the block period, which consists of undisclosed income of Rs.47,00,000/- and Rs.6,00,000/- was further surrendered on account of provision for contingencies, as the assessee may not be able to explain certain items to the satisfaction of the department and such other contingencies. He has submitted that Rs.6,00,000/- was provision for contingencies and it was estimated amount surrendered because the copies of the seized material were not supplied to the assessee on time. He has submitted that if penalty is cancelled for perquisites and unrealized rent, the balance addition would be covered by the additionally surrendered amount of Rs.6,00,000/-. Therefore, the penalty is not leviable against the assessee. With regard to unrealized rent, he has submitted that the assessee has already disclosed Rs.2,50,572/- in the return of income, however, the deduction was not allowable as per section 25A. Therefore, it was not a fit case for levy of penalty. Due to judgment of High Court, rent was realized and nothing undisclosed income was found on this head and the assessee was one of the joint owner of the property and on the rent TDS had already been deducted and all information were given in the return of income. Therefore, levy of penalty is not justified on this issue. With regard to addition made on perquisites, he has submitted that such addition was made on the basis of statement recorded of the employees and no evidence was found during the course of search to prove any undisclosed income against the assessee. He has submitted that levy of penalty u/s. 158BFA(2) is discretionary and not mandatory and relied upon the decision of 5 IT(SS)A No.03 & 04/2011 Hon'ble Bombay High Court in the case of CIT vs. Dodsal Ltd., 312 ITR 112 and submitted that the judgment of Bombay High Court has been confirmed by the Hon'ble Supreme Court in S.L.P.(C) No. 7004 of 2009, in which the departmental appeal has been dismissed. He has also relied upon the decision of ITAT Mumbai Bench in the case of DCIT vs. Koatex Infrastructure Ltd., 286 ITR (AT) 40, in which it was held -
"Held, dismissing the appeal, as far as additions were concerned while filing the return for the assessment year 1999-2000 the assessee voluntarily noticed that certain expenses to the tune of Rs.106.78 lakhs were not co-relatable with the income and hence it disallowed them. This was purely a voluntary disclosure by the assessee. The rest of disallowances emerged during the course of assessment proceedings and the assessee had accepted them. The group concerns honoured whatever disclosure was made at the assessment rather the assessee itself filed the letter pointing out as to how it claimed the expenses which were not allowable and could be considered as undisclosed income for the block period. The additions had been made purely on the basis of the assessee's letter. The Assessing Officer nowhere discussed independent material for making the addition. The record did not show any mala fide intention attributable to the assessee. The Assessing Officer without assigning any reason rejected the explanation of the assessee. Thus, the Commissioner (Appeals) rightly deleted the penalty and there was no reason to interfere in that order."
5.1 He has also relied upon the order of ITAT, Channai Bench in the case of K. Ramakrishnan (HUF) vs. DCIT, 10 ITR (Trib.) 269, in which it was held as under-
"Held, allowing the appeal, that the return filed by the assessee immediately after the search operation was not valid in the eye of law. The block assessment was rightly completed by taking into 6 IT(SS)A No.03 & 04/2011 consideration the capital gains and charging tax at 60 per cent. The fact that the assessee had not filed any block return of income was a legal error but not a ground to impose penalty. The block assessment itself had been completed by the Assessing Officer adopting the amount of capital gains offered by the assessee in its belated return filed immediately after the search operation. Therefore, even though legally and technically not valid, the assessee had already returned the capital gains liable for taxation in its hands. If that amount of capital gains was impregnated in the block return filed by the assessee, the equation becomes complete. The only correction was calculating tax at 60 per cent. instead of 20 per cent. If the assessee had not furnished its belated return immediately after the search, the assessee would have definitely offered the capital gains for taxation in its block return. If that amount was offered through the block return there would be no case of action to impose penalty. Therefore, the levy of penalty was not justified and was to be deleted."
5.2 He has also relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Raj Pal Bhatia, 333 ITR 315, in which it was held that before invoking the provisions of section 158 BD of the IT Act, the AO of the person searched u/s. 132(1) must satisfy himself that some undisclosed income belongs to the person other than the person searched. On the other hand, the ld. DR relied upon the order of the ld. CIT(A).
