Income Tax Appellate Tribunal - Bangalore
Smt. Mala Dayanithi vs The Deputy Commissioner Of Income Tax on 5 November, 2003
Equivalent citations: [2004]91ITD46(BANG), [2004]270ITR56(BANG), (2005)92TTJ(BANG)270
ORDER
Joginder Singh, Judicial Member
1. This appeal by the assessee is arising out of the order of Commissioner of Income Tax(A)-III, Bangalore dated 10.03.2003. The appeal before the Learned CIT(A) was filed against an order levying penalty under Section 158BFA(2) of the Income Tax Act, 1961 (the Act). The only issue in appeal relates to levy of penalty under Section 158BFA(2).
2. The search under Section 132 was conducted at the residential premises of the assessee on 29.7.99. An order under Section 158BC was passed on 27.7.2001. The undisclosed income determined consisted of Rs. 6,58,366/- being the difference between the value of residential house declared by the assessee and as estimated by the Departmental Valuation Officer (DVO). The other item of addition as undisclosed income consisted of Rs. 1,72,653/- being the unexplained credit mentioned in the statement of affairs filed during the course of assessment proceedings. The Assessing Officer found that since the additions were made as undisclosed income as ultimately decided after the order of Learned CIT(A) which has been accepted by the assessee, the same amounts to concealed income and penalty under Section 158BFA(2) is leviable. Learned CIT(A) held that since the undisclosed income determined by the Assessing Officer is more than the returned income, levy of penalty under Section 158BFA(2) is mandatory even though an opportunity is to be given to the assessee before levy of penalty. The assessee is in further appeal before us.
3. The learned counsel for the assessee Shri George Mathan submitted that penalty is not automatic. The assessment proceedings and penalty proceedings are distinct things. Only because the amount is treated as undisclosed income in search assessment proceedings, the same does not amount to concealed income for levy of penalty under Section 158BFA(2). The additions made itself are uncalled for. No additions can be made under Section 69 on the basis of DVO's report as held by Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul v. CIT (262 ITR 407). Similarly, no addition can be made as undisclosed income resorting to the valuation officer as held by Hon'ble Bombay High Court in the case of CIT v. Vinod Danchand Godawat (247 ITR 448). If the amount cannot be considered as undisclosed income as per Chapter XIV-B, penalty is not leviable. It was further submitted that the provision of Section 158BFA(2) pre-supposes affording an opportunity of being heard. The words used are "may" and not 'shall'. Thus levy of penalty is not mandatory but on the circumstances of each case. Since. Penalty under Section 158BFA(2) is akin to penalty under Section 271(1)(c) of the Act, the penalty is leviable only if there is a guilty mind of the assessee. If penalty is automatic, even appeal against such order would not have been provided for. Since the assessee has all the reason to believe that there is no concealed income, the assessee was justified in not offering the amount treated as undisclosed income while filing return of income for the block period. The assessee may not choose to file an appeal against the assessment. This cannot be viewed otherwise so as to levy penalty under Section 158BFA of the Act. However, this does not conclusively prove any guilty mind or furnishing inaccurate particulars in the return of income.
4. Learned Departmental Representative Smt Archana Choudhary submitted that since the assessment is made under Chapter XIV-B and the undisclosed income is computed as a result of search, nothing further is required to be proved. The amount is undisclosed income which is sufficient to levy penalty under Section 158BFA(2). In resect of addition under Section 69 in respect of investment under house property, the same is not challenged in further appeal. In respect of certain credits appearing under statement of affairs, no material is brought on record justifying such credit entries rather the assessee conceded the issue. Thus the amount treated as undisclosed income necessarily attracts penalty under Section 158BFA(2). In reply, the learned counsel for the assessee submitted that though further appeal is not preferred before the Hon'ble Tribunal, yet the amount added under Section 69 is challenged by way of rectification application before the Learned CIT(A) as the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul (supra) was rendered subsequent to the order of Learned CIT(A) in quantum proceedings.
5. We have carefully considered the rival submissions, relevant facts of the case and the decisions relied upon. Chapter XIV-B was introduced in the Act for assessment of undisclosed income for the block period in respect of search conducted after 1.7.1995. At that time, there was no provision either for levy of interest under Section 158BFA(1) or levy of penalty under Section 158BFA(2). Section 158BFA was inserted by the Income Tax (Amendment) Act, 1997 with effect from 1.1.97 only. Section 158BFA(1) & (2) read as under:
'158BFA (1) - Where the return of total income including undisclosed income for the block period, in respect of search initiated under Section 132 or Section 132A on or after the 1st day of January 1997, as required by a notice under Clause (a) of Section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent of the tax on undisclosed income, determined under Clause (c) of Section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and--
(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or
(b) where no return has been furnished, on the date of completion of assessment under Clause (c) of Section 158BC.
