2012 (8) TMI 223 - AT - Income Tax

Assessee's Penalty Upheld for Underreporting Income

The court upheld the penalty of Rs. 7,62,882/- under Section 158BFA(2) of the Income-tax Act, 1961, as the assessee failed to declare true income details ... Penalty u/s 158BFA (2) - addition made is on account of various electronic goods found during search from the residence of the assessee – Held that:- Assessee is not entitled to complete immunity from payment of penalty on the undisclosed income returned by them under clause (a) of section 158BC - when the assessee consistently failed to prove his bona fides at every stage in quantum proceedings and even in penalty proceedings, apparently onus laid down upon the assessee is not discharged and consequently, the levy of penalty under section 158BFA(2) of the Act is justified with reference to the undisclosed income determined by the AO to be in excess of the returned income Issues Involved:1. Confirmation of penalty levy under Section 158BFA(2) of the Income-tax Act, 1961.2. Discretion of the Assessing Officer (AO) in levying penalty under Section 158BFA(2).3. Calculation and quantum of penalty imposed.4. Justification of additions made to the undisclosed income.5. Applicability of legal precedents and case laws.Detailed Analysis:1. Confirmation of Penalty Levy under Section 158BFA(2):The primary issue revolves around the confirmation of the penalty of Rs. 7,62,882/- levied under Section 158BFA(2) of the Income-tax Act, 1961. The appellant argued that the penalty should not be levied as the disallowances were made on an estimate basis and the AO did not identify bogus parties to whom payments were made. However, the AO and the CIT(A) found that the assessee failed to declare true and full particulars of income, justifying the imposition of the penalty.2. Discretion of the Assessing Officer in Levying Penalty:The judgment discusses whether the AO has discretion in levying penalty under Section 158BFA(2). The CIT(A) noted that while penalty under Section 158BFA(2) is not mandatory, the margin of discretion is very narrow compared to Section 271(1)(c). The AO must consider whether the assessee could have offered the undisclosed income as and when the return would have become due or whether there is an element of estimation in working out the undisclosed income. In this case, the CIT(A) found that the AO correctly levied the penalty on the difference between the returned undisclosed income and the assessed undisclosed income.3. Calculation and Quantum of Penalty Imposed:The AO initially levied a penalty of Rs. 86,37,830/-, which was reduced by the CIT(A) to Rs. 7,62,882/-. The CIT(A) noted that the AO should have first determined the undisclosed income as per the ITAT order and then computed the excess undisclosed income. The final undisclosed income determined was Rs. 62,71,470/-, and the penalty was imposed on the excess amount of Rs. 12,71,470/- over the Rs. 50,00,000/- declared by the assessee in the block return.4. Justification of Additions Made to the Undisclosed Income:The judgment details various additions made to the undisclosed income, including Rs. 3 lacs from Virendra Poultry Farm and Rs. 10 lacs towards bogus expenses. The ITAT upheld these additions based on seized documents and the absence of evidence from the assessee to substantiate the expenses. The assessee's failure to provide details and break up of the Rs. 50 lacs declared in the return further justified the additions.5. Applicability of Legal Precedents and Case Laws:The assessee cited several case laws to argue against the penalty, including Shiv Lal Tak Vs. CIT, Harigopal Singh Vs. CIT, and CIT Vs. Ajaib Singh & Co. However, the AO and the CIT(A) found these cases not directly related to the facts of the case. The judgment also references the Supreme Court case of Union of India Vs. Dharmendra Textiles Processors, which held that there is no necessity of proving mens rea for civil liabilities like penalty under Section 271(1)(c). This principle was applied to Section 158BFA(2), emphasizing that the onus is on the assessee to prove bona fides.Conclusion:The judgment upheld the penalty of Rs. 7,62,882/- under Section 158BFA(2) of the Income-tax Act, 1961, on the grounds that the assessee failed to declare true and full particulars of income and did not provide sufficient evidence to substantiate the declared income. The AO's discretion in levying the penalty was deemed appropriate, and the quantum of penalty was correctly calculated based on the excess undisclosed income determined. The legal precedents cited by the assessee were found not applicable to the specific facts of the case. The appeal was dismissed, confirming the penalty imposed.