6. We have considered the rival submissions and the material on record. It is not in dispute that the levy of penalty is discretionary and not mandatory, which is also decided by Hon'ble Bombay High Court in the case of Dodsal Ltd. (supra) and the decision of High Court has been confirmed by Hon'ble Supreme Court. The language of section 158BFA(2) provides that the AO or the CIT(A) in the 7 IT(SS)A No.03 & 04/2011 course of any proceedings under this chapter, may direct that a person shall pay by way of penalty, a sum which shall not be less than the amount of tax leviable, but which shall not exceed three times the amount of tax so leviable in respect of undisclosed income determined by the AO u/s. 158BC(c) of the IT Act. Thus, it is not mandatory to levy penalty in each and every case provided the assessee has been able to explain the additions or the undisclosed income determined u/s. 158BC of the IT Act. Further, proviso is provided to the above provision that no penalty shall be imposed if such person furnished return u/s. 158BC and pays tax thereon or would not have filed the appeal against the same. In the present case, the assessee has filed the return for the block period disclosing undisclosed income of Rs.47,00,000/- and further additional amount of Rs.6,00,000/- was surrendered on the items, which the assessee may not be able to explain to the satisfaction of the Income-tax Department and such other contingencies. Thus, the intention of the assessee could be inferred from the huge amount surrendered in the return for the block period that the assessee wanted to surrender entire undisclosed income in the return for the block period, for which penalty may not be levilable. The AO in the penalty order gave benefit of Rs.6,00,000/- by deducting this amount from the total undisclosed income of Rs.9,99,532/-, which was considered for the purpose of penalty. Thus, the assessee is able to explain that he has surrendered additional income on account of provision / contingencies in respect of certain items, which the assessee may not be able to explain to the satisfaction of the Income-tax 8 IT(SS)A No.03 & 04/2011 Department. The contention of the assessee is not rebutted that such contingency amount was estimated because of late supply of the seized material, otherwise for small amount of Rs.3,99,532/-, on which penalty has now been imposed, the assessee would have disclosed the entire amount in the return for the block period. On account of unrealized rent, addition of Rs.1,31,313/- was made. The assessee is joint owner of the property at Safdarjang, New Delhi and had disclosed income of Rs.2,50,572/- and on the rent, TDS was already deducted and all relevant information have been supplied in the return of income. Thus, this addition was based on the information already given in the return of income and according to unrealized rent for several years, the assessee may not be able to get deduction u/s. 24 of the IT Act as per section 25A of the Act, therefore, it could be a bona fide mistake on the part of the assessee, otherwise there was not material available with the AO to say that such addition is made on the basis of any material / evidence found during the course of search. It may also be a bona fide mistake on the part of the assessee in claiming deduction u/s. 24 of the Act because such deduction is not allowable u/s. 25A of the Act. Similarly, with regard to perquisites of Rs.3,83,300/-, the AO estimated the value of the perquisites on the basis of statements recorded of certain employees in respect of car, helpers and ACs. Otherwise, no material / evidence was found during the curse of search to say that the assessee earned undisclosed income. The assessee appears to have not anticipated calculation of perquisites, otherwise, for small amount, the assessee 9 IT(SS)A No.03 & 04/2011 would not have invited the penalty against him. Since the assessee has disclosed huge amount in the return for the block period as undisclosed income and also disclosed addition income to cover up contingencies and both these additions have been made on the basis of information given by the assessee in the return of income and the information given by employees of the assessee, therefore, the decision of Chennai Bench in the case of K. Ramakrishnan (HUF)(supra) and the decision of Mumbai Bench in the case of Koatex Infrastructure Ltd. (supra) would apply in favour of the assessee for cancellation of penalty. The ld. Counsel for the assessee contended that assessee did not challenge both the above additions. We are of the view that levy of penalty is not justified and as such by exercising our discretion in the facts and circumstances of the case, we cancel the levy of penalty on both these additions on account of perquisites and unrealized rent. The other three additions on account of RD account, the undisclosed jewellery and undisclosed income would be sufficiently covered by the disclosure of Rs.6,00,000/- for which the AO has already given benefit to the assessee. Therefore, the levy of penalty is not justified in the matter. We may further note that the AO in the aforesaid case, did not impose minimum penalty, but has imposed double of the penalty, which is also not justified in view of the facts and circumstances noted above and considering the nature of the additions, on which penalty has been imposed coupled with the huge amount surrendered by the assessee in the return of income at Rs.53,00,000/- for the purpose of computation 10 IT(SS)A No.03 & 04/2011 of undisclosed income. Considering the above discussion, we set aside the orders of the authorities below and cancel the levy of penalty and allow appeal of the assessee. In the return, the appeal of the assessee is allowed. IT(SS)A No. 04/Agra/2011 (Nirmala Kapur) :
7. In this case, the penalty has been imposed on the addition of Rs.1,31,313/-, on account of unrealized rent in respect of which, the assessee was one of co-
owners of the property along with Shri Madhukar Kapur. Following the order in the case of Shri Madhukar Kapur (supra), we set aside the orders of the authorities below and cancel the levy of penalty. In the result, the appeal of the assessee is allowed.
8. In the result, both the appeals of the assessees are allowed.
Order pronounced in the open court.
Sd/- Sd/-
(A.L. GEHLOT) (BHAVNESH SAINI)
Accountant Member Judicial Member
*aks/-
Copy of the order forwarded to :
1. Appellant
2. Respondent
3. CIT(A), concerned By order
4. CIT, concerned
5. DR, ITAT, Agra
6. Guard file Sr. Private Secretary
True copy