2016 (1) TMI 799 - AT - Income Tax

Tribunal rules penalty deletion valid, estimation without proof insufficient

Deputy Commissioner of Income Tax, Circle 23 (2), Mumbai Versus Shri C Raja

The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 158BFA(2), ruling that penalty cannot be imposed solely on estimated figures ... Penalty u/s 158BFA(2) - undisclosed income - Held that:- There is no consideration by the A.O. in his penalty order, that the said declared undisclosed income of ₹ 30 lac had been covered by the conditions laid down-in the first proviso to section 158 BFA(2). The A.O. has to take that into account. Otherwise, find that no additional undisclosed income had been actually determined as any positive detection beyond what had been disclosed in the return by the appellant. - Decided in favour of assessee. Issues Involved:1. Whether the penalty under Section 158BFA(2) is leviable on the assessed undisclosed income.2. Whether the assessment of undisclosed income by estimation is a valid method for imposing penalty.3. Justification of deletion of penalty by CIT(A) based on aggregate discrepancies.4. Evaluation of the assessee's conduct regarding non-maintenance of books of accounts and admissions of inflated bills.5. Onus on the Assessing Officer (AO) to provide positive detection of materials beyond suspicions for imposing penalty.6. Conditions for levying penalty under Section 158BFA(2) on the undisclosed income declared by the assessee.Detailed Analysis:1. Penalty Under Section 158BFA(2):The revenue contested that the CIT(A) erred in holding that penalty under Section 158BFA(2) is not leviable on the assessed undisclosed income. The CIT(A) deleted the penalty, reasoning that the addition was made based on estimation rather than concrete evidence. The Tribunal upheld the CIT(A)'s decision, affirming that the penalty cannot be imposed merely on estimated figures without substantial proof.2. Assessment by Estimation:The revenue argued that the assessment of undisclosed income by estimation is an established method, citing the case of CIT vs Warasat Hussin. However, the CIT(A) and the Tribunal found that the assessment was based on presumptions and not on concrete evidence. The Tribunal noted that the CIT(A) had reduced the estimated inflated expenses from 5% to 3.7%, indicating that the assessment was not purely based on factual findings.3. Deletion of Penalty Based on Aggregate Discrepancies:The CIT(A) deleted the penalty by aggregating discrepancies and concluding that they fell within the Rs. 30 lakh disclosed by the assessee. The Tribunal supported this view, noting that the CIT(A) had identified several discrepancies in the AO's assessment, such as incorrect presumptions about salary payments and other expenses. The Tribunal found that the CIT(A) had rightly concluded that no additional undisclosed income beyond Rs. 30 lakh was determined.4. Assessee's Conduct and Non-Maintenance of Books:The revenue highlighted the assessee's failure to maintain books of accounts and admission of inflated bills. However, the CIT(A) and the Tribunal found that the AO had not provided sufficient evidence to establish that the assessee had undisclosed income beyond the admitted Rs. 30 lakh. The Tribunal noted that the AO's reliance on the assessee's confessional statement was not backed by concrete evidence.5. Onus on AO for Positive Detection:The CIT(A) and the Tribunal emphasized that the AO had not provided positive detection of materials beyond suspicions and surmises. The Tribunal agreed with the CIT(A)'s observation that the AO's findings were based on presumptions rather than concrete evidence. The Tribunal upheld the CIT(A)'s decision to delete the penalty, stating that penalty cannot be imposed based on mere presumptions.6. Conditions for Levying Penalty Under Section 158BFA(2):The CIT(A) directed the AO to examine the conditions laid down in the first proviso to Section 158BFA(2) for levying penalty on the undisclosed income of Rs. 30 lakh declared by the assessee. The Tribunal found no reason to deviate from the CIT(A)'s findings, affirming that the AO must consider these conditions before imposing any penalty.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 158BFA(2), affirming that the assessment of undisclosed income was based on estimation and not on concrete evidence. The Tribunal emphasized the importance of positive detection of materials for imposing penalty and concluded that the AO had not established any undisclosed income beyond the Rs. 30 lakh disclosed by the assessee. The appeal of the revenue was dismissed.