158BFA (2) - The Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under the 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 the undisclosed income determined by the Assessing Officer under Clause (c) of Section 158BC:
Further, as per Section 158BFA(3)(a) no order imposing penalty under Sub-section (2) shall be made unless the assessee has been given opportunity of being heard. Reading the provision of Section 158BFA it emerges that, penalty under Sub-section (2) is optional unlike interest chargeable under Sub-section (1). The word used in Sub-section (2) is 'may' unlike the word 'shall' in Sub-section (1). Hence, it can be safely concluded that whereas interest is mandatory, it is not so in the case of penalty. Reading Sub-section (3), it is clear that before levy of penalty, opportunity of hearing is to be afforded. If the assessee is to be visited with same penalty with or without an opportunity of being heard, then such formality can be considered as only make belief or empty formality. But hearing can not be considered as an empty formality. The intention of affording a hearing is in compliance to principles of natural justice. 'No one should be condemned unheard'. Similarly, if penalty is automatic or mandatory, then no appeal will lie against such order. However, appeal mechanism is provided in Section 246A(1). The assessee is to be heard as to why the amount was not offered in the return filed for block period. If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income, the penalty in such a case is not attracted.
One more aspect is that originally when the provisions were introduced with effect from 1.7.95, the total tax determined in respect of undisclosed income was 60%. This was stated to be inclusive of not only tax but also interest under Section 234A & 234B and as well as penalty under Section 271(1)(c). This is made clear by provision of Section 158BF which prescribes that no further interest under Section 234A, 234B & 234C or any penalty under Section 271(1)(c) is leviable in respect of income computed for block period. Section 158BFA has been introduced with effect from 1.1.97 only. This means that it is to be strictly construed as penalty like other provisions levying penalty and in such situation, reasonable cause has always to be inferred and should be considered before levy of penalty. We therefore, do not agree with the view of Learned CIT(A) that penalty under Section 158BFA(2) is mandatory even though opportunity has to be given before levy of penalty. To put it in different words, since the penalty is for concealment of particulars of income, similar provision contained under Section 271(1)(c) of the Act will apply mutatis mutandis. Thus the ratio laid down by the various courts while dealing with penalty relating to concealment of income will also apply.
6. In view of the above principle let us examine whether there was any reasonable cause or bonafide belief on the part of the assessee for not disclosing the so called income brought to tax under Section 158BC. In the present case, it is seen that the income assessed is the difference between the value as determined by the DVO and as disclosed by the assessee. There is no finding that any material was found during search which suggested additional investment by the assessee in acquisition of the property leading to computation of undisclosed income. It is merely an estimate but not conclusively proved that such investment has been made by the assessee. It is not even conclusively proved that the same was spent out of the undisclosed income of the assessee found as a result of search. In the circumstances the assessee was justified in not disclosing such amount in the return of income. Originally the Assessing Officer determined the undisclosed income at Rs. 12.36 lakhs. The Learned CIT(A) reduced the same to Rs. 6.58 lakhs. Both are based on estimates. In such a situation the assessee is well deserved of making his own disclosure. Thus no fault can be found with the assessee. Even the addition is not sustainable in view of the decision of Hon'ble Supreme Court in Smt. Amiya Bala Paul case (supra) and the decision of Bombay High Court in Vinod Danchan Godawat case (supra) as undisclosed income under Chapter XIV-B. In such a situation to levy further penalty is perpetuation of injustice to the assessee. We therefore, hold that there is no case for levy of penalty in respect of undisclosed income being difference in valuation of house property. Similarly, the addition of Rs. 1,52,655/- is not found during the course of search or in the material in possession of the Assessing Officer. It is only during the course of assessment when the assessee filed the statement of affairs the Assessing Officer found that the amount payable to contractors is not proved and hence addition was made. In our opinion, this addition also should not have been made under Chapter XIV-B as undisclosed income as nothing is found as a result of search. Penalty under Section 158BFA(2) is accordingly not attracted for this item of addition also. Non-filing of appeal by the assessee before Income Tax Appellate Tribunal can not be viewed against the assessee so as to attract the penalty under Section 158BFA(2). No other income is treated as undisclosed. We accordingly, cancel the levy of penalty.
In the result, the appeal of the assessee is allowed.